Unique Contributions

The biggest heist in American history

• Woody Talcove • Season 3 • Episode 5

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Our largest and most vital US public government programs — food stamps (SNAP), Medicaid, Temporary Assistance for Needy Families (TANF), unemployment insurance and even the tax system — are being systematically plundered by domestic and transnational criminals who are intent on disrupting our way of life. Woody Talcove knows this because for 14 years, he has been on the frontlines of securing government agencies from fraudsters, cybercriminals and adversaries. The level of fraud is possibly the biggest heist in American history. To put things in perspective, US government published preliminary data showing that in 2021 alone,  it was defrauded by $277bn. And that relates to the unemployment insurance programme alone.

Fraud is not only a problem for taxpayers and the federal budget. Fraud wreaks havoc on individuals’ lives and the people who suffer are those who need the most support. If fraud losses were stopped, they could pay for free childcare for every family in America. The time for complacency has come to an end. It is time to treat this as an national emergency. This podcast episode is a wake up call. 

Haywood ‘Woody’ Talcove is CEO of LexisNexis Risk Solution’s government business.

This podcast is brought to you by RELX.

YS Chi:

The unique contributions podcast is brought to you by RELX. Find out more about us by visiting RELX.com.

Woody Talcove:

How do you stop programmes where they're losing 25 to 30% of every dollar to criminal groups, and I still don't believe the policymakers in Washington DC understand the scope of it.

YS Chi:

Hello, and welcome to series three of Unique Contributions, a RELX podcast where we bring you closer to some of the most interesting people from around our business. I'm YS Chi and I'll be exploring some of the biggest issues that matter to society, how they're making a difference, and what brought them to where they are today. In this episode, I want to explore the astonishing story of what is possibly the biggest heist in American history. US government has published preliminary data showing $277 billion lost to fraud in 2021 alone through the pandemic unemployment assistance scheme. This is a fraud rate of 18.7%. And to put this in context, 3% is considered best practice. The number could be even larger as it is still collecting the data, some schemes lost up to 50% of the money paid out. Now the people who suffered the most were those whose identities were stolen, for example, those who were made unemployed during Covid and couldn't claim benefits. This fraud and waste could have been prevented. So what happened? Why, and can something be done about it? My guest today is Woody Talcove, Chief Executive of LexisNexis, Risk Solutions, Government Businesses. Woody is an expert on how to tackle this kind of fraud. Woody, welcome. And thank you.

Woody Talcove:

YS, thanks so much for the opportunity to talk about this really exciting topic.

YS Chi:

Well, I know you're passionate about this, and you've been evangelising for some time. So I'm so glad that we can ask you some questions. Now the numbers we're talking about are huge, $277 billion dollar loss to fraud in 2021 alone! What is your view on this? How bad is this Woody?

Woody Talcove:

Well, that's just the money that was lost in the unemployment insurance programme, that didn't include PPP, and that didn't include other programmes, including the SNAP programme for food stamps. It is just staggering, the amount of money that went to criminal organisations located here in the US, as well as located overseas. The part that really needs to be explored further, is this was a known issue back in 2012/2013. And almost nothing was done to resolve it.

YS Chi:

Was there just a lack of will? Was there a lack of technology or what?

Woody Talcove:

It was a lack of understanding. So what was happening, I've been here 14 years. And what was happening was government went from paying benefits in line to paying benefits online, right, much like the likes of Amazon and other e-retailers. Government was beginning to use these tools, but they weren't building the infrastructure. And as a result, one of the things that we did is we started a web page called fraudoftheday.com. Fraudoftheday.com has over 15,000 government subscribers, and every single day, we educate the market on different frauds that are taking place. And then in 2015, YS, the team wrote a book called WTF: Where's The Fraud?, focused exclusively on government fraudulent activity, and in there, we predicted a national crisis was going to create the largest fraud in the history of our country, driven by transnational criminal groups. Now, we're not Nostradamus, but we got that one, right.

YS Chi:

Yeah, getting it right, though, doesn't mean that our leaders would actually take action, right, because they need to see evidence before they move on anything. How long did it take before people woke up and realised that this was such a problem, let alone actually addressing them.

Woody Talcove:

I still to this day, before we did this podcast, I went on the dark web, and I saw transnational criminal groups, organised criminal groups, using different techniques to steal money from unemployment insurance, from Medicaid from Disability Insurance from the Food Stamp programme, it's still not solved. And what happens is you get into this debate about, we want to make it really, really easy for people to get their benefits. I mean, of course, if you're hungry, if you lost your job, if you need your benefits to pay your rent, you want to get it quickly. On the other hand, there needs to be another debate about how do you stop programmes where they're losing 25 to 30% of every dollar to criminal groups. And I still don't believe the policymakers in Washington DC, understand the scope of it. Here's a fact for you. In the state UI programmes, they owe the federal government, the federal government Trust Fund for unemployment insurance, they owe it $115 billion from the pandemic, and they have no way of repaying it. Either they're going to raise taxes on employers, or they're going to have to ask for forgiveness, they can't afford to pay back the money they borrowed during the pandemic.

