With new unemployment claims reaching an estimated 40 million through the first 10 weeks of the COVID-19 crisis, a sophisticated criminal ring has targeted overwhelmed state unemployment programs with a new financial scam.
According to Krebs On Security, the U.S. Secret Service is investigating a “massive fraud” against a number of state unemployment systems, resulting in potentially millions of dollars in losses. A well-organized international criminal ring is submitting fraudulent state unemployment claims on behalf of U.S. citizens that are still employed.
Much of the activity is occurring in Washington State, Michigan, Mississippi, and Texas, although it is rapidly spreading to other states. According to an instant poll conducted during CO-OP’s monthly FraudBuzz webinar, over a third of respondents reported they have started seeing state unemployment scams impacting their credit union.
The scam works like this:
- Step 1: The criminal submits a fraudulent unemployment claim.
- Step 2: Money is deposited into accounts that have no connection to the individual in which the claim is being filed for.
- Step 3: The account holder completes transactions to launder the money elsewhere.
The third step is repeated multiple times until the bulk of the claim amount reaches its final destination.
The scam utilizes a large network of “mules” or “smurfs” spread across the country. Some of these actors are unknowing participants, including those that are victims of so-called “romance” scams and other social engineering schemes. Other mules appear to be fully in the know.
The mules use a variety of methods to transfer funds, including person to person (P2P) apps like Cash App.
“Once the accountholder receives the money, they disperse it elsewhere,” says Ashley Town, Director of Fraud Management at CO-OP Financial Services. “We’ve seen this in the form of P2P transactions being sent to other mules in the network, as well as instances where they are buying gift cards, doing cash withdrawals – all sorts of transactions.”
“Usually this happens very quickly after the money has been deposited,” Town continues. “We see this step repeated multiple times, until the bulk sum of that initial deposit reaches its final destination.”
What Credit Unions Should Do
If you suspect a member of depositing fraudulent state unemployment checks, the U.S. Secret Service and Department of Labor recommend taking the following actions:
- Report the fraud to your state’s fraud hotline.
- Send transaction details to the following email router for coordination: email@example.com.
In addition, if you suspect a member of receiving suspicious deposits or P2P transactions after the initial deposit was made, we recommend taking the following steps:
- Create payment hold strategies based on the dollar amount of the deposit and its source (e.g., Cash App and other P2P apps).
- Ask the member to provide proof of the source of the deposit, including screenshots of emails and other communications. Keep this information on file as the source of record and to identify where the money originated.
Other Types of Fraud Also on Rise
Unfortunately, criminals have been taking advantage of vulnerable consumers during the current pandemic in a variety of ways. In addition to the state unemployment insurance scams, we are seeing increased card present fraud losses at gas stations. In response to COVID-19, both Mastercard and Visa have delayed their U.S. domestic automated fuel dispenser liability shift to April 2021, and Mastercard has also announced new consumer protection measures.
In addition, as shopping has shifted dramatically online due to nationwide stay at home orders, we have noted a rise in card not present (CNP) fraud activity. As of early May, card present transactions have declined by 36% in our credit union’s portfolios year over year, while CNP transactions have increased by 15%.
CO-OP is Here to Help
If left unchecked, rising fraud not only impacts your credit union’s bottom line, but also member trust and your Primary Financial Relationship (PFR) status. CO-OP offers a full suite of fraud-fighting tools to help you protect your members and stay one step ahead of the scammers:
- To stay abreast of the latest scams and fraud trends, sign up for our monthly complimentary FraudBuzz webinar
- Empower your members to receive and respond to alerts on potentially fraudulent transactions using fraud text/email alerts.
- Give your members full control over their credit and debit accounts from the convenience of their phones with CardNav by CO-OP.
As COVID-19 continues to impact all of our daily lives, CO-OP is working hard to ensure you have what you need to serve your members and keep your credit union strong. Remember: we’re all in this together, and CO-OP will always be there to help you and your members survive and thrive.
Join us at our next FraudBuzz webinar on June 17th where we’ll discuss the latest fraud scams and best practices to keep your members safe.