U.S. Treasury unit warns banks of unemployment fraud
15 Oct 2020

U.S. unemployment claims, which have surged during the coronavirus pandemic, are amplifying a compliance risk for financial institutions: unemployment insurance fraud.

The Treasury Department’s Financial Crimes Enforcement Network issued an advisory Tuesday, alerting banks to red flags that could indicate illicit activity, including emerging schemes exploiting vulnerabilities created by the pandemic. In particular, U.S. authorities and financial institutions have spotted instances of fraud related to unemployment payments, according to FinCEN.

Unemployment insurance is a prime target for fraudsters, given the high volume of people who have lost their jobs due to the pandemic, according to Raymond Dookhie, a managing director at compliance advisory firm K2 Intelligence LLC.

“The financial systems that are set up to monitor fraud in this current environment are being overloaded,” he said.

Smaller financial institutions, which often have less sophisticated monitoring systems or fewer resources to investigate suspicious activity, are particularly vulnerable, Mr. Dookhie said.

Pandemic-related unemployment fraud could include the use of fake or stolen identities, misrepresentation of income, false claims of having worked for a legitimate company or, in some cases, for a fictitious one, using falsified employee and wage records, FinCEN said.

Schemes also could involve collusion between employers and employees, in which a worker receives unemployment payments as the employer continues to pay the person a reduced wage under the table, according to FinCEN.

The Treasury’s financial crime unit encouraged financial institutions to conduct additional investigations when appropriate and highlighted possible indicators of illicit activity, such as customers who receive unemployment insurance payments from a state other than the one where the customer claims to reside or have previously worked.

By Jack Hagel, The Wall Street Journal, 13 October 2020

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