Unemployment Fraud Surges
The Federal Reserve Bank of Richmond’s Enforcement and Legal Risk Unit reviews suspicious activity report (SAR) data to follow trends and identify emerging risks. The COVID-19 pandemic led to many states processing an unprecedented number of unemployment claims and banks are also identifying and reporting increased instances of unemployment fraud. As of September 30, 2020, Fifth District member banks filed 225 suspicious activity reports related to unemployment fraud, compared to only eight filed in all of 2019. In fact, as of September 30, 50% of COVID-19 tagged suspicious activity reports submitted by Fifth District state member banks were unemployment fraud related. We are sharing this information with you for awareness that your financial institution or customers may be targeted by fraudsters exploiting the unprecedented volume of unemployment claims.
Fraudsters are exploiting the current pandemic and high volume of unemployment claims by applying and receiving unemployment benefits in multiple states and/or using multiple identities. In many instances, legitimate bank customer accounts are being used to receive fraudulent unemployment benefits. Some customers may have knowledge of the scheme, while others believe they are legitimately assisting in the process of receiving the funds for someone else. Fraudsters have convinced some customers that they cannot access a deposit relationship of their own to receive unemployment funds.
How do banks identify fraudulent claims?
Our analysis has determined that in many of these situations, banks are able to identify inappropriate or unwarranted unemployment payments. Once banks identify red flags, they can stop access to the payments in many cases. Some of the red flags banks used to identify the fraudulent activity were:
- Numerous unemployment proceeds coming from states where their customers do not reside
- Proceeds for the benefit of individuals not named on the deposit account
- Proceeds transferred shortly after becoming available via wire or ACH to other financial institutions.
What do customers tell their banks?
Some banks are reporting scenarios where it appears their customers are complicit in unemployment fraud. These customers will suddenly quit communicating when the bank attempts to question them about proceeds coming in, and subsequently being withdrawn, that appear to be for other individuals. In other instances, legitimately victimized customers noted that they granted access to their accounts to individuals that contacted them over the internet or social media platforms. These fraudsters have posed as love interests, family members and friends and have asked for help receiving these benefits.
What are banks doing when they discover fraud?
Fortunately, many banks have contacted law enforcement, frozen the accounts and returned funds when the unemployment payments are for the benefit of individuals not named on the customer’s account. In addition, banks have reported these frauds using the SAR. In a September ABA Banking Journal article, Financial Crimes Enforcement Network Director Kenneth A. Blanco suggested that banks should clearly mention “COVID-19 Unemployment Insurance Fraud” in field two of the SAR as well as in the narrative. “The more specific you are in your SAR narrative, the faster it will get to the right investigators,” he said. Law enforcement agencies have commended banks for identifying and reporting these schemes. Keep up the great work!
Helpful resources