YS Chi:

And is there an amount of trade off that we have to absorb? You're simply saying that it's just too high? Right?

Woody Talcove:

Exactly. I mean, it's not sustainable. 25 to 30%, fraud rate, 25 to 30 cents on every dollar, you're never gonna get to zero. But you certainly can get to 3%. And what we keep on articulating to our customers, to members of Congress, to elected officials in the states is that using the tools that the private sector uses, including device assessment, email analytics, and other techniques that involve information in data, we'll get that fraud rate down to 3%, which is completely manageable.

YS Chi:

And who would be the most against application of such tools and technology? And what would be their fear, because we need to make sure that that fear is addressed.

Woody Talcove:

The fear is that legitimate people won't get access to benefits.

YS Chi:

And that's a, that's a major issue. We all care about that.

Woody Talcove:

We want to make sure that legitimate people get their benefits quickly and easily. Now, it's interesting, YS, the Identity Theft Resource Centre, which is a leader in identity theft in government, did a survey over the pandemic for people that received unemployment insurance benefits. 42% of eligible recipients weren't able to get their benefits during the pandemic. And why? Because the systems that some states put in place didn't work, because the call centres were overwhelmed. And because people who weren't used to technology, were asked to do things on the internet that they weren't capable of. Now, keep in mind, the criminal groups got through easily and at scale.

YS Chi:

Right? Because they are technologically savvy.

Woody Talcove:

The criminal groups that are doing this likely have more processing power than most states.

YS Chi:

So tell us how does the fraud actually work? Why are fraudsters able to have such a field day? And who got impacted the most?

Woody Talcove:

Well, you know, and that's a great point, because very few people talk about who got impacted the most. And I want to start there, the individuals that really needed benefits. The individuals who lost their job that maybe worked in the hospitality, or worked in retail establishments that weren't able to be open during their pandemic. They were the ones that got hurt the most. They couldn't get through, they couldn't get their benefits. So the fraud is really easy to perpetrate. There's been so much stolen information because of data breaches over the past decade. Of course, the most nefarious was the OPM data breach, but e-retailers, credit bureaus, banks, virtually every industry has been hit. And I don't think there's an identity that hasn't been stolen. The only question is, has the identity been used? So you go onto the dark web, you get the stolen information, your name, your address, your social security number, and you go on to the State portal and you enter the information in and bang, the next thing you know, you have a $26,000 debit card sent to your address or deposited into your bank account. It was that easy. Now then some of the states shifted, they said, we need to start using facial recognition. So we're going to compare your picture through a video to a picture on a licence, that was a horrible idea. There are some people that don't have driver's licences, there's some people whose licences have expired, and there's some people whose facial expressions have changed, right? Maybe the licence is nine years old, maybe, you know, they lost a lot of weight, maybe they gained a lot of weight, etc, right. And then what happened was one of the transnational criminal groups started selling fake driver's licences on the web. So that allowed me to steal Ys's PII, take a picture of the criminal on the licence, and bang, the next thing you knew YS was getting benefits. That's why 42% of people according to the Identity Theft Resource Centre survey, didn't get the benefits they were entitled to, they went to criminals.

YS Chi:

Does this require starting from scratch? Or are there ways to fix this issue? Because obviously, the fraudsters are ahead of the game, right?

Woody Talcove:

Yeah, you know, keep in mind, the fraudsters are always going to evolve. But really, when you break the problem down into its natural parts, there's three parts to getting a benefit. The first is identity verification, the second is eligibility determination. And the third is population management. I would say 95% of the fraud happened with identity verification. Most organisations public and private, outsource that. And using the tools that are available today in the private sector, stops that fraud effectively. So there is no reason to start from scratch. Every federal and state programme needs to use leading edge identity verification tools that allow legitimate people to get their benefits, but stop these transnational and other organised criminal groups from stealing them.

YS Chi:

And what is the pushback on this?

