Unemployment Fraud: Avoid Being Scammed

A massive increase in unemployment insurance fraud over the last several months shows no sign of slowing. Learn how to spot the scams and avoid being a victim.
Simple Finance

We’d like to think that tough times bring out the best in people—inspiring folks to lend a hand to those less fortunate, bond over shared struggles, and band together to make things better. And while that does happen, sadly, the dark side of humanity also comes lurking from the shadows during disasters. So it’s no surprise that fraud has risen dramatically since the advent of the COVID-19 pandemic—scammers see more opportunities than ever to take advantage of people, preying on their misfortune, their emotions, and the general sense of uncertainty in the world.

Unemployment Insurance (UI) fraud is one of the most pervasive, fastest-growing types of scams—and many people have been unwittingly ensnared in activities that allow it to happen. Read on to learn what it is, how it happens, and how to keep yourself from becoming a victim.

What is unemployment fraud?

Anytime someone obtains unemployment payments they’re not actually entitled to, it’s fraud. That could mean anything from individuals who qualified for unemployment continuing to collect payments after they get a new job to someone (or a group of people) impersonating someone else to file false unemployment claims. There are lots of tactics out there, but it all boils down to scammers preying on people to steal unemployment money from states.

Why is UI fraud so common right now?

With the huge spike in unemployment spurred by the pandemic, states have been overwhelmed with unemployment claims. That itself is a tantalizing opening for scammers—and with the additional funds from the federal relief bills, scammers have found an even bigger opportunity to perpetrate fraud.

Usually, when someone files an unemployment claim, the state verifies that it’s valid before paying any benefits. But the tremendous volume of claims means that states don’t have time to validate claims for many months—so they’re paying out benefits before validating the claim so that people aren’t left without benefits entirely. In these conditions, fraudsters can make off with lots of money before the government catches on.

How is UI fraud being perpetrated?

The approach that’s particularly rampant right now—often carried out by large networks of scammers—is called “funneling.” This scheme hinges on two key mechanisms: a stolen identity and an unwitting accomplice.

Here’s how it works: scammers have a list of stolen identities, and they use that information to file fraudulent unemployment claims in multiple states. Then they scam a “money mule” into giving them access to a bank account (often by getting the mule to open a new bank account) so they can have the unemployment money deposited into that account—then transferred out of the account and into the scammers’ pockets.

While these scams are perpetrated by a number of fraud rings, one of the biggest is a group that national security agencies have dubbed “The Scattered Canary.” It’s a Nigerian cybercriminal group that has been on the radar of national security organizations for some time, but since last March, their activity has skyrocketed—and they’re believed to be responsible for a massive amount of the UI fraud happening now. (You can read more on the group’s operations at Wired.)

How you may be targeted

If scammers gain access to your personal info (name, address, social security number, date of birth) through a data breach, they may file unemployment claims in your name. And you likely won’t even know about it—fraudsters are filing claims in many states, even if you’ve never lived or worked there.

Once false claims have been filed, the lynchpin in funneling money from UI fraud is the “money mule”—aka, the person who allows the unemployment payments to funnel into their bank account. Scammers need a legitimate bank account to receive the funds, so they trick people into giving them their bank info or opening a bank account and giving them access.

Even if you think you’d never be fooled by such a scheme, you may be surprised at how persuasive scam tactics can be—and there are many tricks up the scammers’ sleeves. Below are two of the most common.

The job scam

Fraudsters put up job postings—often with enticements like “work from home” or “make extra money fast.” When you apply, the scammer emails you saying you’ve got the job and instructs you to open a new bank account and give them the account number and login details so they can direct-deposit your pay. After that, there are two scenarios that may play out:

  • The scammer changes the login info to lock you out of the account, then uses it to funnel money—and, of course, any website or email address they gave you disappears without a trace
  • You discover that your “job” is to receive deposits into the account, then transfer the money elsewhere or use it to buy gift cards to send to your “employer,” and you receive a small payment every time you do so

If you’re out of work, the desperation to find an income source can blind you to red flags—like getting a job through email with no formal interview, or work duties that would otherwise seem a little strange (like buying gift cards or making money transfers). On top of that, scammers tend to put these job ads on social media sites, where it’s very easy to create fake profiles that seem legitimate. And even if you’re a bit skeptical going in, if you start following the fraudster’s instructions and there are no immediate negative consequences (like a warning from the bank that transactions may be fraudulent), it’s easy to be lulled into a sense of complacency and convince yourself the “job” is legit. This tactic is a classic case of preying on people’s desperation and fear in the midst of a very unsettling time.

The helping scam

Desperation isn’t the only emotion fraudsters count on—they’re also out to exploit the natural human inclination to help others in need. Using this tactic, scammers will reach out to you on social media (often pretending to be a friend of a friend or someone in your network) to say that they or a relative is unable to access a bank account—and they need you to open one to receive deposits and pass along the money.

Scammers come up with a lot of convincing reasons to get you to let your guard down and open the bank account, like:

  • Their relative is in the hospital with COVID-19 and cannot access their bank accounts, so the family can’t pay their bills
  • They can’t get a bank account due to bad credit, so cannot receive their unemployment payments or money from their GoFundMe campaign for medical bills
  • Their identity was stolen and used for fraud, so their accounts are frozen and they can’t deposit their paychecks anywhere (oh, the irony!)

These appeals are designed to use your empathy against you—and it often works, even on highly skeptical people, when everyone’s emotions are running high. There are innumerable variations on this scam, but it all boils down to the same thing: getting you to provide a legit bank account for ill-gotten unemployment payments to pass through.

