The Identity Fraud Perfect Storm: Convergence of COVID-19 Scams, Federal Payments, Tax Season, Census, Looming Recession, and California Consumer Privacy Act

With as many as 297 million Americans previously forced to live under shelter-in-place orders, we’re now beginning to see a relaxation of such orders and the emergence of locked down Americans. During these unsettling and stressful times, where nothing is normal, we can count on fraud in all its forms to remain an ever-present threat. And while we have enough to worry about, from our perspective, there’s a perfect storm brewing that could result in record-setting levels of fraud. Here’s what we see on the horizon:

  • We’re distracted and criminals know it. With those who can work from home forced to do so, millions now find themselves working near their family members. With summer and the end of online schooling just around the corner, many households will remain far from peaceful places to be. People are distracted and that distraction makes them relatively easy pray for phishing schemes. With so many individuals in the crosshairs of cybercriminals, corporate IT departments may find it difficult to support those who fall victim to a phishing scam. Therefore, infections may last longer and inflict greater damage than normal. Additionally, corporate fraud departments have been dispersed to work from home environments disrupting entrenched coordination systems and protocols.


  • Billions of dollars from the government. More than 18,000 Americans have fallen for COVID-19 scams resulting in $13.4 million in losses according to the FTC. As the US government continues to send vast amounts of financial aid to businesses and individuals associated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program. Some of those funds have arrived via electronic payment methods, while others appeared in the form of paper checks. And while the majority of funds will end up in the hands of the intended recipients, now is the time to expect criminals from around the globe to focus their efforts on defrauding as many Americans and businesses as humanly possible. Also, according to a CNBC survey, more than one-third (36%) of members on the CNBC Technology Executive Council say that cyberthreats have increased as a majority of their employees work from home. Along those lines, we expect to see an increase in demand deposit account fraud, particularly account takeover schemes as well as run-of-the-mill check fraud.


  • We’re in the midst of Census 2020. Before the coronavirus shut the country down, the forms for the Census 2020 had started appearing in mailboxes. Keep in mind that the government allows for responses online, via phone, and mail. Consequently, we’re already seeing fraud schemes popping up in the same channels. Whether criminals use the census as an excuse to steal money and/or data, the end result remains the same – criminals continue to enrich themselves at the expense of everyone else.


  • Tax season just got longer, and more dangerous. While the government’s decision to delay the filing for the 2019 tax year means that tax payers have more time to submit their taxes, it also provides more time for criminals to perfect their approach to tax-related fraud schemes. And with the federal government’s resources directed at the coronavirus crisis, they may lack the ability to detect, prevent, and investigate instances of fraud as in previous years.


  • California Consumer Privacy Act (CCPA) enforcement begins. California’s sweeping privacy law gives enacted in 2018 creates new Californian consumer rights relating to the access to, deletion of, and sharing of personal information that is collected by businesses. Aside from steep penalties and a consumers right to sue, it creates new avenues for criminals to collect and compromise personally identifiable information (PII). The law resembles GDPR which, according to a study done by a Cambridge University researcher found that nearly half of companies responded to fake GDPR requests he sent.


  • Economic contraction leads to more fraud. According to a recent IDology webcast poll of fraud professionals, increases in unemployment levels and the corresponding recession will drive the most fraud. The presence of fewer employees will reduce the effectiveness of companies and their ability to detect and prevent fraud. Certain employees under financial pressure may be more open to rationalizing the bad behavior needed to engage in fraud. To help explain such behavior, Dr. Donald Cressey, a criminologist, created the Fraud Triangle which describes three conditions that are commonly found when workplace fraud occurs. Cressey’s triangle includes three components: pressure, opportunity, and rationalization. When employees experience pressure, some take advantage of opportunities to enrich themselves, then engage in rationalization to justify their actions. Moreover, economically pressured consumers may be more likely to commit first-party fraud whereby they make purchases or apply for loans with no intention of paying them back, and instead falsely claim they were made by without authorization. A depressed economic environment also makes it easier for criminals to recruit consumer as “money mules” — who knowingly or unknowingly participate in money laundering schemes that in some cases are positioned as work-at-home jobs.



So, what does this all mean for your organization and its fight against fraud? In a nutshell, keep your guard up. When nothing is normal, we must be ever more vigilant. Defensive layers always mattered, but the matter more so in today’s environment. To create an effective defense, you must deploy multiple layers of fraud protection including anti-fraud consortium data to allow legitimate customers to conduct business with minimal friction. And while things may appear to be loosening, no one knows how long social distancing and self-isolation may last, and in that time, criminals could exact heavy financial toll.



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