Woody Talcove:

I think you get back into this debate, right? We don't want to put any barriers up to make it harder for people to get benefits. I think that's part of it. Second, and I'll never forget this quote, I was in a meeting with a large state unemployment insurance director. And what she told me was, "I don't care that people have been in a backlog for months, what I care about, is making sure that we follow our current process", or my other favourite quote from somebody that currently works at the US Department of Labour in a Senate appointed position. "It's only fraud, if you count it". Right, now, I do think we're seeing a shift in the environment right now. YS, so as the economy goes through what it's going through, and there isn't additional money coming out of the federal government for pandemic relief, I suspect that we're going to start paying more attention to it.

YS Chi:

Hmm. Are there places that are actually doing this better than their peers and are there success stories that can be shared?

Woody Talcove:

Yeah, I go to our home state of Ohio. Governor DeWine, in April of 2020, realised he had a huge problem. And it started when somebody used his identity to get unemployment insurance. Now, the confusing part is he's the governor of Ohio and the person used his identity in the state of California. The second tip off to him was they had more people applying for benefits for unemployment insurance than they had citizens over the age of 18.

YS Chi:

That should have given it away.

Woody Talcove:

That was it right? So, and the governor has an accounting background, he brought in some people from the private sector who had deep expertise in banking and insurance. And they designed a system that allowed the criminals to get kicked out and legitimate people to get their benefits quickly. And as a result, and even this number is staggering. They only lost a billion dollars to the criminals

YS Chi:

Out of how much?

Woody Talcove:

They spent, if I remember correctly, 88 billion

YS Chi:

So well below the 3% threshold that you think is doable.

Woody Talcove:

Absolutely. Because they had the right tool in place and it also allowed people that weren't accustomed to filing for unemployment insurance, you know, somebody that isn't tech savvy, to be able to use the call centre. All right, and get it picked up. Whereas in other states, one state in particular, it was so bad that the governor put a note on his mailbox, his voicemail box saying if you're calling about unemployment insurance, please try to call the Department of Labour, please don't leave a message for me, I can't handle the volume. Another good example is the state of Kansas. And I've got this great chart that shows all the fraudulent, inappropriate activity going on. And then, literally, the next day that we turned on ThreatMetrix, Emailage, ID Analytics and other tools. It dropped down to less than a half a percent. The one thing about these criminals, YS, you gotta give them a lot of credit. They're super smart, they're super efficient, and they will not waste their time focusing on places that have the right identity verification, right, when there's other places where they can go and rob and pilfer at will.

YS Chi:

Absolutely, there are so many places that don't have any gates, why deal with it right?

Woody Talcove:

100%

YS Chi:

So there are solutions in working with private sector to address some of these issues up front. But what about when you catch criminals? Is there the stick side of the question here about how you prosecute those who are caught doing these criminal activities.

Woody Talcove:

So first of all, you start with the notion that pay and chase doesn't work, right of the approximately $250 billion that was stolen for unemployment insurance. Less than $1.6 billion has been recovered so far. The second issue is the capability at the state and local level to do these investigations. When you're dealing with sophisticated transnational criminal groups, when you're dealing with sophisticated organised crime groups, they are very difficult investigations, you need deep technical expertise. And you also need the government entity to cooperate. So there have been a couple of success stories. The best one was in Washington State. They were attacked by a Nigerian criminal group that typically specialised in romance scams, but moved their operation to unemployment insurance. Individuals stole $800 million. I'm gonna say that again, the individual scheme netted $800 million. And thanks to the effort of the United States Secret Service, and the Federal Bureau of Investigations, they were able to identify the group. They understood that the ringleader was going to be leaving Nigeria and was going to go to Mykonos in the Greek islands to enjoy a little vacation. And he was greeted by the FBI who gave him a private jet ride back to the United States, where he's been sentenced to 25 years in prison. But that's the anomaly, right? The fact of the matter is, if you put the right tools in place up front, you don't need to go and do the prosecutions. The other problem with prosecutions right now is law enforcement is not well staffed, on average, so only at 71% capacity. So, this type of thievery, which doesn't involve violence, it doesn't get a lot of attention. In fact, there's a great article in Newsweek, about a year ago and the article asked citizens to stop calling the police departments about unemployment insurance fraud, because it was taking up too much of their capacity.

YS Chi:

I'm not surprised. Is this unique to the US? Or are you seeing this as a problem across the world?

Woody Talcove:

That's a great question YS, in fact, I was just over in the UK in November, and I met with the Home Office. The exact same transnational criminal groups have also hit the UK market, where they stole money for unemployment insurance and other pandemic relief. In fact, there was a story on NBC about three weeks ago, and what it talked about was this group, APT41, which is a well known hacking group, and how they were stealing money from both the US and the UK. These criminals, all they want to do is get this money, then they want to use the money for nefarious purposes. And that's one of the things that most people don't talk about. What are they doing with this money? Buying drugs, child exploitation, terrorism, and other untoward activities that harm our democracy.

