Treasury, IRS ramp up investigation into Minnesota fraud

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(The Center Square) – The administration continues to ramp up its response to the massive social services fraud in Minnesota, with Treasury Secretary Scott Bessent enumerating steps his department is taking to prevent similar abuses going forward.

“I am optimistic that we are going to put an end to this waste, fraud and abuse, that we are going to have recoveries for the American people, and that we are going to hold people accountable, set an example and make sure that federal aid gets to the people it was intended for and not to the fraudsters,” Bessent said in a statement.

He explained several initiatives begun by the Treasury Department, as well as one to come.

The department’s Financial Crimes Enforcement Network and the IRS are investigating some money service businesses – organizations that perform financial services outside of a formal bank – that were used to send funds to Somalia and other places overseas. Some have alleged that stolen social services funds directly or indirectly funded the terrorist group al-Shabaab, an al-Qaeda affiliate based in Somalia.

“We have traced where the money went and are examining it,” Bessent said.

FinCEN has also issued a “geographic targeting order” for banks and money transmitters in the Twin Cities’ counties, requiring enhanced financial reporting that makes it easier for analysts to spot fraudulent activity. 

“This will put a microscope on these businesses, advance prosecutions and assist in the recovery of funds laundered internationally,” Bessent said.

The IRS is auditing “financial institutions that facilitated the laundering of Minnesota funds,” and it is forming a new task force that will focus on investigating the abuse of “pandemic-era tax incentives” and the misuse of nonprofit tax exempt status by entities that participated in Minnesota based social services fraud schemes. 

The Treasury Department is also providing training to Minnesota law enforcement on how to better spot and prevent fraud.

The Justice Department is carrying out its own investigations into the now-estimated $9 billion of Minnesota social services fraud, and the administration has frozen federal social services funding to Minnesota, California, Colorado, Illinois and New York.

Bessent indicated investigations into other states are likely around the corner.

“The Minnesota protocols will serve as a genesis and a launching pad for investigations into other states,” Bessent said. “Treasury will deploy all tools, all tools, to bring an end to this egregious unchecked fraud and hold perpetrators to account.”