Last week, the House Ways and Means Oversight Subcommittee held a hearing on Covid relief fraud, which may go down as the biggest scam in history. The amount stolen from taxpayers during the pandemic dwarfs anything the United States has ever seen, totaling hundreds of billions of dollars—and a large chunk of the money ended up abroad, including in China.

During the pandemic, the federal government made a deliberate decision to prioritize getting money into people’s hands as fast as possible. The result, as the subcommittee heard, was that many basic precautions were not taken. Unemployment insurance is usually processed through employers, who verify basic facts about the person claiming benefits. In order to include self-employed people in pandemic relief, state unemployment offices allowed them to vouch for their own lost wages on the honor system.

In the Paycheck Protection Program, the law specifically instructed lenders to accept at face value documents that borrowers submitted. The Small Business Administration was not permitted to ask applicants to submit past tax returns. “In other words, SBA could not cross-check a loan application against the most credible data on income and expenses in the government’s possession: prior tax records,” writes auditor Bob Westbrooks in Left Holding the Bag: A Watchdog’s Account of How Washington Fumbled Its Covid Test.

The bureaucrats who designed this system assumed there would be fraud. They just thought there would be a manageable amount. That turned out to be optimistic.

In a single two-week period, the state of Colorado received 50,000 fraudulent unemployment assistance claims. The state department of labor later estimated that 75 percent of claims from self-employed workers and independent contractors were fraudulent. When the state implemented the basic safeguard of phone verification, to make sure people were who they said they were, applications for benefits fell 40 percent.

Amy Simon, formerly of the Department of Labor, told the subcommittee that the total amount lost to fraud during Covid could be $240 billion or more. In light of that massive number, waiting to catch fraudsters until after the crisis starts to look like a bad plan—there may be too many fraudsters for the Department of Justice to catch.

A review of the DOJ Covid-19 Fraud Enforcement Task Force in August found that over 3,000 individuals had been criminally charged in fraud investigations. The fraudsters included the actor who played the Red Power Ranger in the 1990s TV show, a former U.S. Olympic skater, and a former NFL player.

Less amusingly, at least $20 million in pandemic benefits ended up in China thanks to a single group of hackers with links to the Chinese government. Nigerian identity fraudsters and Russian mobsters have also been implicated. The largest domestic fraud ring, involving nearly 50 defendants and $250 million, had an international and multicultural aspect that is clear from the DOJ writeup.

How did the federal government get it so wrong? Were they naïve to think fraud would stay within manageable bounds? 

To be generous, we might say their assumptions were outdated. International fraud on this scale has only been a problem for a relatively short time. “Organised crime has traditionally been seen as a domestic problem bedevilling a relatively small number of states such as Italy, the United States and Japan,” an academic expert wrote in 1995. “In the last few years, however, there has been a recognition that the problem is no longer limited to a few states and can no longer be treated as something that falls within a single jurisdiction.”

Thirty years later, governments ought to take for granted that any program involving large amounts of money will attract predators from all over the world. And not just organized crime. In 2014, Italian authorities discovered a $1.3 billion scam involving selling fake carbon credits where the money ended up in the bank accounts of the Taliban.

“Waste, fraud, and abuse” is usually a laugh line. Conservatives say they want to shrink government by targeting it when everyone knows that you could eliminate every last instance of waste, fraud, and abuse and not make a dent in the size of government. 

Yet in the case of the pandemic, the amount lost to fraud is definitely not small change. The exposure of Americans—workers, consumers, and bureaucrats—to risks that previously were too remote or too trivial to worry about is now a commonplace. Not everyone in the global village is a good neighbor.