# The Scam of The Century!

An episode of [Patrick Boyle On Finance](https://invisiblenetwork.ai/podcast/1547740313), 16 Jun 2023, 16 min.

Audio: https://anchor.fm/s/fc0914e0/podcast/play/92761983/https%3A%2F%2Fd3ctxlq1ktw2nl.cloudfront.net%2Fstaging%2F2024-9-8%2F387759754-44100-1-786747d209bc645c.mp3

Send us a textAside from losing over 1.13 million people, the United States is thought to have lost billions of dollars in pandemic relief fund fraud, according to the most recent Associated Press analysis, published this week.The analysis discovered that fraudsters took more than US$280 billion in relief cash, while another $123 billion was lost or misspent.“Combined, the loss represents 10 percent of the $4.2 trillion the U.S. government has so far disbursed in aid,” according to the report...

## Transcript

[0:00] Hello and welcome, you are listening to Patrick boil on
[0:03] finance a podcast, exploring ideas, from quantitative Finance
[0:07] examining events occurring in markets right now and financial
[0:11] history to see what lessons can be taken away including
[0:15] interviews with some of the most interesting people in the world
[0:18] of Finance to learn more about the podcast visit on Finance
[0:22] dot-org in early 2020. The Global pandemic.
[0:30] Plunged economies around the world into a short that severe
[0:34] recession in developed countries, jobless rate soared
[0:38] into double digits, and governments around the world,
[0:42] spend trillions of dollars to Aid.
[0:44] Those affected the IMF estimated in May twenty twenty that 9
[0:50] trillion dollars in fiscal support had been allocated to
[0:53] pandemic Relief by governments globally in the United States
[0:58] before leaving office. Donald Trump approved three
[1:02] point two trillion dollars of emergency aid and Joe Biden
[1:06] authorized the spending of another one point, nine trillion
[1:10] dollars the next year. According to the pandemic
[1:14] response, accountability committee about 1/5 of that
[1:18] money has yet to be paid out. Meaning that over four trillion
[1:23] dollars has been spent in the United States so far, the US
[1:28] Controller General jeans Adaro told Congress that this was the
[1:33] largest rescue package in American history at no point in
[1:37] the past had so much federal emergency aid.
[1:41] Been injected into the US economy at such a speed, the
[1:46] enormous, scale of that package hides.
[1:49] Some multibillion-dollar mistakes, an Associated Press
[1:53] analysis that came out this week.
[1:56] Found that fraudsters had likely stolen more than 80 billion
[2:01] dollars in government relief funding while another 123
[2:06] billion dollars had been wasted or misspent combined.
[2:11] The last makes up 10% of the four point two trillion dollars.
[2:16] The US government has so far dispersed in pandemic relief
[2:20] Aid. There's a long history of
[2:22] fraudsters, taking advantage of disasters to fill their boots, a
[2:27] 2021 paper in the journal. Computers and security
[2:32] highlights how in the wake of Hurricane Katrina, in 2005
[2:37] thousands of fraudulent websites.
[2:39] Sprung up appealing for humanitarian donations and local
[2:44] citizens received scam, email soliciting, personal information
[2:49] to receive possible payouts or government relief.
[2:52] Efforts similar scams and attacks were seen after
[2:57] earthquakes in Japan and Ecuador after Hurricane Harvey.
[3:01] And after the bush fires in Australia to, it's only so much
[3:06] of a surprise that fraudster saw the pandemic as a huge
[3:10] opportunity, the UK's National Audit office announced earlier
[3:16] this year that levels of fraud in the UK Rose, almost fourfold
[3:21] from 5.5 billion pounds two years before the pandemic to 21
[3:27] billion pounds in the following two years.
[3:30] Here's the AP analysis. Describes the pandemic Aid
[3:34] spending as being for Crooks like tossing Chum into the sea
[3:39] to lure fish. Many of the agencies dispersing
[3:43] relief funds were not set up for that.
[3:45] Purpose were understaffed for the task at hand and used
[3:50] Antiquated computer systems to keep track of payments.
[3:54] Investigators and outside experts, say that the u.s.
[3:58] government in see Going to quickly spend trillions and
[4:02] relief Aid, conducted, too little oversight during the
[4:05] pandemics early stages and instituted to few restrictions
[4:10] on applicants, in short, they say, the con was made way too
[4:15] easy. It wasn't just career criminals,
[4:18] that made the most of the opportunity, either the list of
[4:22] crooks contains the names of a US Soldier from Georgia, the
[4:27] pastor's of the defunct Texas Church.
[4:29] Church, a former State lawmaker in Missouri and a roofing
[4:34] contractor in Montana, the US government has already charged
