Cyber Fraud Rings in China, Other US Adversaries Stole Billions in Pandemic Relief Funds, Congress Hears

Rep. David Schweikert (R-Ariz.) speaks during a hearing at Longworth House Office Building, Capitol Hill in Washington on Sept. 14, 2021. Alex Wong/Getty Images

Anti-waste and fraud controls were so lax on trillions of tax dollars being spent by federal and state government agencies on COVID-19 pandemic relief benefits that as much as half of those funds actually went to entities in China, Russia, and other U.S. adversarial nations, a congressional panel was told on Thursday.

“Data on this is still being evaluated, but there are some estimates that half of the Pandemic unemployment assistance fraud went to adversarial nations,” said Linda Miller during testimony on Oct. 19 before the Oversight Subcommittee of the House Ways and Means Committee.

Her comments came in response to a question from Rep. Brian Fitzpatrick (R-Pa.) concerning a recent federal prosecution of a group of Chinese government-linked hackers who stole an estimated $20 million in relief funds.

Ms. Miller is the former Deputy Executive Director of the Pandemic Response Accountability Committee (PRAC) in the Department of Justice (DOJ). Michael Horowitz, the DOJ Inspector General, heads the PRAC office. She is also the former Assistant Director of the Government Accountability Office’s (GAO) Forensic Audits and Investigative Service group. She is now an anti-waste and fraud expert consultant.

“The nearly $5 trillion in government relief spending during the COVID-19 pandemic—much of which was disbursed as direct payments to citizens—created the perfect storm for fraud. A combination of inadequate oversight and internal controls, large-scale organized fraud rings, and antiquated data and information systems contributed to the massive, widespread fraud we saw during the pandemic,” Ms. Miller told the subcommittee during her prepared testimony.

“Agencies were unprepared for the fraud they encountered largely due to a lack of attention on fraud risks. GAO issued its Framework for Managing Fraud Risks in Federal Programs in 2015, but regrettably, little attention was paid to establishing the preventative controls GAO called for to manage fraud risks,” Ms. Miller testified.

Department of Justice Inspector General Michael Horowitz addresses a Congressional panel in February 2023. Anna Moneymaker/Getty Images

Rep. David Schweikert (R-Ariz.) the subcommittee’s chairman, recalled a telephone call he received during the pandemic from his wife, who managed an Arizona surgery center with 20-30 employees.

“'You know, I am here handling all of these unemployment applications,” Mr. Schweikert recalled his wife telling him. “A lot of them were from people who had never worked there or who had not worked there in years. But the best one was when she was getting unemployment benefit requests for herself.”

At that point, Mr. Schweikert said, his wife asked, “Do you want me to quit now because apparently I am already asking for unemployment.” The Arizona Republican said his wife later added up all of the fraudulent benefit application verifications that were received for her surgery center and found “there were hundreds.”

Mr. Schweikert said the oversight subcommittee “has been tracking some crazy stories of [pandemic relief] unemployment insurance fraud that was converted to gift cards that was moved into buying cars, and the cars were shipped over to Africa as a way to wash the money.” He added that the subcommittee has found evidence that foreign entities have stolen funds from the U.S. pandemic relief programs and channeled them into support of violent overseas activities.

Rebecca Shea, GAO’s Director of Audits, Forensic Audits, and Investigative Services, told the hearing that her office has examined DOJ prosecutions of pandemic fraud and “so we have some information about foreign actors exploiting the various pandemic relief programs.”

In her prepared testimony, Ms. Shea told the subcommittee that federal program managers who are directly responsible for identifying and stopping fraud were focused almost entirely on getting benefits processed and in the hands of beneficiaries, even though there are multiple federal laws and regulations requiring federal workers to take measures to prevent tax dollars from going to ineligible recipients.

The U.S. Department of Labor Building on March 26, 2020, in Washington. Alex Edelman/AFP via Getty Images

“Federal agencies did not strategically manage fraud risks and were not adequately prepared to prevent fraud when the pandemic began. We recognize that eliminating all fraud and fraud risk is not a realistic goal. However, a variety of resources and requirements for fraud risk management were in place well before the pandemic. Had agencies already been strategically managing their fraud risks, they would have been better positioned to identify and respond to the heightened risks that emerged during the pandemic,” Ms. Shea testified.

Amy Simon, who worked in the Department of Labor’s Employment and Training Administration (ETA) during the pandemic, testified that officials still do not know the actual full extent of pandemic benefit fraud.

“The scale of improper spending and outright fraud is only now coming into clearer focus. Official federal estimates, while still preliminary, are astonishing. Based on an assumed improper payment rate of more than 21 percent, government officials have conservatively estimated at least $191 billion in improper payments during the pandemic,” Ms. Simon told the panel.

“However, that figure is expected to rise, likely to $240 billion or more, following a recent GAO report that found that the Pandemic Unemployment Assistance (PUA) program had an even higher improper payment rate of almost 36 percent. GAO separately estimates between $100 billion and $135 billion in unemployment benefits were lost to fraud during the pandemic, or approximately one in every seven dollars in benefits paid,” she said.

In response to a question from Rep. Greg Steube (R-Fla.), Ms. Simon said, “Pandemic fraud is effectively a vertical for many criminal organizations, and it is an income source. There was a recent DOJ indictment in Michigan of a sprawling scheme that was funded by multiple kinds of pandemic fraud that had murder-for-hire as one of its services. So these are not run-of-the-mill, someone down the street claimed a few extra weeks they shouldn’t have. It is serious organized crime rings.”