YS Chi:

So let's talk about potentially some solutions, you've already touched on some of them. But how do governments and private organisations address this balance between speed and security more reassuringly? And more consistently?

Woody Talcove:

I think part of the answer is bringing in that next generation of leadership that understands technology. Right? I think that's really important. I mean, when you work in an agency, and it's very complicated, because you have federal, state rules, you have IGs, you got a process book that's 1000s of pages long. It's real hard. On the other hand, I think certain people with different technical skills can make a difference. The second part is from the top, from the elected leadership. They need to articulate that if you get caught frauding there's going to be a consequence. I don't know if you realise right now, the Department of Justice, literally every single week now is issuing press releases about people that have been caught doing fraud. That is a highly effective deterrent, because if you think you're going to get caught, you're most likely not to do it. Right. Really, it's a change in leadership. It's a change in getting people in there that understand technology,

YS Chi:

Right? But there were three types of fraudsters, right? Individuals, and they might be dissuaded. Domestic organised criminals, they too might be somewhat discouraged. But the transnational fraudsters probably don't care. Right?

Woody Talcove:

Yeah, that's a great point, right? The average citizen that got pulled into this fraud, and some of them are getting prosecuted right now. You know, they read about it on Facebook, and YS, they just had a bad day. And like to go ahead Woody, is there a way to kind of rate local, state, federal and prosecute those individuals, because the right processes weren't in place. I got a problem with that. The organised criminals, particularly when you're dealing with the transnationals. It's not like the groups aren't known. They know the groups and resources are needed, you know, within the FBI and the Secret Service to mitigate their ability to attack. I mean, July 9th 2020, Michael D'Ambrosio testified in front of the Homeland Security Committee, Michael was the number two at the US Secret Service, and warned them that transnational criminal groups were targeting COVID benefit payments. Everyone knew what was going to happen. Right, but they just didn't have the resources. They didn't have the time, they had other priorities. government according to how effective they are in securing these resources, and putting them into use to prevent these frauds? Because once they become visible, maybe they'll do something about it. And I'm not sure it's just about next gen of leadership that understands tech, of course, that helps. But I wonder if they are accountable? Are the elected officials in our governments accountable? So there's a lot to that. So the first piece, keep in mind, the unemployment insurance programme has had the highest improper payment rate for the last 15 years at over 10%. Right, the pandemic just accelerated that.

YS Chi:

Right. It was so quick and so required, so necessary. Yeah,

Woody Talcove:

There is a group called the National Association of State Budget Officers that is working on that. And what I like about what they're doing is it gets into the governmental auditing, no different than when RELX gets audited. And that does change how people view them. Maybe Moody's won't be willing to loan them money, you know, the different rating agencies will pick that information up. So I think that's going to help. I think the other part is the reality of the situation where all this money went out the door. Now budgets are tightening. And States are beginning to say, I don't have enough resources to provide for the things that I committed to. Because I certainly, you know, I understand fraud, right. And when you're dealing with the transnational criminal groups, you're dealing with organised criminal groups, none of which are likely located in your state. It's really easy to say I'm not going to tolerate that. Right. Where you get into a challenge is the individuals who have a bad day, who make a mistake. Right, but they don't make up for their fraud is if the federal government in the States just said, we are no longer going to tolerate this. And we're going to put these tools in place. Can you imagine YS what you could do with $250 billion?

YS Chi:

Oh, my goodness. Yes, absolutely. You know, I think that we all know that we tend to focus on things that get measured. And so I was wondering whether this fraud needs to be measured more visibly for more people to make accountable those who should be addressing this.

Woody Talcove:

That's why I like what NASBO is doing, because that'll come back into the credit rating agencies. It'll be more prominently displayed.

YS Chi:

Absolutely. It really will do that. Well, Woody, you are obviously an encyclopaedia on this subject, and just the examples you've rattled off, I'm sure there's 100 times more that you can share with us. But this has been really insightful. Thank you so much. And I hope that somehow we can muster more, you know, initiatives at the government levels, all levels of government that is, and start to, you know, plug some of these leaks in our system today. We hope that we don't have another COVID situation where government needs to suddenly and quickly spend this much money but even for ongoing programmes, it would be so unfair that that money goes into the wrong hands. So Woody, thank you so much. And I hope that by building some more trust into these systems, that our regulators and lawmakers will be able to more confidently come up with necessary programmes for those who are in need. Thank you again.

Woody Talcove:

Thanks. Have a great day YS.

YS Chi:

Thank you to our listeners for tuning in. Don't forget to hit subscribe on your podcast app to get new episodes as soon as they're released, and thank you again for listening.