[4:39] more than 2230 defendants would pandemic related, fraud, crimes,
[4:45] and is busy conducting thousands of additional investigations.
[4:50] While there were headlines about multimillion-dollar cases, most
[4:55] of the cases where a lot smaller but when combined highlight the
[4:59] epidemic, Fraud, that happened at a moment of great Global
[5:03] stress when hospitals were overrun, schools were closed and
[5:07] businesses were shuttered and laying off staff.
[5:09] According to Dan for actor of the fraud and white collar crime
[5:15] unit at the US, attorney's office in Washington, pandemic
[5:19] Aid, presented a sort of endless pot of money that anyone could
[5:23] access. He says, that folks kind of
[5:26] fooled themselves into thinking that it was a socially.
[5:29] Septuple thing to do, even though it wasn't legal, the AP
[5:34] report describes. How fraudster signed up for
[5:38] unemployment benefits, using the social security numbers of
[5:41] deceased, people and federal prisoners, organized crime
[5:45] groups, got involved, buying personal information on
[5:49] Americans, and then using their Associates to collect benefits
[5:53] in multiple States across the country.
[5:56] Health Care Providers were also impersonated Criminals who stole
[6:01] funds directed towards those who were treating covid patients
[6:05] fraud in pandemic unemployment assistance programs stands at 76
[6:11] billion dollars. According to Congressional
[6:14] testimony from the labor department, Inspector General,
[6:18] Larry Turner. He went on to say that's a
[6:22] conservative estimate, another a hundred and fifteen billion
[6:26] dollars. Mistakenly went to people who
[6:29] should Not have received the benefits, there were all sorts
[6:33] of ways that money was stolen. The US, Secret Service told,
[6:38] Reuters, six months ago that a group of hackers based in China
[6:42] stole 20 million dollars worth of us covid relief money
[6:46] including small business administration loans, and
[6:50] unemployment insurance funds in over a dozen State us officials
[6:56] told NBC News at the time that other Investigations of pandemic
[7:01] fraud. Also seemed to point back to
[7:04] foreign State Affiliated, hikers and 837 billion dollar IRS
[7:11] program, allegedly succeeded 99% of the time in getting economic
[7:17] stimulus, checks to the property taxpayers according to the tax
[7:22] agency. But due to the scale of the
[7:25] numbers being discussed, that one percent failure, rate
[7:29] equate, It's to nearly eight billion dollars going to in
[7:32] eligible individuals, the small business administration in the
[7:37] United States was assigned to manage to massive relief
[7:41] efforts, the economic injury, disaster loan, and the paycheck
[7:46] protection programs, which would inject more than a trillion
[7:50] dollars into the US economy between March and July 2020.
[7:56] The SBA granted 3.2 An economic injury, disaster loans, totaling
[8:03] 169 billion dollars while at the same time, implementing the huge
[8:10] new paycheck Protection Program. There was a strong focus on
[8:14] speed and in the rush to get money out.
[8:18] Certain checks to protect Federal money were dropped.
[8:22] Prospective borrowers, were allowed to self-certify that
[8:26] their loan applications were true.
[8:29] The There's act additionally, prohibited the SBA from looking
[8:33] at tax return data. That could have excluded
[8:37] undeserving applicants. This decision was later.
[8:40] Reversed at the end of 2020. Additionally, Federal Loan,
[8:46] applicants weren't cross-checked.
[8:48] Against a treasury Department, database, that would have raised
[8:52] red flags about undeserving borrowers.
[8:55] According to the report, the SBA Inspector General Office has
[9:01] estimated that fraud in these two programs comes to a hundred
[9:05] and six billion dollars. The Watchdog is expected in the
[9:09] coming weeks to release revised loss figures that are likely to
[9:14] be even higher. Michael Horowitz, the US justice
[9:19] department. Inspector General, who leads the
[9:22] federal, pandemic response accountability committee told
[9:26] Congress. The fraud was clearly in the
[9:29] tens. Of billions of dollars and may
[9:31] eventually exceed a hundred billion dollars.
[9:35] He went on to say, if you open up the bank window and say, give
[9:40] me your application and just promise me that you really are,
[9:43] who you say, you are, you attract a lot of fraudsters and
[9:47] that's what happened here. The SBA inspector General's.
[9:52] Office is reported to have a backlog of more than 80,000
[9:57] actionable fraud leads to investigate.
[10:00] An amount of work that would take over 100 years to process
[10:04] at the normal speed. That these investigations are
