II 117th CONGRESS 2d Session S. 4507 IN THE SENATE OF THE UNITED STATES July 12, 2022 Mr. Crapo (for himself, Mr. Portman , Mr. Braun , Mr. Marshall , Mr. Daines , Mrs. Blackburn , Mr. Thune , Mr. Cassidy , Mr. Risch , Mr. Kennedy , Mrs. Fischer , Ms. Collins , Mr. Lankford , Mr. Romney , and Mr. Toomey ) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To provide incentives for States to recover fraudulently paid Federal and State unemployment compensation, and for other purposes.

1. Short title This Act may be cited as the Chase COVID Unemployment Fraud Act of 2022 . 2. Findings Congress finds the following: (1) Throughout the COVID–19 pandemic criminal organizations, including international cybercrime rings and opportunistic foreign actors, exploited a national crisis to steal billions from American taxpayers. Fraud delayed legitimate payments to unemployed workers and turned thousands of Americans into unwitting identity theft victims. (2) The size, scope, and severity of pandemic unemployment fraud is not fully known. (3) The Labor Department’s Office of the Inspector General estimates that at least $163 billion of the $872.5 billion in Federal-State unemployment benefits paid during the pandemic could have been improperly paid, with a significant portion attributable to fraud. Just over $4 billion of these funds have been recovered. (4) The White House has estimated an 18.71 percent improper payment rate in the Federal-State unemployment insurance program in fiscal year 2021. This estimate does not include improper payments made in the Pandemic Unemployment Assistance program, nor does it include the period of greatest fraudulent activity when generous $600 weekly Federal supplements made unemployment a lucrative target for fraudsters. (5) According to the Government Accountability Office, from March 2020 through October 2021, 145 individuals pleaded guilty to Federal charges of defrauding unemployment insurance programs and Federal charges are pending against 250 individuals. (6) As of January 2022, the Labor Department’s Inspector General reported opening more than 31,000 investigative matters involving alleged unemployment fraud and reported that it assisted other Federal and State agencies in identifying and recovering more than $565 million in fraudulently stolen unemployment benefits. (7) In California, State workforce officials confirmed they paid out fraudulent unemployment claims totaling $11 billion and identified another $20 billion in claims still under investigation. (8) The Pandemic Response Accountability Committee published a report compiling the results of investigations from 16 State auditors, finding $39 billion in pandemic unemployment fraud. (9) There is growing evidence that criminal groups perpetrating unemployment fraud pose a threat to national security. (10) According to the Department of Justice and U.S. Secret Service, a significant amount of fraud was driven by known transnational organized criminal networks, including cartels with origins in countries including China, Ghana, Nigeria, Romania, and Russia. (11) The Department of Justice reports that the International Organized Crime Intelligence Operations Center has referred a large number of unemployment fraud cases to the Federal Bureau of Investigation. (12) The American people expect Congress to be an effective steward of taxpayer dollars and vigilant in pursuit and recovery of funds when taxpayer dollars are improperly paid. (13) Congress has a responsibility to gain restitution for American taxpayers by ensuring aggressive identification, investigation, and prosecution of criminal fraud in pandemic unemployment programs. 3. Recovering Federal fraudulent COVID unemployment compensation payments (a) Allowing States To retain percentage of overpayments for administration, information technology modernization, and program integrity (1) Pandemic unemployment assistance (A) In general Section 2102 of the CARES Act ( 15 U.S.C. 9021 ) is amended— (i) by redesignating subsection (h) as subsection (i); and (ii) by inserting after subsection (g) the following: (h) Fraud and overpayments (1) In general If an individual knowingly has made, or caused to be made by another, a false statement or representation of a material fact, or knowingly has failed, or caused another to fail, to disclose a material fact, and as a result of such false statement or representation or of such nondisclosure such individual has received an amount of pandemic unemployment assistance under this section to which such individual was not entitled, such individual— (A) shall be ineligible for further pandemic unemployment assistance under this section in accordance with the provisions of the applicable State unemployment compensation law relating to fraud in connection with a claim for unemployment compensation; and (B) shall be subject to prosecution under section 1001 of title 18, United States Code. (2) Repayment In the case of individuals who have received amounts of pandemic unemployment assistance under this section to which they were not entitled, the State shall require such individuals to repay the amounts of such pandemic unemployment assistance to the State agency, except that the State agency may waive such repayment if it determines that— (A) the payment of such pandemic unemployment assistance was without fault on the part of any such individual; and (B) such repayment would be contrary to equity and good conscience. (3) Recovery by state agency (A) In general The State agency shall recover the amount to be repaid, or any part thereof, by deductions from any unemployment compensation payable to