(By Vic Hartman, J.D., CPA, CFE) Law enforcement and regulators are reporting a record number of frauds relating to COVID-19. In fact, the Federal Bureau of Investigation’s Internet Crime Complaint Center (IC3) reported an increase in complaints from hundreds a day to more than a thousand a day.
Victims are experiencing tremendous fear and anxiety, thereby making them more vulnerable to fraud. Many new frauds are evolving due to the COVID-19 crisis. Fraudsters are also exploiting old frauds that have been repurposed for COVID-19. The federal programs under the $2 trillion U.S. Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are particularly vulnerable to fraud. Through awareness, we can prevent our businesses, colleagues, and clients from becoming victims to these frauds. Although there are many frauds associated with COVID-19, below are some of the many frauds being perpetrated.
1. Prepayment schemes are costing purchasers millions of dollars. These fraudsters are selling medical equipment and supplies they do not have. The fraudsters are often brokers representing they have dependable suppliers. Unfortunately, hospitals and governmental entities desperately needing these items are falling victim. The fraudsters may also pose as a known and trusted vendor. Victims’ funds may be sent out of the country and are likely nonrecoverable.
2. The bogus sale of vaccines, COVID-19 tests, and antibody tests is an emerging fraud. The availability and reliability of these items is rapidly changing. Due diligence is required before purchasing these items. For example, at the time of this post, antibody tests were still being researched by the National Institute of Health, and the Food and Drug Administration had only approved a limited number of vendors under its emergency use authorization. This test involves a pinprick of blood and can return results quickly. Such test results would prove very valuable to employers that have employees working in high risk jobs. Validation that someone is immune from COVID-19 may evolve into an “immunity passport.” Frauds related to vaccines and tests will likely proliferate in the coming months.
3. Stolen personally identifiable information (PII) to commit financial frauds is nothing new. However, fraudsters’ promotion of COVID-19 health care products and services can be used as a pretext to gather victims’ PII. This information can be used to bill insurance providers for services not rendered as well as other financial frauds.
4. The CARES Act loan provisions for large corporations are at risk for fraud. The Act provides for $500 billion to be set aside for big businesses with $50 billion earmarked for the airline industry. A corporation may materially misrepresent information in its loan application or misapply loan proceeds. This fraud may be detected by corporate whistleblowers seeking an award under the false claims act.
5. Fraud associated with COVID-19 loans administered by the Small Business Association is expected to be common. The Paycheck Protection Program will guarantee loans up to $10 million to eligible businesses and the loans will be forgiven if the businesses maintain payroll for eight weeks at the employees’ normal salary level. Illicit PII is abundant on the dark web. Fraudsters will likely use this and other information to apply for loans and benefits. These frauds are currently in progress and the extent of losses will not be known for months or years. In a different scheme, SBA loan brokers may ask for an upfront fee to assist with facilitating a loan that will never materialize.
6. Hoarding and price gauging of certain medical supplies will be prosecuted. On March 23, the President designated certain COVID-19 related medical items as protected under the Defense Production Act. The Department of Justice has indicated it is targeting bad actors who amass critical supplies either far beyond what they could use or for the purpose of profiteering. The Act also outlaws selling these designated items in excess of prevailing market prices. See 50 U.S.C. §§ 4512, 4513.
7. Fraudsters are promoting bogus health remedies to those posting COVID-19 symptoms on social media. Social media also provides a rich environment for fraudster to mine PII to assist in computer intrusions and financial frauds.
8. E-commerce sites are selling virus-fighting products with exaggerated claims or not delivering any product at all. For example, the popular website Shopify.com has reported that it closed more than 4,500 sites related to COVID-19 for the vendors not being able to back up their medical claims. On some websites, vendors are requesting payments via cryptocurrencies.
9. Phishing schemes have been repurposed for COVID-19 scenarios in an effort to compromise electronic devices or introduce ransomware. Individuals have a strong need for COVID-19 related information. Fraudsters posing as authorities such as the World Health Organization or the Center for Disease Control will send unsuspecting emails purporting to contain links to valuable information. One bad click could compromise a victim’s computer.
10. Fraudsters are promoting fake charities that purport to provide assistance to COVID-19 victims. There are a lot of excellent charities providing much needed assistance to COVID-19 victims. Every donor should take the time to conduct due diligence to ensure the entity to which they are giving is legitimate.
We are in in this together. Feel free to reply with your insights into the COVID-19 frauds.
BEHAVIORAL FORENSICS GROUPTM LLC
The Behavioral Forensics GroupTM, LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives. The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics GroupTM LLC. Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4GTM is a premier, pioneering practice in this field.
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