[10:07] conducted at that. Really gives you an idea of how
[10:11] broad-based the fraud was a study by three professors from
[10:16] the University of Texas at Austin from last year discovered
[10:20] almost five times as many suspicious paycheck protection,
[10:24] loans as the small business, administration's Inspector
[10:28] General has Added so far their research cited indicators of
[10:33] fraud in loans like a non-registered business has
[10:38] multiple loans going to the same address abnormally High implied
[10:42] compensation per employee and large inconsistencies with jobs
[10:47] reported in another government program.
[10:51] The professor's argue in their paper that proponents of the PPP
[10:56] often highlight the urgency of getting money out.
[11:00] As quickly as possible, as a potential rationale for
[11:03] tolerating, a high level of fraud, they highlight a
[11:07] Washington Post article in their paper that makes that point,
[11:11] however, they argued that the urgency mainly applied to the
[11:16] initial rollout of the program. But that in their study
[11:20] misreporting, appeared to increase over time, with
[11:24] particularly High rates in the last month of round, 3 of the BP
[11:30] even after the office of the Inspector General for the small
[11:34] business administration flagged PPP fraud as a concern, they
[11:40] highlight that loans issued by fintech lenders were the most
[11:45] suspicious at a rate of over six times.
[11:48] That for traditional lenders, they point out that the PPP did
[11:53] not include robust verification requirements and traditional
[11:57] Banks may have been more apt to Standard Landing procedures, the
[12:02] new fintech PPP Landers their analysis might be useful to
[12:07] investigators searching for the most suspicious loans.
[12:11] This was by no means just an American problem either.
[12:15] Similar stories can be found in countries all around the world
[12:19] in the UK. According to Parliament,
[12:22] spending watchdog fraud and error are likely to have cost
[12:26] the UK government as much as 16 billion.
[12:29] In pounds across the covid-19, Emergency Loan, schemes reports
[12:35] from crime and bankruptcy agencies in the UK have shown
[12:39] that some business Interruption loan scheme, loans were used to
[12:43] fund, gambling luxury, goods purchases and Home Improvement.
[12:48] Michael Horowitz of the US, justice department criticized.
[12:53] The government's failure early on to use the do not pay
[12:57] Treasury Department database. Designed to keep government
[13:01] money from going to debarred contractors fugitives, felons,
[13:06] or people convicted of tax fraud.
[13:09] Those reviews he said could have been done quickly.
[13:12] He argues that. It's a false narrative that has
[13:16] been set out that there were only two choices to get the
[13:19] money out right away or to spend weeks or months trying to figure
[13:23] out who was entitled to it. He argues that in less than a
[13:28] few days, or a week ago. Most the SBA might have
[13:31] discovered thousands of in eligible applicants there was
[13:35] Data sitting right there and it didn't get checked according to
[13:39] Horowitz, Republicans and Democrats in the United States.
[13:44] Don't agree on March, in particular, on the topic of
[13:48] government spending but they did find Common Ground last year on
[13:53] bills that give the federal government more.
[13:56] Time to catch, fraudsters, President, Biden.
[13:59] Last, Signed legislation to increase the statute of
[14:03] limitations from five to ten years.
[14:06] On crimes involving the two major programs managed by the
[14:10] small business administration. Congress has not yet passed a
[14:14] measure that would give prosecutors additional time to
[14:18] go. After unemployment, fraudsters
[14:21] in the United States, which worries Turner the labor
[14:24] department Watchdog without the extension he told Congress last
[14:29] month, And people who stole these benefits May Escape
[14:32] Justice governments have been making efforts and have recouped
[14:37] some of the stolen funds. But three years since the
[14:40] program's were first, rolled out officials in many countries
[14:44] around the world are still trying to figure out who was
[14:48] responsible for stealing so much money.
[14:51] It is quite sad to see the widespread nature of pandemic
[14:56] relief fraud. Especially at a time when
[14:58] everyone was Was to be pulling together and fighting our common
[15:02] enemy. It's interesting to see in the
[15:05] University of Texas paper that fraud appear to grow over time
[15:10] as the programs were rolled out possibly is, people saw others
[15:14] cheating and getting away with it?
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