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Illustration: Aïda Amer/Axios

Criminals may have stolen as much as half of the unemployment benefits the U.S. has been pumping out over the past year, some experts say.

Why it matters: Unemployment fraud during the pandemic could easily reach $400 billion, according to some estimates, and the bulk of the money likely ended in the hands of foreign crime syndicates — making this not just theft, but a matter of national security.

Catch up quick: When the pandemic hit, states weren't prepared for the unprecedented wave of unemployment claims they were about to face.

  • They all knew fraud was inevitable, but decided getting the money out to people who desperately needed it was more important than laboriously making sure all of them were genuine.

By the numbers: Blake Hall, CEO of ID.me, a service that tries to prevent this kind of fraud, tells Axios that America has lost more than $400 billion to fraudulent claims. As much as 50% of all unemployment monies might have been stolen, he says.

  • Haywood Talcove, the CEO of LexisNexis Risk Solutions, estimates that at least 70% of the money stolen by impostors ultimately left the country, much of it ending up in the hands of criminal syndicates in China, Nigeria, Russia and elsewhere.
  • "These groups are definitely backed by the state," Talcove tells Axios.
  • Much of the rest of the money was stolen by street gangs domestically, who have made up a greater share of the fraudsters in recent months.

What they're saying: “Widespread fraud at the state level in pandemic unemployment insurance during the previous Administration is one of the most serious challenges we inherited," said White House economist Gene Sperling.

  • "President Biden has been clear that this type of activity from criminal syndicates is despicable and unacceptable. It is why we passed $2 billion for UI modernizations in the American Rescue Plan, instituted a Department of Justice Anti-Fraud Task Force and an all-of-government Identity Theft and Public Benefits Initiative.”

How it works: Scammers often steal personal information and use it to impersonate claimants. Other groups trick individuals into voluntarily handing over their personal information.

  • "Mules" — low-level criminals — are given debit cards and asked to withdraw money from ATMs. That money then gets transferred abroad, often via bitcoin.

The big picture: Before the pandemic, unemployment claims were relatively rare, and generally lasted for such short amounts of time that international criminal syndicates didn't view them as a lucrative target.

  • After unemployment insurance became the primary vehicle by which the U.S. government tried to keep the economy afloat, however, all that changed.
  • Unemployment became where the big money was — and was also being run by bureaucrats who weren't as quick to crack down on criminals as private companies normally are.
  • Unemployment fraud is now offered on the dark web on a software-as-a-service basis, much like ransomware. States without fraud-detection services are naturally targeted the most.

The bottom line: Many states are now getting more sophisticated about preventing this kind of fraud. But it's far too late.

This story has been updated with the quote from the White House.

Go deeper

States that ended COVID unemployment benefits see no boost in job growth

Photo: Olivier Douliery/AFP via Getty Images

States that ended federal unemployment benefits earlier this summer saw August job growth at less than half the rate of states that retained the benefits, according to new data released Friday by the Bureau of Labor Statistics.

Why it matters: Leaders in the largely Republican-led states had insisted that the benefits were discouraging people from work, and ended the assistance program early ahead of its planned expiration on Sept. 6.

Biden pledges to double U.S. climate funding to developing nations

U.S. President Joe Biden addresses the 76th Session of the U.N. General Assembly on September 21, 2021. (Eduardo Munoz-Pool/Getty Images)

Staring down a "borderless climate crisis," President Biden told the UN General Assembly on Tuesday that the U.S. will double public financial assistance to developing countries, including money to help them adapt to present-day climate impacts.

Why it matters: The failure of industrialized nations to fulfill a 2009 pledge to devote $100 billion annually to developing countries is a major impediment to a successful UN Climate Summit in Glasgow, which starts next month.

Dan Primack, author of Pro Rata
1 hour ago - Economy & Business

IPO market holds firm amid stock market tumult

Illustration: Aïda Amer/Axios

The IPO market is doing its best Alfred E. Neuman impression so far this week, refusing to entertain everyone else's worries.

The big picture: Both the Dow and S&P 500 fell nearly 2% yesterday, as investors tried to measure the fallout of Chinese construction giant Evergrande defaulting on its $300 billion in liabilities.