posted on April 12, 2020 16:41
On March 17, the Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act, became law. CARES contains $376 billion in relief for American workers and small businesses. These funds were allocated to several new temporary programs. Most of these funds will initially be administered by the U.S. Small Business Administration (SBA) but the ultimate responsibility for distribution of these funds to recipients is in the hands of our country’s established financial services sector. And as additional programs are formed, such as the Fed’s $2.3 trillion loan program announced this week, there will be additional pressure on the US banking system to quickly and effectively distribute funds to American businesses.
Unfortunately, if history is any guide, the criminal world is hard at work determining how to take these funds from well-deserving American workers and small businesses through such means such as:
Application Fraud: Corporate and individual identity theft to apply for fraudulent relief.
Account Takeover: Gaining direct access to small business and individual checking, credit, and/or debit card accounts to directly steal the Federal loans and grants.
Industry experts, including the Government Accountability office expect significant fraud coming out of the implementation of the CARES Act – which could be as high as high as $60 billion, or one to three percent of the total funds in any given program. For example, to date, prosecutors have recovered over $11 billion in fraud resulting from criminals taking advantage of the 2008 $400 billion Troubled Asset Relief Program (TARP). It is estimated that the actual unrecovered TARP fraud is many factors higher.
In today’s economic climate, these statistics should make us, as Americans, very angry. Under normal circumstances, one expects a certain level of criminal activity. But in a global public health crisis, with unemployment soaring, every dollar allocated by Congress, for hardworking American employees and businesses needs to get into the hands of their intended recipients. We need to do everything we can to ensure that happens.
In spite of the fraudsters, these economic stimulus programs are critical to the recovery of the American economy. To ensure that we are avoiding this money getting into criminal hands, we need to move away from a “pay and chase” stance (the industry standard) to proactive fraud prevention programs that intercept and intercede fraud before and as it is happening.
Fortunately, in 2020, unlike in 2008, advanced artificial intelligence and big data tools have become mainstream in the fight against financial crime and can work in real-time to shut down fraud before it happens. For example, the GAO estimates that by using real-time analytics, the IRS prevented more than $6.5 billion in fraudulent refund returns between 2015 and 2017.
Since the distribution of CARES Act funds to businesses is not in the hands of the Federal government but instead in the hands of the private sector, it is imperative that banks and our country’s lending institutions utilize the power of big data and artificial intelligence to prevent improper payment of these precious CARES Act funds.
I lead a team at IBM that focuses on counter-fraud advisory and solutions for the North America financial services sector. We are currently teaming with banks and other financial services institutions to help CARES Act funds get into the hands of the intended recipients and avoid the fraud trap. We make it our daily mission to shut down fraudulent payments before they happen. To do so, we have put in place and are currently delivering two quick-to-market AI-based solutions.
Fraud Asset Management System (FAMS) is IBM’s solution that identifies fraudulent loan and grant applications to root out criminals at the registration process before payments are made, to avoid the “pay and chase” process typical of application fraud.
Safer Payments is IBM’s AI-powered counter-fraud payment and management solution that monitors billions of transactions with millisecond, real-time performance. With stimulus funding protected by IBM Safer Payments, financial institutions and payments firms are safely facilitating payments to stimulus recipients, integrated with lenders' existing payments solutions.
Whether one takes advantage of IBM’s counter-fraud advanced AI capabilities or find other effective means, it is imperative for our recovery, as a nation, that we prevent funds from the CARES Act and any additional stimulus funding from getting into the hands of the criminals.