“Criminals throughout history have exploited emergencies for illicit gain [but] the fraud associated with the current COVID-19 pandemic presents a scale and scope of risks we have not seen before.” – Michael D’Ambrosio
On June 9, the full Senate Judiciary Committee held a hearing titled “COVID-19 Fraud: Law Enforcement’s Response to Those Exploiting the Pandemic.” The hearing, which was led by Chairman Sen. Lindsey Graham, R-S.C., included testimony by William Hughes, Associate Deputy Attorney General United States Department of Justice, The Honorable Craig Carpenito, United States Attorney District of New Jersey, Calvin Shivers, Assistant Director Criminal Investigative Division Federal Bureau of Investigation, and Michael D’Ambrosio, Assistant Director United States Secret Service Department of Homeland Security. Following an acknowledgment of the tragic death of George Floyd by each of the witnesses, the testimony focused on the response to fraud that has resulted from the COVID-19 pandemic, including the sale of fraudulent personal protective equipment (PPE) and cyber-enabled fraud. In general, Hughes focused primarily on the Department of Justice’s response to criminal conduct relating to the COVID-19 pandemic, Carpenito focused on hoarding and price gouging, Shivers focused on fraud schemes and illicit finance activities that seek to exploit the COVID-19 pandemic, and D’Ambrosio focused on the U.S. Secret Service’s work to counter cyber and financial crimes exploiting the pandemic.
As the demand for PPE has been greater than the supply, the environment created has been “ripe for exploitation”, said Shivers. In addition to the sale of counterfeit PPE, Shivers noted that advance fee schemes, wherein a victim prepays for goods such as
ventilators, masks, or sanitizer that are never received, and business email compromise (BEC) schemes, which “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”, have been prevalent in recent months. For example, Shivers stated that the FBI is aware of multiple incidents where “state government agencies, attempting to procure ventilators or PPE, wire transferred funds to fraudulent brokers and sellers in advance of receiving the items” and by the time the purchasing agencies became suspicious of the transactions, the funds were unrecoverable. Shivers also explained that the increase in virtual fraud schemes include blackmail, work from home scams, and investment scams.
With respect to PPE, Shivers noted that the FBI is working to educate “the health care industry, financial institutions, other private sector partners, and the American public of an increased potential for fraudulent activity dealing with the purchase of COVID-19-related medical equipment.” He also explained that millions of units of PPE have been recovered during price gouging and hoarding operations and the FBI is working to determine next steps for how to redistribute or sell the PPE.
A Scope Not Seen
D’Ambrosio touched on many of the same issues as Shivers, confirming that cyber-enabled fraud and the production of counterfeit PPE have been problematic as a result of the COVID-19 pandemic. He explained that “criminals throughout history have exploited emergencies for illicit gain”, but “the fraud associated with the current COVID-19 pandemic presents a scale and scope of risks we have not seen before.”
D’Ambrosio referred to an alert sent out by the Secret Service on March 4 warning of the increase of COVID-19 related “phishing” schemes, noting that the COVID-19 related uptick in teleworking has left people more susceptible to fraudulent emails exploiting their concerns about the pandemic. In his written testimony, he explained that phishing is a longstanding criminal tactic that includes “the practice of sending emails, purporting to be from reputable companies or organizations, in order to entice individuals to reveal personal information, such as passwords and credit card numbers, or to unknowingly download malicious software”.
D’Ambrosio also warned that fraudsters have responded to communities’ and citizens’ concerns over PPE and COVID-19 testing by selling fraudulent medical equipment, masks, tests and cures. He also noted that the increase in telework has prompted criminals to deploy ransomware. He explained that the Office of Investigations has responded to the increase in criminal activity by focusing on four categories: “1. COVID-19-related scams, including the sale of fraudulent medical equipment and nondelivery scams; 2. Risks of cyber crime resulting from increased telework nationally, such as BECs; 3. Ransomware and other cyber-criminal activity that could disrupt the pandemic response; and, 4. Defrauding of government and financial institutions associated with response and recovery efforts.”
Tillis Touts China Threat
During the Q&A, Senator Thom Tillis (R-NC), Chairman of the Subcommittee on Intellectual Property, noted that there are many counterfeit COVID-19 related products coming from China that are “clearly a threat to our public health”—a topic he expanded on in a recent op-ed for The Hill. He expressed concern over counterfeit medications, test kits and other therapeutics being ineffective or being distributed without licenses and asked for information regarding how those concerns are being addressed. Hughes responded to Tillis’ question regarding pharmaceuticals and test kits, stating that the Department is working closely with the FDA, which is taking a flexible regulatory approach in order to spur innovation in the medical device and pharmaceutical areas. Hughes also noted that the focus has been on the clearly fraudulent products or medications, which are controlled primarily by bringing injunctions while simultaneously pursuing investigations into those products. Hughes explained that the sales of several products that claimed to be curative or preventative for COVID-19 have been stopped, including ozone gas, unregulated pesticides, and colloidal silver.
Carpenito addressed Tillis’ comment regarding the importation of counterfeit PPE. In particular, Carpenito noted that there are trends in “counterfeit, misbranded or completely fraudulent” PPE being imported from foreign jurisdictions. While declining to confirm Tillis’ comment that the fraudulent PPE is “primarily” imported from China, Carpenito noted that there is one publicly available criminal case in the Eastern District of New York against a Chinese company that allegedly intentionally sent fraudulent materials to the United States.