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Member Update: Three Tips for Addressing Unemployment Fraud

By Elyssa Morgan posted 07-30-2020 12:15

  

On May 14, 2020 the Secret Service issued a warning about a "well-organized Nigerian fraud ring exploiting the COVID-19 crisis to commit large-scale fraud against state unemployment insurance programs." The Secret Service believes that this ring has obtained a substantial database of personally identifiable information (PII) from first responders, government personnel and school employees, and that all states are at risk.

 

Following that announcement, calls began coming into our Payments Hotline (1-855-NEACH-QA) on how to identify these transactions and how to handle returns. In fact, it was the top question we received in May and continued trending in June. With that in mind, following are a few quick tips to help you in responding to this ongoing concern.

 

  1. Be aware of the characteristics of this particular fraud activity: a name mismatch. In many cases, there is a mismatch between the account holder's name and the unemployment benefit recipient's name (the Receiver of the Entry). That is because these unemployment fraud scenarios engage money mules, who let the fraudsters use their account for money laundering or are sending funds to accounts that the fraudsters themselves have access to.

 

However, not every customer who allows this relationship has done it with malicious intent; some are unaware that fraud is occurring. For example, there are schemes where the fraudster has established a relationship with a lonely individual, who thinks this person has become the love of his/her life and feels that he/she is simply helping. Or there is a customer who may need funds and puts on blinders to the nefarious nature of the request. Whatever the scenario, having good Know Your Customer program in place should help the RDFI identify fraudulent transactions.

 

In addition, ODFIs and RDFIs both can continue their efforts to educate consumers on what a money mule is and the illegal nature of participating. Financial institutions also can continue alerting their customers to various types of scams that put them in the position of becoming a money mule-including the romantic portrayals mentioned already.

 

  1. Consider how you can help thwart the fraud in your transactional role. In this scenario, the Originator-the state government-warrants the authenticity of the transaction to the ODFI, who sends it to the RDFI. The ODFI warrants that the information in the entry is accurate and the entry itself is lawful. The RDFI has no liability if it releases the funds to the Receiver. In addition, the RDFI is not required to return these Entries if the funds are no longer available.

 

That said, protecting the integrity of the Network remains everyone's responsibility, so if the RDFI can identify a questionable transaction through manual name mismatch verification and return it before releasing the funds, it helps support the greater good. In addition, RDFIs can monitor for newly opened accounts or accounts that have been dormant and begin receiving ACH deposits from the state unemployment offices. To further that scrutiny, RDFIs can pay special attention to state unemployment funds that are received with a near-immediate attempt to draw them out via online banking, a cash request at a teller, wire transfer, money orders, P2P apps, or at an ATM.

 

  1. If a transaction is being returned within the two-day window, consider using R17. While R03 remains an acceptable code for name mismatch, R17 provides an additional required addendum of "QUESTIONABLE," which helps alert the ODFI that the ACH Entry is suspicious to the RDFI. It may prompt the ODFI to look a little more closely at the transaction and reach out to the Originator so that they review the circumstances of the Entry prior to sending a check to the Receiver when the ACH transaction is returned. However, returning the item as R17 does not guarantee that the Originator will not provide payment in the form of a check to the receiver. As the RDFI, you can always reach out to the unemployment agency to inform them of the suspicious activity.

 

While we know that there are a number of nuanced scenarios that can occur, we hope this provides some clarity on these transactions. Additional guidance and resources will be provided over the next few weeks. In the meantime, please feel free to reach out to us on the Payments Hotline at 1-855-NEACH-QA to discuss any specific issues that may arise.

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