such individual under any State or Federal unemployment compensation law administered by the State agency or under any other State or Federal law administered by the State agency which provides for the payment of any assistance or allowance with respect to any week of unemployment, during the 5-year period after the date such individuals received the payment of the pandemic unemployment assistance to which they were not entitled, in accordance with the same procedures as apply to the recovery of overpayments of regular unemployment benefits paid by the State, except that a State may retain a percentage of any amounts recovered as described in subparagraph (C). (B) Opportunity for hearing No repayment shall be required, and no deduction shall be made, until a determination has been made, notice thereof and an opportunity for a fair hearing has been given to the individual, and the determination has become final. (C) Retention of percentage of recovered funds The State agency may retain 25 percent of any amount recovered from overpayments of pandemic unemployment assistance that were determined to be made due to fraud. Amounts so retained by the State agency shall be used for administration of the State’s unemployment compensation program for any of following: (i) Modernizing unemployment compensation systems and information technology to improve accuracy of benefit payments, cybersecurity, and identity verification and validation of applicants. (ii) Administrative costs incurred by the State to identify and pursue recovery of fraudulent overpayments. (iii) Hiring fraud investigators and prosecutors. (iv) Other program integrity purposes identified by the State and approved by the Secretary. . (B) Conforming amendment Section 2102(d) of such Act ( 15 U.S.C. 9021(d) ) is amended by striking paragraph (4). (2) Federal Pandemic Unemployment Compensation Section 2104(f)(3) of such Act ( 15 U.S.C. 9023(f)(3) ) is amended— (A) in subparagraph (A)— (i) by striking 3-year and inserting 5-year ; and (ii) by inserting , except that a State may retain a percentage of any amounts recovered as described in subparagraph (C) before the period at the end; and (B) by adding at the end the following: (C) Retention of percentage of recovered funds The State agency may retain 25 percent of any amount recovered from overpayments of Federal Pandemic Unemployment Compensation or Mixed Earner Unemployment Compensation that were determined to be made due to fraud. Amounts so retained by the State agency shall be used for administration of the State’s unemployment compensation program for any of following: (i) Modernizing unemployment compensation systems and information technology to improve accuracy of benefit payments, cybersecurity, and identity verification and validation of applicants. (ii) Administrative costs incurred by the State to identify and pursue recovery of fraudulent overpayments. (iii) Hiring fraud investigators and prosecutors. (iv) Other program integrity purposes identified by the State and approved by the Secretary. . (3) Pandemic emergency unemployment compensation Section 2107(e)(3) of such Act ( 15 U.S.C. 9025(e)(3) ) is amended— (A) in subparagraph (A)— (i) by striking 3-year and inserting 5-year ; and (ii) by inserting , except that a State may retain a percentage of any amounts recovered as described in subparagraph (C) before the period at the end; and (B) by adding at the end the following: (C) Retention of percentage of recovered funds The State agency may retain 25 percent of any amount recovered from overpayments of pandemic emergency unemployment compensation that were determined to be made due to fraud. Amounts so retained by the State agency shall be used for administration of the State’s unemployment compensation program for any of following: (i) Modernizing unemployment compensation systems and information technology to improve accuracy of benefit payments, cybersecurity, and identity verification and validation of applicants. (ii) Reimbursement of administrative costs incurred by the State to identify and pursue recovery of fraudulent overpayments. (iii) Hiring fraud investigators and prosecutors. (iv) Other program integrity purposes identified by the State and approved by the Secretary. . (b) Treatment under withdrawal requirements Any amount retained by a State pursuant to section 2102(h)(3)(C), section 2104(f)(3)(C), or 2107(e)(3)(C) of the CARES Act, and used for the purposes described therein, shall not be considered to violate the withdrawal requirements of paragraph (4) or (5) of section 303(a) of the Social Security Act ( 42 U.S.C. 503(a) ) or paragraph (4) or (5) of section 3304(a) of the Internal Revenue Code of 1986. (c) Limitation on retention authority The authority of a State to retain any amount pursuant to section 2102(h)(3)(C), section 2104(f)(3)(C), and 2107(e)(3)(C) of the CARES Act shall apply only— (1) with respect to an amount recovered on or after the date of enactment of this Act; and (2) during the 5-year period beginning on the date on which such amount was received by an individual not entitled to such amount. 