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SCARS™ Special Report: FBI Report To The U.S. Congress On Scams

On June 9th, 2020 the FBI’s Assistant Direct Calvin Shivers delivered a report to congress on the state of online fraud during the Coronavirus crisis.

Here is that report:

BY: CALVIN A. SHIVERS, ASSISTANT DIRECTOR, FEDERAL BUREAU OF INVESTIGATIONS, U.S DEPARTMENT OF JUSTICE

STATEMENT FOR THE RECORD
BEFORE THE UNITED STATES SENATE COMMITTEE ON THE JUDICIARY, WASHINGTON, D.C.

FOR A HEARING ENTITLED:

“COVID-19 FRAUD: LAW ENFORCEMENT’S RESPONSE TO THOSE EXPLOITING THE PANDEMIC.”

JUNE 9, 2020

Chairman, Ranking Member, and Members of the Committee, thank you for the opportunity to appear before you today to discuss the rapidly evolving threats to the United States homeland posed by the myriad of fraud schemes which seek to exploit the global COVID-19 pandemic. The FBI has worked to counter the threats posed by fraud schemes and illicit finance activities since its inception—these threats are pervasive and have become more frequent and sophisticated over time. Moreover, they adversely affect the United States by destabilizing our financial system and institutions and harming people at higher risk (including older adults and people with underlying medical conditions).

On March 16, 2020, the Attorney General issued a memorandum on fraud in connection with COVID-19. Within days, the FBI established a COVID-19 Working Group comprised of representatives from all 56 FBI field offices and 500 total participants from the Department of Justice (Department) and FBI to combat the criminals undermining our nation during this crisis.

The COVID-19 pandemic has only served to increase the number of stimulus, healthcare, bank, elder, and government fraud schemes. As of May 28, 2020, the Internet Crime Complaint Center (IC3) received nearly the same amount of complaints in 2020 (~320,000) as they had for the entirety of 2019 (~400,000). Approximately 75% of these complaints are frauds and swindles, presenting a challenge for the FBI’s criminal program given the sheer volume of submissions.

We have also seen the sale of counterfeit personal protective equipment (PPE), fraudulent unemployment insurance claims, and even criminals who are engaging in online predatory behavior targeting children who are continuing their education from home. Keeping pace with these threats and their volume is a significant challenge for the Federal Bureau of Investigation (FBI), but one we are tackling head on in conjunction with our many federal, state, local, private sector, non-profit, and community partners.

INCREASED RISK OF CHILD EXPLOITATION

Online sexual exploitation comes in many forms. Individuals may coerce children into providing sexually explicit images or videos of themselves and/or younger family members.

With the threat of posting the images publicly or sending them to the child’s friends and family if the child does not continue sending the material, they are forced into an abusive cycle of exploitation. Other offenders may make casual contact with children online, gain their trust, and introduce sexual conversation that increases in egregiousness over time. This activity may ultimately result in an online relationship that includes sexual conversation, the exchange of illicit images, and physically meeting the child in-person for the purpose of engaging in illegal sexual activities.

School closures as a result of COVID-19 have increased the presence of children online, desensitizing them to being online and putting them in a position of increased risk. To proactively counter these risks, we have worked to warn parents, educators, caregivers, and children about the dangers of online sexual exploitation and signs of child abuse through public service announcements (PSAs), billboards, and meetings with our private sector partners hosting video communications platforms. In particular, we have emphasized parents’ and other caregivers’ need to be mindful about children’s use of apps and platforms that feature end-to-end encryption, direct messaging, video chats, file uploads, and user anonymity, which predators often use to contact children directly and evade law enforcement.

During the last few months, the FBI has received more than 315 reports of incidents throughout the United States and in other countries in which a Zoom participant was able to broadcast a video depicting child sexual abuse material (CSAM). The FBI considers this activity to be a violent crime. Every time child sexual abuse material is viewed, the depicted child is revictimized. Furthermore, anyone who is exposed to child sexual abuse material during a virtual event may be traumatized by the experience. In the last 75 days, we have identified over 400 victims due to this activity.

PAYCHECK PROTECTION PROGRAM

With the passage of the CARES Act, the FBI has seen fraudsters shift their efforts towards exploiting the various programs aimed at relieving the detrimental economic effects of COVID-19. Of particular interest are criminals fraudulently applying for Paycheck Protection Program (PPP) loans or targeting PPP funds once they have been disbursed.

The FBI’s IC3 has received numerous complaints from business owners unable to legitimately apply for a PPP loan because their Employer Identification Numbers (EINs) were already used for fraudulent loan applications. There have also been reports of fraudulent websites claiming to facilitate PPP loans, which gather all the personally identifiable information necessary to apply for a PPP loan, only to not follow through with the assistance, but likely use the information for their own nefarious purposes.

In order to effectively target this growing threat, the FBI has formed a PPP Fraud Working Group in coordination with the Department’s Fraud Section and the Small Business Administration Office of Inspector General. Through the efforts of our field offices and the PPP Working Group, nearly 100 investigations have been initiated since the inception of the program, with over $42 million in potential fraud identified and over $900,000 recovered. These investigations involve bank insiders, previously convicted felons, the use of dormant or cash businesses, and identity theft.

ADVANCE FEE AND BUSINESS EMAIL COMPROMISE SCHEMES

In the current environment, demand for PPE and other goods far exceeds supply, and businesses have had to alter standard practices to continue operations. Such an environment is ripe for exploitation by fraudulent actors perpetrating advance fee and business email compromise (BEC) schemes. In the advance fee schemes related to procurement: a victim prepays  purported seller or a broker for goods such as ventilators, masks, sanitizer or other indemand products, and then receives little or nothing in return. BEC schemes often involve fraudsters spoofing a legitimate email address known to the recipient or the use of an email address that is nearly identical to one known and trusted by the victim to instruct them to redirect legitimate payments to bank accounts controlled by the fraudsters.

Recent examples of COVID-19-related BEC attempts include a financial institution that received an email, allegedly from the CEO of a company, who had previously scheduled a transfer of $1 million, requesting that the transfer date be moved up and the recipient account be changed “due to the Coronavirus outbreak and quarantine processes and precautions.” The email address used by the fraudsters was almost identical to the CEO’s actual email address, with only one letter altered.

In another instance, a fraudster spoofed the email address of a CEO who had been approved for a PPP loan, contacted the financial institution facilitating the loan and requested that the PPP funds be transferred to a new account at a different institution. The FBI is also aware of multiple incidents in which state government agencies, attempting to procure ventilators or PPE, wire transferred funds to fraudulent brokers and sellers in advance of receiving the items. The brokers and sellers included both domestic and foreign entities. In one case, an individual claimed to represent an entity with which the purchasing agency had an existing business relationship. By the time the purchasing agencies became suspicious of the transactions, much of the funds had been transferred outside the reach of U.S. law enforcement and were unrecoverable.

MONEY MULES

With the U.S. unemployment rate soaring and large numbers of people being secluded at home, fraudsters are increasingly targeting individuals through “work from home” opportunities or dating websites to use as money mules. Criminals who obtain money illegally need to find a way to move and hide the illicit funds. They frequently scam other people, known as money mules, into moving this illicit money for them. These money mules are asked to receive funds in their personal bank account and then “process” or “transfer” funds via wire transfer, ACH, mail, or money service businesses, such as Western Union or MoneyGram.

Acting as a money mule—allowing o