Treasury Secretary Raises Alarm Over Minnesota Fraud, Potential Terrorist Financing

Treasury Secretary Scott Bessent has announced that Minnesota tax dollars may have been funneled to the terrorist organization al-Shabab through elaborate fraud schemes plaguing the state’s social services system. The investigation puts Governor Tim Walz under intense scrutiny for alleged negligence in his oversight responsibilities.

During a virtual press conference on Friday, Bessent revealed that the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is investigating money service businesses suspected of facilitating the fraud, though he did not identify specific financial institutions.

“We are thoroughly investigating the fraud, including funds sent to Somalia through money service businesses, which provide financial services outside of a formal bank,” Bessent said. “These funds could have potentially been diverted to the terrorist organization al-Shabab. We have traced where the money went and are examining that.”

Bessent emphasized that these businesses had legal obligations to comply with anti-money laundering laws and would face consequences for any violations. The investigation, which Bessent first announced in December 2025, has already resulted in charges against more than 75 individuals, most of whom are reportedly members of Minnesota’s Somali community.

The Treasury Secretary noted that significant portions of the fraudulently obtained funds were transferred overseas, raising serious national security concerns. He also announced that the Internal Revenue Service’s Civil Enforcement division is auditing financial institutions allegedly involved in laundering Minnesota funds.

The IRS is planning to create a task force specifically to investigate “fraud and abuse involving pandemic-era tax incentives and misuse of 501(c)(3) tax-exempt status by entities implicated in the Minnesota-based social services fraud schemes,” according to Bessent.

In his remarks, Bessent directly criticized Governor Walz, who announced Monday that he would not seek re-election. “It’s clear that Governor Walz has been negligent in his fiduciary duties as a chief executive of the state of Minnesota, that this would happen on his watch,” Bessent said. “And we are actively pursuing all leads to see the level of involvement, whether it’s limited to just negligence and incompetence or is something more than that.”

The Treasury Department is also providing specialized training to Minnesota law enforcement on utilizing financial data, including suspicious activity reports, to better combat these fraud schemes.

The full extent of the alleged fraud remains undetermined. “We do not know the depth, breadth, and collusion in this financial calamity that Governor Walz has allowed to have happen,” Bessent said. “Was this directed from overseas? Is it the endogenous flourishing of these fraudsters that Governor Walz allowed to grow right here in the backyard and take advantage of hard working people of Minnesota? We’ll see.”

Governor Walz’s office did not respond to requests for comment on Bessent’s statements. However, Walz has previously dismissed reports suggesting the fraud could exceed $9 billion as “exaggerated” and “sensationalized,” while also acknowledging his responsibility. “I am accountable for this, and more importantly, I am the one that will fix it,” Walz told reporters in December 2025.

The allegations have drawn significant political attention. President Donald Trump has labeled Minnesota a “hub of fraudulent money laundering activity,” and Republican lawmakers have launched their own investigations.

Two major fraud schemes are at the center of the investigations. The “Feeding Our Future” case involves an alleged $250 million fraud targeting a COVID-era children’s nutrition program funded by the Department of Agriculture but overseen by Minnesota. At least 77 individuals have been charged in connection with this scheme, which exploited the USDA’s decision to waive certain Federal Child Nutrition Program requirements during the pandemic.

A second scheme involves the Housing Stability Services Program, which offered Medicaid coverage for housing stabilization services intended to assist people with disabilities, mental illnesses, and substance-use disorders. The Justice Department has charged fewer than a dozen people in this case so far, but additional charges are anticipated.

The large proportion of Somali defendants in these cases prompted President Trump in November to end the Temporary Protected Status for Somali migrants in Minnesota, removing their protections against deportation.

As the investigation continues, Treasury officials are working to determine whether the fraud represents isolated incidents of opportunism or a more coordinated effort with international connections.