4. Permissible uses of unemployment fund for program administration (a) Withdrawal standard in the Internal Revenue Code Section 3304(a)(4) of the Internal Revenue Code of 1986 is amended— (1) in subparagraph (F), by striking and after the semicolon; (2) by inserting after subparagraph (G) the following new subparagraphs: (H) an amount, not to exceed 5 percent, of any overpayment of compensation recovered by the State (other than an overpayment made as the result of agency error) may, immediately following the State’s receipt of such recovered amount, be deposited in a State fund from which money may be withdrawn for— (i) the payment of costs of deterring, detecting, and collecting improper payments to individuals; (ii) purposes relating to the proper classification of employees as independent contractors, implementation of provisions of State law implementing section 303(k) of the Social Security Act, or other provisions of State law relating to employer fraud or evasion of contributions; (iii) the payment to the Secretary of the Treasury to the credit of the account of the State in the Unemployment Trust Fund; (iv) modernizing the State’s unemployment insurance technology infrastructure; or (v) otherwise assisting States in improving the timely and accurate administration of a State’s unemployment compensation law; and (I) an amount, not to exceed 5 percent, of any payments of contributions, or payments in lieu of contributions, that are collected as a result of an investigation and assessment by the State agency may, immediately following receipt of such payments, be deposited in a State fund from which moneys may be withdrawn for the purposes specified in subparagraph (H); . (b) Definition of unemployment fund Section 3306(f) of the Internal Revenue Code of 1986 is amended by striking and for refunds of sums and all that follows and inserting , except as otherwise provided in section 3304(a)(4), section 303(a)(5) of the Social Security Act, or any other provision of Federal unemployment compensation law. . (c) Withdrawal standard in Social Security Act Section 303(a)(5) of the Social Security Act ( 42 U.S.C. 503(a)(5) ) is amended by striking and for refunds of sums and all that follows and inserting except as otherwise provided in this section, section 3304(a)(4) of the Internal Revenue Code of 1986, or any other provisions of Federal unemployment compensation law; and . (d) Immediate deposit requirements in the internal revenue code Section 3304(a)(3) of the Internal Revenue Code of 1986 is amended to read as follows: (3) all money received in the unemployment fund shall immediately upon such receipt be paid over to the Secretary of the Treasury to the credit of the Unemployment Trust Fund established by section 904 of the Social Security Act ( 42 U.S.C. 1104 ), except for— (A) refunds of sums improperly paid into such fund; (B) refunds paid in accordance with the provisions of section 3305(b); and (C) amounts deposited in a State fund in accordance with subparagraph (H) or (I) of paragraph (4); . (e) Immediate deposit requirement in Social Security Act requirement Section 303(a)(4) of the Social Security Act ( 42 U.S.C. 503(a)(4) ) is amended by striking the parenthetical and inserting (except as otherwise provided in this section, section 3304(a)(3) of the Internal Revenue Code of 1986, or any other provisions of Federal unemployment compensation law) . (f) Application to Federal payments When administering any Federal program providing compensation (as defined in section 3306 of the Internal Revenue Code of 1986), the State shall use the authority provided under subparagraphs (H) and (I) of section 3304(a)(4) of such Code in the same manner as such authority is used with respect to improper payments made under the State unemployment compensation law. With respect to improper Federal payments recovered consistent with the authority under subparagraphs (H) and (I) of such section, the State shall immediately deposit the same percentage of the recovered payments into the same State fund as provided in the State law implementing that section. (g) Effective date The amendments made by this section shall apply to overpayments or payments or contributions (or payments in lieu of contributions) that are collected as a result of an investigation and assessment by the State agency after the end of the 2-year period beginning on the date of the enactment of this Act, except that nothing in this section shall be interpreted to prevent a State from amending its law before the end of such period. 5. Preventing unemployment compensation fraud through data matching, identity verification, and income verification (a) Unemployment compensation data integrity hub (1) In general Section 303(a) of the Social Security Act ( 42 U.S.C. 503(a) ) is amended by adding at the end the following: (13) The State agency charged with administration of the State law shall use the system designated by the Secretary of Labor for cross-matching claimants of unemployment compensation under State law against any databases in the system to prevent and detect fraud and improper payments. . (b) Use of fraud prevention and detection systems in administration of unemployment compensation programs (1) In general Section 303 of the Social Security Act ( 42 U.S.C. 503 ), as amended by subsection (a), is further amended by adding at the end the following: (n) State use of fraud prevention and detection systems (1) In general The State agency charged with administration of the State law shall establish procedures to do the following: (A) National Directory of New Hires Use the National Directory of New Hires established under section 453(i)— (i) to compare information in such Directory against information about individuals claiming unemployment compensation to identify any such individuals who may have become employed, in accordance with any regulations that the Secretary of Health and Human Services may issue and consistent with the computer matching provisions of the Privacy Act of 1974; (ii) to take timely action to verify whether the individuals identified pursuant to clause (i) are employed; and (iii) upon verification