How to protect yourself against UI fraud

The whole world is hurting right now, and many people are in survival mode. Our usual critical thinking instincts are easily overridden when we’re anxious about being out of work, worried about all the people suffering around us, and uncertain of the future. That’s why it’s important to be more vigilant than ever. Keep these tips in mind to keep yourself from becoming a victim.

Vet job opportunities

If a job offer seems too good to be true, it is. If you get offered a job with no interview or the work seems way too easy, stop and do your research:

  • Google the company—is there a professional website with full contact info?
  • If there’s a phone number, can you reach a human being when you call it?
  • When you Google the phone number, does it come up as the company’s headquarters?
  • If you’re emailing with a potential employer whose company name you recognize, is the sender’s email address legit?
  • Can you find the company on Google maps and in the Yellow Pages?

A lack of clear and accurate contact information is one of the biggest signs that a company is a fake. And scammers don’t want to talk to you on the phone or over video chat—they’ll usually interact with you on social media or email only.

Protect your privacy

Your private information is called private for a reason—it’s truly for your eyes only. Your username, password, account number, 2-factor authentication codes, and any other info that could allow someone to slip into your bank account should never be shared with anyone.

If you suspect your information’s been stolen, put a freeze on your credit so no one can open an account in your name. You might even want to have a permanent freeze on your credit so that you will always be alerted if someone tries to open an account. You can still open accounts yourself by validating that the activity is legitimate, but you’ll thwart scammers.

Pay attention to your mail. Scammers can get a lot of your personal information by stealing even junk mail—and mail theft is on the rise these days too. Shred anything that has your name and address on it (or black out the info with a marker) before you recycle it.

Finally, make sure you have antivirus software installed on ALL your devices—your phone and tablet as well as your computer. Any device that connects to the internet can be compromised.

Bank only on your own behalf

If someone asks you to open a bank account, they are absolutely trying to defraud you. There’s no legitimate reason to open a bank account for someone else, no matter how convincing their argument sounds.

The impact of UI fraud

So far, scammers have stolen over six billion dollars through UI fraud. It’s so rampant that it’s draining the reservoirs of many states—Arizona actually ran out of unemployment money in November.

Unemployment fraud has a lot of victims: the person whose identity was stolen, the person who was tricked into letting stolen money come through their bank account, the state from whom the money was stolen, and all the people with legitimate unemployment claims whose benefits may be delayed—or even stopped—when fraudsters drain money from the state’s reservoirs.

States and federal agencies have asked financial intuitions to help them staunch the flow of fraud. At Simple (and at many other banks), we freeze accounts if we suspect they’re being used for UI fraud and hold the funds until law enforcement and states can investigate and, if they discover fraud, recover the money.

As states work through the process of catching up with validating fraud claims, the chances of them catching up with the fraudsters themselves are pretty slim. Once money goes out of an account that’s been used for UI fraud, the scammer is long gone. That leaves the scary question of who will be held accountable for the crime. If you opened a bank account and received unemployment payments that weren’t yours (even if you didn’t know you were doing something wrong, or even that the money was from unemployment), you could actually be charged with fraud and required to pay back all the money, plus fines—and even face jail time.

What to do if you think you’re a victim

First things first: if you’ve fallen for a scam, don’t blame yourself. The people perpetrating these schemes are professionals, and they are very good at what they do. Being ensnared doesn’t make you foolish, and it’s not your fault. It’s human nature to react to negative bias—when someone is playing on your fears, it feels like camaraderie in the face of chaos. Know that you’re not alone, and give yourself some grace.

What matters is to stop the activity, learn from the experience, and help others. Here are some steps you can take:

  • If you’ve opened account at someone else’s behest, change the password, stop engaging in any activity like receiving deposits or transferring money, and contact the bank to have the account closed
  • Report the potential fraud to the FBI’s internet crime complaint center. If you were unwittingly aiding a scammer, reporting it now may help you avoid more severe consequences
  • If you see a job ad on social media that seems shady, report it! You’ll save someone else from being hooked

Stay safe and help others

Now that you know what’s going on with UI fraud, take action. First, keep yourself safe by adopting three key mindsets:

  • Take your security seriously: keep your private info to yourself
  • If it’s too good to be true, it’s fake: resist the lure of “easy money” offers
  • Google is your friend: use it to verify any job offers or request for “help”

Keep in mind that some people can be especially vulnerable to the tactics used by scammers: anyone who’s socially isolated, not experienced with online technology, or in particularly dire circumstances is prime prey for fraud. Reach out to friends and family to make sure they know how to protect themselves and offer information that they might not have access to.

Fraud may run rampant in difficult times, but so does compassion and kindness. The more you stay alert and educated, the less likely you’ll be to be snared in a scam—and the more able you’ll be to help others stay safe too.

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An increasing number of customers are being targeted by fraud scams. Before you apply, review these guidelines to help prevent you from being involved in fraudulent activity.

Do not open an account on behalf of someone else
If anyone asks you to open a Simple Account to receive funds, it is an attempt at fraud. Common fraud attempts include requesting that you open an account to receive a gift or bonus offer, obtain a job or job training, or help someone else receive funds (such as unemployment benefits).

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Actions we may take if fraud is suspected

We take fraud and security very seriously at Simple, and take rapid action in the instance of suspected fraud attempts.

We may freeze and close accounts
We may freeze and close accounts if fraudulent activity is suspected, including the following circumstances:

We will report fraud attempts
We are responsible for reporting fraud attempts to authorities, including attempted unemployment fraud. There are state and federal penalties for unemployment insurance fraud (including potential fines and incarceration). If you suspect you are a victim of unemployment fraud, contact the appropriate state fraud hotline listed here.

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