Are the 474 defendants charged with crimes for COVID-19 fraud schemes and the 1,686,121 reports of identity theft in 2021 just the tip of the iceberg? COVID-19 steered the world into financial disruption. As a result, the prevalence of white collar crime has skyrocketed over the last few years, particularly in the forms of government benefits fraud and identity theft.
White collar criminals have targeted government benefits such as the Economic Injury Disaster Loan (EIDL) program, the Unemployment Insurance (UI) program, and the Paycheck Protection Program (PPP). In previous years, the Small Business Association would receive less than 1,000 complaints for loan fraud in any given year. However, during the first year following the Small Business Association’s deployment of COVID-19 relief programs, the Department of Justice received 150,000 reports of government benefits fraud and worked to recover $569 million in fraudulent payments.
Similarly, identity theft has grown exponentially over the last few years and in 2021 was the cause of over $56 billion in losses. The landscape for white collar crime has shifted over the last few years; Individuals must be educated on the vulnerabilities of the current tech-driven world we live in to avoid falling victim.
Opportunity for White Collar Crime
White collar crime has reached unprecedented levels because cyber criminals and money launderers are acting bolder with their schemes and internet use has made victims more susceptible. “The unique circumstances created by COVID-19 magnified opportunities [for malicious actors including:] remote working, rapid disbursements of support funding and stimulus cash, and subdued enforcement efforts.”
Despite the large number of fraud reports, many more instances of fraud are suspected of going undetected because investigative efforts were hindered by COVID-19 limitations. When business operations were adjusted to be remote at the onset of the pandemic, company procedures for conducting internal investigations changed, causing compliance failures, lapses in oversight, and delays in self-reporting. Similarly, the FBI’s investigative tactics were modified to accommodate social distancing. The Department of Justice, Securities Exchange Commission, and other administrative agencies needed to prioritize the health and safety of their federal agents, thus limiting in-person witness interviews and on-site searches for documents that have historically uncovered instances of fraud. This became especially problematic because the evidence required to pursue white-collar cases is document heavy and some companies were unwilling to disclose confidential financial information over online platforms due to lack of trust. The FBI was also forced to comply with prison visitation restrictions, which made it more difficult to work with detained individuals who were part of fraudulent schemes.
The work environments of businesses partnering with the government also shifted. With employees being furloughed, there were fewer human resources available to help with investigations, subpoenas were not responded to on time, grand juries were unable to convene, and long-term extensions were commonly granted. Ultimately, all steps of the white collar investigation and prosecution process faced delays and the government was unable to return indictments.
Abuse of the Economic Injury Disaster Loan Program
Around 10,000 businesses wrongfully received $200 million in EIDL loans through identity theft, fake employee counts, false attestation, and misuse of proceeds. Beyond that, another $860,000 in EIDL funds were sent to accounts overseas. EIDL fraud negatively impacted businesses by diverting available funds away from struggling establishments. Additionally, once abuse of the program was recognized, it slowed the funding process down forcing eligible businesses to wait a longer time for approval.
Abuse of the Unemployment Insurance Program
Criminals have abused the UI program by stealing the personal information of individuals who have not lost their jobs and filing false claims for benefits under their names. Fraudsters have obtained this information in part because of weaknesses in employers’ cyber security. By the time individuals learn that they are the victim of the invisible crime, their benefits have already been paid out to a criminal controlled account. Tens of thousands of individuals across America have been directly harmed, it has slowed the delivery of benefits to people in need, and state governments have lost hundreds of millions of dollars.
Abuse of the Paycheck Protection Program
When COVID-19 started and businesses began experiencing declining revenues, the federal government created the Paycheck Protection Program (PPP) to cover payroll expenses and prevent layoffs. When used for the appropriate purpose, a business was not obligated to pay the funds back and the loan was converted into a grant.
The Small Business Administration approved $734,094,425,889 in loans to small businesses within the first year as part of the $2 trillion CARES Act. The application process was designed for efficiency and involved less due diligence than traditional lending because of the growing immediate needs of small businesses about to close their doors. Applicants received funds within two weeks from when they applied, and in some cases received requested funds within 24 hours.
