Washington state officials have acknowledged the loss of “hundreds of millions of dollars” to an international fraud scheme that hammered the state’s unemployment insurance system and could mean even longer delays for thousands of jobless workers still waiting for legitimate benefits.
Suzi LeVine, commissioner of the state Employment Security Department (ESD), disclosed the staggering losses during a news conference Thursday afternoon. LeVine declined to specify how much money was stolen during the scam, which is believed to be orchestrated from Nigeria. But she conceded that the amount was “orders of magnitude above” the $1.6 million that the ESD reported losing to fraudsters in April.
LeVine said state and law enforcement officials were working to recover as much of the money as possible, though she declined to say how much had been returned so far. She also said the ESD had taken “a number of steps” to prevent new fraudulent claims from being filed or paid but would not specify the steps, to avoid alerting criminals.
“We do have definitive proof that the countermeasures we have put in place are working,” LeVine said. “We have successfully prevented hundreds of millions of additional dollars from going out to these criminals and prevented thousands of fraudulent claims from being filed.”
Thursday’s disclosure, which came after state officials had largely refused to discuss the scale of the fraud, helped explain the unusual surge in the number of new jobless claims filed last week in Washington. For the week ending May 16, the ESD received 138,733 initial claims for unemployment insurance, a 26.8% increase over the prior week and one of the biggest weekly surges since the coronavirus crisis began.
That sharp increase came as the number of initial jobless claims nationwide fell 9.2%, to 2.4 million, according to data released earlier in the day by the Labor Department.
Indeed, the surge in claims made Washington the state with the highest percentage of its civilian labor force filing unemployment claims — at 30.8%, according to an analysis by the Tax Foundation, a nonpartisan Washington, D.C., think tank. Nevada, the next-highest state, reported claims from 24.5% of its civilian workforce.
Thursday’s disclosures also raised new questions about what, if anything, the ESD could have done to detect and prevent the fraudulent activity.
Last week, the U.S. Secret Service issued an alert warning that Washington was the “primary state targeted” by a “well-organized Nigerian fraud ring exploiting the COVID-19 crisis to commit large-scale fraud against state unemployment insurance programs.” The alert, which said there was “also evidence of attacks in North Carolina, Massachusetts, Rhode Island, Oklahoma, Wyoming and Florida,” noted “potential losses in the hundreds of millions of dollars.”
Among the criminal groups implicated in the fraud is a Nigerian organization known as Scattered Canary, according to a report released this week by Agari, a California-based cybersecurity firm that has tracked the African organization’s activities. The group has been running scams for more than a decade, working to steal Social Security payments, student aid and disaster relief funds, among other targets, the report said.
The group likely used personal information about Washingtonians from previous consumer-data breaches to slam Washington’s unemployment system with phony claims, which were paid out along with hundreds of thousands of legitimate ones.
“These crime rings are indiscriminate and very quick to jump on an opportunity,” said Armen Najarian, chief identity officer for Agari, in an interview.
“It is clear this is not just a Washington state problem,” said a statement from Gov. Jay Inslee’s office Thursday. “This is a national and international criminal conspiracy. We were among the first states hit by these fraudsters but we will not be the last.”
ESD officials have argued that fraudsters targeted Washington because it was among the first states to begin paying new benefits available under the $2.2 trillion federal stimulus bill. The legislation not only boosted benefits available under existing state unemployment insurance systems, including an extra $600 per week; it also gave state officials less time to verify new claims for those benefits.
ESD officials have acknowledged that, because of the elimination of the so-called waiting week between the time a claim is filed and the time the benefit is paid, the agency wasn’t always able to get verification from employers about a claim before payment was made.
Furthermore, because federal benefits were technically available beginning in March, several weeks before Washington was able to upgrade its processing system to be able to pay them, many claimants had retroactive claims for multiple weeks waiting to be paid in the ESD’s system. Those retroactive payments went out all at once, which added to the volume of the fraud.
At the federal level, the fraud is being investigated by the inspectors general of the Social Security Administration and the Department of Labor; the Secret Service; the FBI; and the U.S. attorney’s office in Seattle, which is coordinating the effort.
In a statement Thursday, U.S. Attorney Brian Moran said federal officials worked with a “diligent financial institution” to “prevent $120 million from being distributed to criminals, and were “assisting in recovering millions of additional dollars, with assistance from scores of other banks and credit unions.”
Thursday’s disclosures come as Washington was struggling to process an unprecedented wave of legitimate jobless claims amid one of the worst economic crises in U.S. history. On Wednesday, the state’s monthly employment report for April showed Washington with a seasonally adjusted unemployment rate of 15.4%, up from 5.1% in March. The national unemployment rate for April stood at 14.7%, seasonally adjusted.
The massive number of new claims had already led to delays in benefits being paid to tens of thousands of workers, who have periodically overwhelmed the ESD’s telephone lines and website with inquiries.
On Thursday, LeVine acknowledged that, because of the fraud, some additional delays in benefit payments to legitimate claimants are likely as the ESD subjects all claims to more scrutiny.
“This makes me the most angry, and the most upset — that we need to delay payments to Washingtonians who need the benefits,” LeVine said. “But we need to also build in more time for analysis. So going forward, we want to set expectations that we will add an additional one to two days to our processing time.”
That delay, which follows a decision last Thursday to temporarily suspend benefit payments for two days, will mean more hardship for people like Thomas Segers of Seattle. The 61-year-old independent contractor, who provided packaging services to retailers, began receiving preliminary unemployment benefits in April, pending verification that he had lost his job.
Segers said he submitted the necessary paperwork by mail in time for the deadline to prove his employment status. However, he was notified this week that his submission was not processed on time, so his claim was denied. Now, he’s trying to figure out how to appeal that decision, but can’t reach anyone at the state for guidance.
He called the ESD more than 225 times on Thursday morning alone, but never got through.
“I’m sure I’m speaking for a lot of people who have questions, that it’s frustrating that nobody is answering,” Segers said. “They’re inaccessible at the one time, in my viewpoint, they most need to be accessible.”