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Financial Services Fraudsters Are Making the Most of COVID

By January 29, 2021February 1st, 2021No Comments

Proven increases in fraud perpetrated during the COVID-19 pandemic

One year ago, the World Health Organization published detailed warnings about COVID-19 infections, prevention, testing, travel advice and much more.  At the time, WHO referred to it as the Coronavirus. One year later, the stats shows that in the U.S. there have been more than 25 million cases and over 421,000 deaths. Clearly, COVID-19 has had a huge impact on our society.

Specifically, COVID-19 has led to externalities in the business world, including the significant expansion of fraud. This is especially true of the financial services industry, where, after all, the money is kept.

Over the past year, fraudulent activities in the financial services sector had a meteoric rise along with the severity of this public health crisis. Following are some of the COVID-related reasons for the increases.

  • The vast majority of FinServ employees have been working-from-home.
  • Anti-fraud and threat intel programs and activities are performing sub-optimally in banks, credit unions, credit card providers and other financial services firms.
  • Worker illnesses and absences have resulted in understaffed functions.
  • On-going investigations have been slowed or halted altogether due to lack of resources and focus.
  • Budgets have been reduced because some activities are considered ‘non-essential’.

According to the Inspector General of the U.S. Department of Health and Human Services Office (report here), in the consumer space, scammers are using telemarketing calls, text messages, social media platforms, and door-to-door visits to perpetrate COVID-19-related fraud schemes. Fraudsters are offering COVID-19 tests, HHS grants, and Medicare prescription cards in exchange for personal details, including Medicare information. 

The COVID crisis is also providing fraudsters with ways to pivot their existing scams to capitalize on COVID relief programs. Last August, for example, two Florida men were charged in federal court for fraudulently tapping into the government’s COVID-driven financial relief programs. The two fraudsters, who already had a scheme underway to defraud a bank using synthetic identities, switched gears and targeted two federal programs – the Paycheck Protection Program (PPP) and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The two used shell companies and over 700 synthetic identities to collect over $3 million in government funds that were intended to help legitimate small businesses.

Fraudsters have also been taking advantage of banks and credit unions to process fictitious unemployment claims.  The State of California recently reported that over $11 billion in fake claims had been paid out to fraudsters, equal to 10 percent of all unemployment claims paid out in California during the coronavirus pandemic.  Officials suspect another 17 percent of the total unemployment claims are under investigation.

As we’ve all witnessed, the COVID outbreak quickly turned into a full-blown, global public health crisis the likes of which we haven’t seen in over 100 years. Given all the chaos and confusion that ensued, and the urgency of delivering financial relief to millions of U.S. businesses and citizens, it’s understandable – and sadly, inevitable – that some level of fraud fell through the cracks. 

But that was then and this is now. Today, we know more about all facets of the pandemic, including its financial aspects and the bad actors’ efforts to exploit the situation. A new proposal for more COVID relief funding is winding its way through Capitol Hill. Last time around, there were many unknowns. But one year into it, banks, credit unions, credit card companies, and other retail lenders are now aware of the increased fraud risks, and in particular, the high risks posed by synthetic identity fraud. 

Banks, credit unions and credit card companies have been forewarned. The question is: are they now forearmed?