Unemployment Identity Theft: The Biggest Fraud Ever?

Fred DeckerApril 26, 202408 views

There are many ways to find out that you’ve been the victim of identity theft, and none of them are especially pleasant. Being denied a benefit you’re entitled to receive at a time when you really need it is arguably one of the worst. That’s what happens if you’ve been the victim of unemployment identity theft.

Scammers have made fraudulent claims for years on a smaller scale. Still, the massive job losses caused by COVID – and the corresponding rush to extend benefits to everyone affected – created something of a “gold rush” for criminals. Here’s how to know if you’ve been affected and what you can do about it.

How Unemployment Identity Theft Became a Crisis

Statistics from the United States Sentencing Commission (USSC) show that government benefits fraud had been trending downward before the pandemic arrived. Then COVID created a “perfect storm” for benefits administrators – an unprecedented number of people needing benefits in a hurry and an unprecedented influx of money to distribute – whose procedures and computer systems were utterly unprepared for claims on this scale.

The whole situation was catnip for scammers, who have ready access to a lot of sensitive personal information through the shady marketplaces of the so-called Dark Web. Some of it comes from one-at-a-time scams involving individual victims and much more from wholesale data breaches affecting large institutions, but the end result is the same. For a pittance, criminals can buy enough information to make a claim for employment benefits in someone else’s name.

Criminals taking advantage of the opportunity range from individual small-timers to massive international criminal cartels, and the numbers are staggering: the Department of Labor estimates that over $87 billion may make its way into the hands of criminals before the crisis subsides. One outside expert told investigative journalists from ProPublica that this official estimate understates the problem and that the true tally could run into the hundreds of billions. Even the lower figure is startling, and the higher one represents a massive blow to the national budget.

How to Know You’re a Victim of Benefits Fraud

The most obvious – and painful – way to learn that your identity has been used to claim benefits fraudulently comes when you apply for benefits yourself and are refused. That’s a very bad day even if you have healthy savings and some unused credit, and downright calamitous if you don’t.

You may also receive letters from your state’s unemployment benefits program advising you that your claim is being processed when you haven’t in fact filed a claim. Another unpalatable possibility is that you’ll get your 1099 for the year, and find that you’re being asked to pay taxes on thousands of dollars in benefits that were fraudulently claimed under your name.

Even if you’re currently employed or have the resources to ride out the (unpredictable) wait to get your situation resolved, this scenario should concern you. On a personal level, a claim being made in your name means your identity has been stolen. That can go two ways: badly or very badly. On a broader level, you’re affected even if your own identity hasn’t been compromised. Everyone will pay – one way or another – for the massive quantity of tax dollars lost and the resulting societal impact of benefits being denied to people who really need them.

What to Do About Benefits Fraud

If you learn that you’ve been the victim of unemployment identity theft, there are several steps you should take to set things right. The Department of Labor’s new Report Unemployment Identity Theft site provides a useful guide to those first steps, so that’s probably where you should begin.

First, report the fraud to whichever agency administers unemployment benefits in your state; the DOL’s page provides a list of verified links (yes, there are bogus fraud-remediation sites run by scammers…what were the odds?). The review process can take a while because – of course – the respective state agencies are swamped with bogus claims and fraud reports. Be patient and prepared to jump through a lot of hoops.
File your taxes at the usual time, claiming only your actual legitimate income, while your state and the IRS unwind the fraudulent claim. Keep an eye on the IRS’ Identity Theft and Unemployment Benefits page for updates, but in general, you’ll be contacted directly for anything that’s pertinent to your individual case.
Any disaster – COVID is an extreme example, but a hurricane or nasty wildfire will do – creates opportunities for scammers. The Department of Justice has a special site, the National Center for Disaster Fraud, that tracks this particularly unsavory type of scam and helps law enforcement plan for it and cope with it. Reporting your case to them will help prevent future abuses.
As with any other case of identity theft, you should also report it to the FTC’s IdentityTheft.gov website and the FBI’s Internet Crime Complaint Center (IC3). IdentityTheft.gov will walk you through the creation of a recovery plan to help you minimize the impact of identity theft, so you’ll know you have done all the things you needed to do.
Report your identity theft to the three main credit-reporting agencies, and request copies of your credit reports. Now that you know your personal information is out there “in the wild,” it’s only a matter of time before scammers use your identity in more conventional ways. Monitoring your credit reports (you’re entitled to a free one each year from each agency, and additional reports aren’t especially expensive) is one of the best ways to nip fraudulent activity in the bud.

So What’s Being Done About Unemployment Identity Theft?

The scale of fraud occurring during the pandemic has made headlines and prompted a number of televised exposés, but thwarting scammers while still meeting the needs of citizens is a legitimately difficult balancing act. Some states require facial recognition, for example, while many states (and federal agencies) require the use of the ID.me platform for identity verification.

Yet, as criminal-turned-consultant Brett Johnson points out in a heated LinkedIn post, these steps aren’t necessarily useful. Facial recognition is trivially easy for scammers to beat, and forcing citizens to give all of their personal information to ID.me – who in turn will sell it for marketing purposes – in order to claim a benefit they’re entitled to, doesn’t sit well.

It’s especially galling because states aren’t necessarily taking advantage of existing anti-fraud tools at their disposal: the Department of Labor maintains a database where states can share information about claims they’ve processed, but 22 states don’t participate in that program. This is why scammers can file claims successfully in dozens of states, using the same SSN, without being caught. The American Rescue Plan Act allocated $2 billion to help states update their systems and fight fraud, which hopefully will improve matters in the future.

Proactive Fraud Precautions You Can Take

On a personal level, you don’t have to stop once you’ve taken the basic steps necessary to roll back the fraudulent claim. There are a number of proactive steps you can take that will provide additional protection against future instances of identity theft. These include:

Placing a fraud alert or credit freeze with each of the main reporting agencies. These make it harder for potential creditors to pull a credit report, which in turn means it’s harder for scammers to take advantage of your identity.
Setting up an Identity Protection PIN with the IRS. Without the PIN (you’ll get a new one for each taxation year), nobody can file a false return in your name, or otherwise impersonate you with the IRS.
Take advantage of Spokeo’s Identity Protection benefits. We’ll monitor your key pieces of personal information and warn you if they show up for sale on the seedy marketplaces of the Dark Web. If you know that, you can be aggressive in monitoring your accounts and warning the credit reporting agencies. Forewarned is forearmed, right?

Becoming a victim of identity theft is never a good thing, and unemployment fraud is a particularly nasty variation on the theme. Once you’ve had the experience, you’ll never want to go through that again, and these precautions can help make that ambition a reality.

Sources

United States Sentencing Commission: Quick Facts: Government Benefits Fraud Offenses, Fiscal Year 2020

Varonis: 98 Must-Know Data Breach Statistics for 2021

Associated Press: Fraud Overwhelms Pandemic-Rela t ed Unemployment Programs

US Department of Labor, Office of the Inspector General: DOL-OIG Oversight of the Unemployment Insurance Program

ProPublica: How Unemployment Insurance Fraud Exploded During the Pandemic

US Department of Labor: Report Unemployment Identity Theft

US Internal Revenue Service: Identity Theft and Unemployment Benefits

US Department of Justice: National Center for Disaster Fraud

Identity Theft: Report Identity Theft and Get a Recovery Plan

US Federal Bureau of Investigation (FBI): Internet Crime Co m plaint Center (IC3)

KCRA Sacramento: EDD Fraud Involves Stolen Identities, Dark Web, International Crime