PPP loan fraud ranged from serial fraudsters, who revived dormant corporations and used shell companies (with no operations) to report false payroll needs, to individual business owners inflating their payroll expenses to receive larger loans than they were qualified for. Once funds were received by the fraudulent actors, the government aid was used for prohibited purposes at the expense of struggling small businesses. Because PPP funds were allocated on a first come, first served basis, fraudsters who received the funds quickly prohibited small businesses in need from access. In these scenarios, the government fully expects the stolen funds to be paid back. That is, if these fraudulent actors ever get caught…
Government Crackdown on White Collar Criminals
In 2021, The U.S. Department of Justice established the Corporate Crime Advisory Group (CCAG) to help prosecutors fight corporate crime. The Deputy Attorney General announced that changes were being made to the existing Corporate Criminal Enforcement Policies which would “(1) instruct attorneys to consider a corporation’s entire criminal history, (2) clarify a corporation’s obligation to provide all information concerning all persons involved in corporate misconduct in order to receive cooperation credit, and (3) address the use of monitorships” (corporate oversight by an independent entity). The Fraud Section of the CCAG hired 37 people to address the overall increase in crime.
New entities were also created to oversee the disbursement of CARES Act funds. The CARES Act provided a tripartite oversight structure, including a Special Inspector General for Pandemic Recovery, a Pandemic Response Accountability Committee, and a Congressional Oversight Commission. $190 million was appropriated to support the oversight efforts of these three teams.
Since the CARES Act was passed, the Fraud Section of the Department of Justice has prosecuted over 150 defendants and has seized over $75 million from fraudulently obtained PPP funds. The largest number of convictions occurred within the Health Care Sector. Traditionally, fraud does not emerge until a year after a loan is made, yet signs of potential fraud have come to light much quicker with PPP and EIDL relief funding, because some recipients defaulted on loans within the first month of receiving funds.
Fraud Rings Uncovered
A Los Angeles based fraud ring attempted to obtain more than $20 million through 142 PPP and EIDL loans in U.S. v. Richard Ayvazyan. The seven members involved used dozens of fake or stolen identities, including names belonging to elderly, deceased, and foreign exchange students to submit fraudulent applications. The group also falsified identity documents, tax documents, and payment records to secure the funding. In this case, the fraudulently obtained funds were used towards down payments on luxury goods and homes. Charges against the defendants included wire fraud, bank fraud, money laundering, and aggravated identity theft. The defendants were sentenced to various terms of up to six years in prison.
In U.S. v. Dinesh Sah, a Texas Man pled guilty to a $24.8 million fraud scheme where he submitted 15 fraudulent PPP loan applications to eight lenders. The Defendant laundered $17.3 million of the relief funds through international money transfers; he then purchased luxury cars and at least eight homes. He faces a maximum penalty of 30 years in prison.
Close to Home
North Carolina State Prosecutors and the Department of Justice have been able to hold many PPP and EIDL fraudsters accountable. Within the state, 19 people have been federally indicted on PPP, EIDL, and unemployment claim fraud charges. One North Carolina case involved a Charlotte resident charged with receiving over $200,000 for fraudulent unemployment benefit claims. Keon I. Taylor filed EIDL applications across seven states, where he used more than 35 stolen identities. He was convicted and sentenced to five years in prison.
Another North Carolina defendant, Jamel Johnson, was caught leading two identity theft schemes in which he stole victims’ identities and used them to obtain over $1 million in fraudulent bank loans. When COVID-19 unemployment benefits were established, he then used the identities to capture close to $200,000 in unemployment benefits.
Identity theft has been especially problematic because it is harder to trace. Once a victim’s personal information is stolen, it is difficult to recover, and the stolen information could be used fraudulently for years. In North Carolina, many identity thieves have transitioned into unemployment fraud. To combat the problem throughout the state, North Carolina’s Division of Employment Security, the organization that oversees unemployment benefit claims, has tripled the staff responsible for going after fraudulent claims.
Unfortunately, the Division of Employment Security is still overwhelmed. The Agency’s spokesperson, Kerry McComber, recommends that citizens implement identity protection features such as multifactor authentication, reCAPTCHA (a free Google service to protect websites from spam and abuse), and ID.me (a verification service).
COVID-19 relief programs were well intended but had to be rolled out so quickly to address immediate needs that they gave criminals a window of opportunity to exploit holes in the systems. Government agencies have taken action to detect and prosecute instances of COVID-19 relief program fraud through increased staffing. Nevertheless, uncovering white collar crime has become an individual duty as well. When it comes to identity theft, individuals have been encouraged to use identity protection protocols like credit monitoring and multi-factor authentication. It no longer requires someone stealing your wallet for your identity to be taken. Today’s thief only needs a laptop and an opportunity. Anyone could be a victim, but it does not have to be you.