CLEVELAND — Ohio and other states' unemployment systems were easy prey for cybercriminals who siphoned billions of dollars meant for struggling Americans during the pandemic, according to cybersecurity experts.
“I think we’re having a pandemic during the pandemic," said Steve Weisman, a cybersecurity expert, author, and attorney who operates the website Scamicide.
“We estimate that the United States has paid more than $200 billion to nefarious actors," said Peter Eskew, Senior Vice President of ID.me, a cybersecurity firm helping 22 states address unemployment fraud.
Ohio Jobs & Family Services refused to provide News 5 information about the total number of suspicious claims or improper unemployment payments.
According to ODJFS spokesperson Tom Betti, the state is currently conducting a major fraud investigation into unemployment claims and does not want to provide incomplete data.
However, Betti said from mid-January through March 30, ODJFS received 272,700 identity theft reports from individuals through its online reporting portal. For over 70,500 of those, individuals were alerted to the issue when they received a 1099-G form for unemployment benefits they never applied for or received.
Betti also said more than 14,500 employers have uploaded more than 54,400 records for employees whose identities were stolen and used to file for unemployment.
In February, ODJFS said Ohio paid at least $330 million in at least 56,000 improper or fraudulent payments.
How it happened
Weisman said most unemployment fraud in Ohio was perpetrated by a Nigerian cybercrime gang.
He said cybercriminals buy social numbers stolen from data breaches from the dark web, where criminals go to buy good and services.
Then the criminals use the personal information to file unemployment claims.
Weisman said the criminals then use money mules to launder the money.
"They have money mules who are both complicit in the scheme and are also victims themselves," Weisman said.
He said money mules who are in on the scheme will set up a bank account in Ohio so it doesn’t raise any red flags. In other cases, he said someone may fall prey to a work-at-home scam that involves receiving and wiring money.
"Then, perhaps the saddest of victims are romance scams," Weisman said. "You’ll have people who they think meet the love of their life online. After a few weeks, the love of their life comes up with a ruse that, 'I can’t have money sent to me directly so I’m going to have some funds sent to your bank account.'"
"That’s, in a nutshell, generally how it works," Weisman said.
Eskew said the Pandemic Unemployment Assistance program, which Congress created to help self-employed and gig workers who don't qualify for regular unemployment, has been an easy target for cybercriminals.
"PUA is the growth of, the explosion of, the fraud," Eskew said.
He said it is not unusual for government programs to experience as much as a 10% fraud rate. Eskew said as much as 35% of PUA claims appear to be fake.
He blames the fact that there is no employer verification needed to process PUA claims.
"Identity verification has been neglected for a long time and the eligibility requirements for the pandemic unemployment assistance have been eased due to the crisis gripping our country," he said.
Masking the problem
Eskew also said criminals are willing to try anything to game the system, even using face masks to try to outsmart facial ID verification in the states where it is required to receive benefits.
"You’ll see masks from Target and Wal-Mart," he said. "But then, you’ll also see synthetic sort of 3-d renderings that are really sophisticated, kind of Hollywood movie style."
"This is organized crime investing millions of dollars so they’re taking this very seriously," Eskew said. "I think governments should upgrade their technology to fit the modern fight that we’re all facing."
Understaffed, overwhelmed & unprepared
Unemployment fraud is so rampant, even Gov. Mike DeWine, his wife, Fran, and Lt. Gov. Jon Husted have had claims filed in their names.
"I got a letter from California’s unemployment system and it said that somebody had filed a claim in my name, which, of course, isn’t true," Husted said.
Husted said no state was prepared for the unprecedented surge in unemployment claims that resulted from the pandemic.
After years of low unemployment rates, Husted said Ohio had only 44 workers in its unemployment office in March 2020.
Like many states, Ohio also had an outdated computer system that made it more difficult to root out fraud and quickly process unemployed workers' claims.
“It’s been probably one of the greatest sources of frustration for me during this entire pandemic," Husted said.
State officials are now doing more to address fraudulent claims. Ohio has signed agreements with several high-tech companies, including Experian, Google, and IBM to root out fraud and increase processing times.
Fake claims, real headaches
In the meantime, hundreds of thousands of Ohioans have been left baffled by the letters arriving in their mailboxes.
Michael and Kathy Busch received letters from ODJFS last month asking Michael to verify he was three individuals' employer.
The Buschs had never heard of the people listed on the letters and Michael is not an employer.
“I immediately knew that this was some sort of identity fraud," Kathy Busch said.
"It’s kind of like being violated," said Michael Busch. "If you’re going to use my name and my social security number, if you already have that, who knows what’s going to happen down the road? "
Kathy's family runs Kemper House, an assisted living facility for people with Alzheimer's and dementia, which has also received letters from ODJFS where they are fraudulently listed as their employer.
They include unemployment claims for people who have never worked for Kemper House, currently work for them, or haven't worked for them in years.
An unemployment claim was even filed in Kathy's father's name. He is currently a patient at Kemper House.
“He hasn’t obviously been able to work or live outside of here for years," said Kristin Kemper, Kathy's sister.
“It’s devastating. It’s not only devastating. It’s so discouraging," she said.
Even more troubling, Kemper asked her attorney to report the fraud to the state, but Ohio still paid some of the fraudulent claims.
"I say, 'Let’s fight them.' But to what end? Because they’re going to allow them anyway," Kemper said.
The waiting game
Ohio's new efforts to root out fraud also mean it takes longer to verify valid claims.
"It's ridiculous," said Cleveland hairstylist Jeffrey Baker. "People are hurting."
Baker only received benefits he applied for in January after News 5 started asking questions about his case.
Baker said he had been struggling for months to book enough clients to pay his rent after the pandemic reduced his clientele by 80%.
"November, December was not good at all. It was way off," he said. "I started getting nervous."
"I understand what's going on (with fraud), but we need to find a better way," he said. "I'm just barely making it."
What to do
If you receive a letter from ODJFS involving a fraudulent unemployment claim, here's what the ODJFS website recommends:
Step One: Report Identity Theft to ODJFS
Complete this secure online form. ODJFS will issue confirmation emails to everyone who files a report with information about identity theft and protection. The agency will process the reports, conduct investigations and, if necessary, issue corrections to the Internal Revenue Service (IRS) on 1099s issued to victims.
Step Two: Report Identity Theft to the U.S. Department of Justice.The U.S. Department of Labor recommends that victims of unemployment fraud notify not only to their state unemployment office, but also the U.S. Department of Justice’s National Center for Disaster Fraud. Doing so can help law enforcement stop future unemployment identity theft. Filing a report with the National Center for Disaster Fraud also will notify the U.S. Department of Labor’s Office of Inspector General, which is the primary agency responsible for investigating unemployment fraud. You may not receive a response back after submitting this information.
Step Three: How To File Your Taxes (if you received a 1099-G) Please follow the IRS guidance to taxpayers on identity theft involving unemployment benefits. You can find it here.
Step Four: Protect Your Identity Many resources are available for victims of identity theft to help them protect their identities. ODJFS strongly urges anyone who suspects they may be a victim of identity theft to take appropriate action to protect themselves. Here are some resources we recommend:
- Review your credit report at AnnualCreditReport.com
- Ohio State Highway Patrol: When Identity Crime Strikes You
- Federal Trade Commission Resources at identitytheft.gov
- Place a free one-year fraud alert on your credit reports by contacting any one of the three nationwide credit reporting companies online or through their toll-free numbers. The bureau you contact must tell the other two.