Viral Fraud: The Rise of White-Collar Crime in Response to Pandemic Legislation

Will Sharps | May 2021

US Department of Justice headquarters in Washington, D.C. (2015)

O

n January 15th, 2020, a Seattle man visited a local urgent care clinic with symptoms including cough, fever, nausea, and vomiting. Six days later, he was diagnosed with the novel coronavirus, the first case of its kind in the United States.  

 

Since then, almost every aspect of our daily lives has changed. Work and school have become almost entirely virtual, families have been separated for over a year, face coverings are required for entry indoors in most states, and we are still asked to maintain a six-foot distance from others when possible. 

 

Another mainstay of pandemic life has been economic turbulence. The Pew Research Center recently completed a survey showing that 42% of Americans have lost their job or had to take a pay cut as a result of the pandemic. Additionally, a Proceedings of the National Academy of Sciences of the United States of America (PNAS) survey found that, of 5,800 small businesses, 41% had to shut down at least temporarily during the pandemic. In response to the profound economic struggles that the nation has undergone, the federal government has worked to provide assistance through relief funds and other policy measures such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act itself provided up to an estimated $2.3 trillion, 11% of US GDP, to help American citizens persevere financially. 

 

Yet with this increased level of financial assistance comes new risks. New government programming, unfortunately, has provided fraudsters with new and clever ways to profit from perhaps the most catastrophic event of our lifetimes. The fraud schemes unique to the coronavirus pandemic have been dubbed “COVID-19 Fraud” by the Department of Justice (DOJ). This article will take a look at the various new types of white-collar crime that have gained prominence in the wake of the pandemic, and then move on to discuss the DOJ’s strategy in combating these crimes.

 

Three Types of Fraud

 

In their pursuit to hold accountable those who prey on our greatest vulnerabilities, the DOJ has discerned three types of distinct COVID-19 Fraud. The first type of fraud surrounds the Paycheck Protection Program (PPP). The PPP is designed to give small businesses the funds required to keep their workers on payroll despite lessened demand for labor. In manipulating this program, criminal fraudsters have claimed illegitimate funds through three main avenues. Business owners have lied about the number of employees that are on payroll in order to obtain excessive payments. Fraudsters have purchased “shell” companies or created fake companies in order to obtain loans. Fraudulent actors have also been found to take advantage of this program by filing for the payments owed to real companies before the actual company is able to claim their money. PPP fraud indictments have already been made in 120 separate cases, with some charges accusing defendants of attempting to procure more than 20 million dollars from the government.

 

The second type of COVID-19 Fraud is related to the Economic Injury Disaster Loan (EIDL), which is intended to provide small businesses and nonprofit organizations with funds to supplement a temporary loss of revenue. Much like some of the PPP schemes, criminals abusing the EIDL program have done so by claiming loans for non-existent or non-operating firms. At the time of the DOJ’s March report, $580 million had been seized by law enforcement in EIDL fraud schemes. Due to the sizable figure of federal funds which have been appropriated through EIDL fraud schemes, personnel from five different federal law enforcement agencies have been assigned to a newly-created EIDL Fraud Task Force. This task force, based in Colorado, will look to identify those people who have abused the EIDL program for personal gain, and prosecute them accordingly.

 

The final type of COVID-19 fraud exploits individuals’ identities and is called Unemployment Insurance (UI) Fraud. In its March press release, the DOJ notes that a large variety of people, ranging from professional identity thieves to prison inmates, have been involved in using stolen identities to secure UI assistance. The creation of the National Unemployment Insurance Fraud Task Force has led to a relocation of $860 billion in federal funds and 140 federal indictments as of the end of March.  

 

While each type of COVID-19 fraud is unique in its own way, they share the same goal: to profit off of the programs, sponsored by taxpayer dollars, intended to keep our economy afloat as it experiences significant difficulties. The action being taken by the DOJ is seemingly effective, as the department and its task forces have been able to recover billions of dollars which may now be used for their intended purpose. In order to display the process and stakes of a federal COVID-19 fraud indictment, the next section will take a closer look at one current case.  

 

 

An Example: Fraud Rings

 

Fraud schemes are typically carried out by a group of offenders known as a “Fraud Ring.'' One of the largest COVID-19 Fraud Rings in the United States has seen eight of its members charged with multiple crimes in U.S. v. Richard Ayvazyan et al. The eight defendants in this case are thought to have conspired together to take advantage of both the PPP and the EIDL program. Formal charges include wire fraud, conspiracy to commit wire fraud, bank fraud, conspiracy to commit money laundering, and aggravated identity theft. The defendants allegedly applied for 142 PPP and EIDL loans totaling over 21 million dollars. These loans were secured as one defendant, Richard Ayvazyan, operated under the alias “Iuliia Zhadko” while other ring members lied to banks and worked to divert their funds. The DOJ found that the stolen funds were used to make down payments on homes and purchase luxury goods such as diamonds, handbags, and even “fine imported furnishings.” All defendants can face up to 30 years in prison for each count of mail and wire fraud alone, as the fraud involved federal disaster relief funds. A typical conviction for each of these crimes would carry a lighter sentence of 20 years per count.

 

A closer look at the U.S. v. Ayvazyan indictment highlights the specific attitudes which criminals have taken to pandemic relief programs, while also showing the intensity with which the DOJ is prosecuting these cases. The alleged fraudsters did not spend the money they obtained on necessary everyday products. Rather they took advantage of public misfortune to illegally grow what was already seemingly substantial wealth. This behavior is not, and should not, be tolerated by the DOJ, now more than ever.

 

When asked about prosecuting the white-collar cases arising from the pandemic, Assistant Attorney General Nicolas McQuaid asserted that, “No matter where you are or who you are, we will find you and prosecute you to the fullest extent of the law.” This warning does not bode well for those accused as a part of the Ayvazyan indictment, and these defendants should expect to receive lofty sentences if convicted of these crimes.

 

 

Closing 

 

As of April 21st, CNN reported that over 40% of the United States population had received at least one dose of the COVID-19 vaccine. Coupling this with the roll out of new vaccines, there is certainly light at the end of the tunnel. While there is still a considerable effort to be made by everyone, it is very possible that we will begin to return to normalcy in the near future. With the end of the pandemic potentially near, we can hope for a brighter economic future: a future that will not depend on massive government relief payments and similar programs. A future in which fraudsters are unable to divert money away from struggling citizens. 

 

Yet the outlook is not entirely optimistic. The Federal Bureau of Investigation has suggested that another type of fraud may become more prominent in the coming weeks. Malicious actors committing this new type of fraud do not tamper with federal funding, looking to steal personal information instead. The FBI warns that phishing schemes, disguised as opportunities to receive the COVID-19 vaccine, could be used to obtain both personal information to sell and financial information. In order to avoid such schemes, one should verify the legitimacy of any party claiming to accept payment for “prioritized” or “early” access to a vaccine, and should ensure they receive communications solely from legitimate and reputable local vaccination locations. 

 

The coming months bear many uncertainties regarding the future of our nation. Yet we can be sure that they will be filled with aggressive prosecutions of those alleged to have illegally benefited from the coronavirus pandemic. Because our economy, our financial security, and the rule of law depend on it.

Will Sharps is a sophomore at the University of Michigan from Baltimore, Maryland. He is studying Philosophy, Politics, and Economics with a minor in Crime and Justice. He focuses his writing on constitutional and criminal law. Outside of MC, Will enjoys water sports and volunteering with his fraternity.