pursuant to clause (ii), to take appropriate action to suspend or modify unemployment compensation payments, and to initiate recovery of any improper unemployment compensation payments that have been made. (B) State Information Data Exchange System Use the Department of Labor’s State Information Data Exchange System to facilitate employer responses to requests for information from State workforce agencies. (C) Incarcerated individuals Seek information from the Commissioner of Social Security under sections 202(x)(3)(B)(iv) and 1611(e)(1)(I)(iii), and from such other sources as the State agency determines appropriate, to obtain the information necessary to carry out the provisions of a State law under which an individual who is confined in a jail, prison, or other penal institution or correctional facility is ineligible for unemployment compensation on account of such individuals inability to satisfy the requirement under subsection (a)(12). (D) Deceased individuals Compare information of individuals claiming unemployment compensation against the information regarding deceased individuals furnished to or maintained by the Commissioner of Social Security under section 205(r). (2) Enforcement Whenever the Secretary of Labor, after reasonable notice and opportunity for hearing to the State agency charged with the administration of the State law, finds that the State agency fails to comply substantially with the requirements of paragraph (1), the Secretary of Labor shall notify such State agency that further payments will not be made to the State until the Secretary of Labor is satisfied that there is no longer any such failure. Until the Secretary of Labor is so satisfied, such Secretary shall make no future certification to the Secretary of the Treasury with respect to such State. (3) Unemployment compensation For the purposes of this subsection, any reference to unemployment compensation described in this paragraph shall be considered to refer to— (A) regular or extended compensation (as defined by section 205 of the Federal-State Extended Unemployment Compensation Act of 1970); (B) unemployment compensation (as defined by section 85(b) of the Internal Revenue Code of 1986) provided under any program administered by a State under an agreement with the Secretary; and (C) short-time compensation under a short-time compensation program (as defined in section 3306(v) of the Internal Revenue Code of 1986). . (c) Effective date The amendments made by this section shall take effect with respect to each State to weeks of unemployment beginning on or after the earlier of— (1) the date the State changes its statutes, regulations, or policies in order to comply with such amendment; or (2) October 1, 2024. 6. Reporting unemployment compensation overpayments and fraud (a) In general The Secretary of Labor shall collect data from each State on the amount of overpayment recoveries that are waived related to unemployment compensation programs authorized by the CARES Act ( 15 U.S.C. 9021 et seq. ), with a separate accounting for the pandemic unemployment assistance program, and any unemployment compensation amounts excluded by each State from IRS Form 1099–G, Certain Government Payments, during taxable years 2020 and 2021 due to suspected or confirmed fraud. (b) Report to Congress Not later than 120 days after the date of enactment of this Act, the Secretary of Labor shall submit a report to the Committees on Ways and Means and Oversight and Reform of the House of Representatives and the Committees on Finance and Homeland Security and Governmental Affairs of the Senate that conveys the overpayment data described in subparagraph (a) and includes an estimate of the aggregate amount of pandemic unemployment compensation overpayments nationally, including the subset of overpayments made due to fraud, and total amounts recovered by Federal or State agencies. Such report shall be updated by the Secretary not later than 120 days after submission of the initial report to Congress. (c) Expedited collection The Secretary of Labor may waive the requirements of subchapter I of chapter 35 of title 44, United States Code (commonly referred to as the Paperwork Reduction Act ) with respect to the provisions in the amendments made by this Act. 7. Prohibition on Department of Labor allowing blanket waivers of overpayments Upon the date of enactment, the Secretary of Labor shall be prohibited from issuing guidance that permits States to use blanket or issue categorical waivers of overpayment recovery in Federal pandemic unemployment compensation programs authorized under the CARES Act ( 15 U.S.C. 9021 et seq. ). The Secretary shall amend or rescind any guidance as necessary to conform with the prohibition in the preceding sentence. 8. Extension of emergency State staffing flexibility If a State modifies its unemployment compensation law and policies with respect to personnel standards on a merit basis on an emergency temporary basis as determined by the Secretary, including for detection, pursuit, and recovery of fraudulent pandemic unemployment benefits, subject to the succeeding sentence, such modifications shall be disregarded for the purposes of applying section 303 of the Social Security Act ( 42 U.S.C. 503 ) and section 3304 of the Internal Revenue Code of 1986 to such State law. Such modifications shall apply through December 31, 2023, and may include engaging temporary staff, hiring retirees or former employees on a non-competitive basis, contracting with vendors, and other temporary actions to identify, investigate, prosecute, and recover fraudulent pandemic unemployment compensation benefits.