SHELTON, Wash.—A sophisticated international fraud scheme U.S. intelligence agencies fear could siphon hundreds of millions of dollars intended for the unemployed is impacting credit unions and, more specifically, their employees.
A number of credit unions in the state of Washington reported they have been affected by the crime, which the U.S. Secret Service is investigating and which said a well-organized Nigerian fraud ring is exploiting the COVID-19 crisis to commit large-scale fraud against state unemployment insurance programs, including the filing of bogus unemployment claims in the names of credit union staff.
“The primary state targeted so far is Washington, while there is also evidence of attacks in North Carolina, Massachusetts, Rhode Island, Oklahoma, Wyoming and Florida,” the Secret Service said. “It is extremely likely every state is vulnerable to this scheme and will be targeted if they have not been already.”
How it Works
Individuals residing outside the state of Washington have been receiving multiple ACH deposits from the State of Washington Unemployment Benefit Program, all in different individuals’ names with no connection to the account holder. A substantial amount of the fraudulent benefits submitted have used personally identifiable information from first responders, government personnel and school employees, the Secret Service said.
"It is assumed the fraud ring behind this possess a substantial PII database to submit the volume of applications observed thus far,” according to the Secret Service. “This fraud network is believed to consist of hundreds, if not thousands, of mules with potential losses in the hundreds of millions of dollars. The banks targeted have been at all levels including local banks, credit unions, and large national banks.”
One CU’s Example
Bert Fisher, CEO of $420-million Our Community Credit Union in Shelton, Wash., said his CU is among those that have been targeted by the scam. The risk to the credit union isn’t primarily financial, and instead is to employees who have been affected. Moreover, sources indicated there is reputational risk to a credit union if money mules used the institution, and potential for liability down the road.
“Ten percent of our employee base–we have 104 employees–have had false unemployment claims filed in their names,” said Fisher. “The unemployment office sends a letter to the credit union for each of our staff who was targeted asking if the claim is legitimate,” said Fisher. “And if you don’t get back to the unemployment office in time, they pay the claim.”
The CEO explained there is a narrow window to respond to the unemployment office, which the crooks are relying on.
“For example, we got in the mail yesterday a fraudulent unemployment claim for another employee,” said Fisher on May 19. “The date on the letter was May 14. And we have until the May 26 to answer this. Now people are working remotely and mail can sit on desks until we all come back to work at the office. So, when the 26th comes around, and we haven’t gotten back to the unemployment office, they pay this claim.”
Concern For Staff
The concern for the credit union is largely for its staff, said Fisher. The CU, too, must dedicate human resources time to help staff unravel the problem created by fraudsters.
“They now have to deal with identity theft and concerns about things, such as should they cancel their credit and debit cards, and then worry what else the criminals might do to them next,” explained Fisher.
Fisher said that his credit union has not yet had an account created by a money mule connected to the scam, but should that occur, he does not believe the funds would leave the credit union to an overseas account.
“We monitor overseas wire transfers very carefully, and we know our members’ behavior,” said Fisher, noting Our Community Credit Union serves small rural communities.
What the new type of crime is doing, however, is piling on top of an already heavy fraud load financial institutions are bearing during the pandemic, Fisher said.
“In a time when the country is so severely challenged, it's really sad you get inundated with all this fraud now,” said Fisher. “We’re getting hit with increased fraud at all levels—online banking, ATMs, checks, new account opening, credit and debit cards … You have to be on high alert now and fraud losses are increasing.”
Harder to Detect
Fisher added it is harder during the pandemic to watch for crime, especially with increased drive-through traffic covering a wide range of transaction types.
“Our lobbies are closed, so members are coming through our drive-throughs,” he said. “And you know staff want to keep the longer drive-through lines moving. Plus it’s a lot harder when somebody drives up to detect criminal behavior—you can’t detect erratic behavior through body language and get a close look at someone like you do when they come into the branch.”