On March 26, 2017, Jeffrey Ansted herded his family into a private plane bound for the Cayman Islands. The owner of an Ohio-based telecommunications company, Ansted had purchased the Cessna 525C jet one year earlier for $8 million. It had since become his go-to method of commuting to Florida, where he owned a condo and belonged to yacht and country clubs, as well as to his son’s lacrosse games in Towson, Maryland. For local travel, he drove a $250,000 Ferrari.
The trip to the Caymans was the last junket Ansted took before he was busted for fraud in 2018 by the Federal Communications Commission, which found that he had paid for his lavish lifestyle, including the jet and Ferrari, by embezzling millions from the agency’s Universal Service Fund (USF), a little-known program that subsidizes phone and internet access for low-income customers.
Ansted had signed up dead people for service and even fabricated social security numbers in order to obtain subsidies from the program. Then he’d transferred those subsidies from his company, American Broadband, into a personal account, according to a public notice from the FCC.
“It would be hard to describe a more brazen or textbook example of fraud, particularly when the entire purpose of the … program is to benefit low-income individuals,” then-FCC commissioner Brendan Carr, who is now the chairman, said in a statement at the time. American Broadband was fined more than $63 million, the largest such penalty in agency history.
For a government that loses hundreds of billions each year to fraud, according to some estimates, Ansted’s caper, funded by a program most Americans have never heard of, was just a drop in the bucket. But it was also a symptom of what critics say is a structural defect at the heart of USF, which has for decades faced allegations of fraud and mismanagement from the Government Accountability Office (GAO).
Created in 1996 as part of the Telecommunications Act, the program is funded through a surcharge on consumers’ telephone bills. But the size of that charge isn’t set by the FCC itself.
Instead, the agency uses the calculations of a private corporation, the Universal Service Administrative Company (USAC), which is run by representatives of the very companies that receive subsidies from the program. The companies estimate how much money they will need to expand service to high-cost areas and in nearly all cases, the FCC has miraculously set the surcharge equal to that amount, creating a system in which the beneficiaries of a government program decide how much the taxpayer spends on it.
That conflict of interest, critics say, is one reason why the surcharge has skyrocketed since the program’s inception, from just 5.7 percent in 2000 to 36.6 percent in the second quarter of 2025.
As the program has grown, so have the cases of reported fraud. And the body charged with preventing that fraud just so happens to be USAC—the same consortium of insiders that relies on the program for easy money.
The perverse incentives were noted by the Fifth Circuit Court of Appeals last year, when it ruled that the FCC’s funding structure was unconstitutional.
“The entity most responsible for snuffing out wasteful or fraudulent disbursements—USAC—is run almost entirely by stakeholders who stand to benefit financially when universal service subsidies grow,” Judge Andrew Oldham wrote for a nine-judge panel.
That structure is mandated by FCC regulations, which require nearly all of USAC’s directors to be recipients of USF funds. “FCC mandates that nine of USAC’s nineteen directors represent companies in the telecommunications industry who are compensated by the very same USF funds they raise,” Oldham wrote. “It mandates that another seven represent the schools, libraries, health care providers, and low-income consumers who are direct recipients of USF funds.”
The challenge to the program’s constitutionality has made it all the way to the Supreme Court, which will decide whether the FCC violated the so-called nondelegation doctrine—that is, the principle that Congress cannot delegate legislative power to private entities—by giving USAC so much control over USF. At issue is whether the surcharge on phone bills is really a tax and whether the FCC has put enough limits on USAC’s ability to set that fee.
The Court seemed poised to uphold the program when it considered the case, FCC v. Consumers’ Research, during oral arguments last month. Even so, the legal challenge has trained the klieg lights on USF, which also subsidizes internet access for schools and libraries and, between 2012 and 2021, lost more than $100 million to fraud from a single company.
Yet another company signed up more than 175,000 ineligible customers for service. And in Illinois, a charter school system run by Turkish nationals was fined $4.5 million for violating the program’s competitive bidding rules, which are designed to keep costs low when the FCC reimburses equipment.
Such scams do not appear to be an aberration. In 2017 alone, a part of USF that focuses on low-income consumers known as the Lifeline Program made more than $330 million in improper payments, according to an inspector general report. A GAO audit released that year found that more than a third of customers signed up for the Lifeline Program were not eligible for it, with $1.2 million a year going to fictitious or dead individuals.
“A complete lack of oversight is causing this program to fail the American taxpayer—everything that could go wrong is going wrong,” former Sen. Claire McCaskill (D, Mo.) said at the time. “We’re currently letting phone companies cash a government check every month with little more than the honor system to hold them accountable, and that simply can’t continue.”
McCaskill, a Democrat, implied that scandal stemmed from the rapaciousness of private companies. But for conservative critics of the program, which doles out $8 billion a year, the fraud highlights how the administrative state—often justified as a bulwark against corporate greed—can give corporations new opportunities to enrich themselves when it outsources policymaking to private entities.
In theory, it is Congress that collects taxes and the executive branch that disburses the revenue. But by letting USAC set the surcharge, critics say the FCC has put both powers in the hands of private companies, insulating the program from democratic oversight.
“They set their own budget for spending, then adjust taxes to cover what they’re spending,” said Chris DeMuth, a legal scholar at the Heritage Foundation and the former president of the American Enterprise Institute. “The Ways and Means Committee doesn’t have that kind of power.”
The result, DeMuth added, is a kind of “formalized” regulatory capture with few precedents in public finance. While the FCC can theoretically revise USAC’s recommendations for the surcharge, it has only done so a few times in its history, and only by a small amount.
In the second quarter of 2003, for example, the agency revised the proposed surcharge from 9.0044 percent to 9.1 percent—an increase the FCC cited in court to argue that it exercises meaningful restraint over USAC. The filing admitted that “the Commission’s revisions are relatively infrequent” but noted that USAC’s proposals are “guided by … detailed regulations.”
In his opinion challenging the program, Oldham argued that those regulations mean little if the regulated entity, USAC, is the one tasked with enforcing them.
“Because the telecommunications industry polices its own compliance with FCC universal service policy … private entities have a far more important and discretionary role in determining the size of the contribution amount … than the FCC would have you believe,” Oldam wrote. “FCC has in effect said to carriers: Here is our universal service policy and a blank check. … We know you have financial incentives to juice the number, but we trust you’ll follow our policy to the letter anyways.’”
Original News Source – Washington Free Beacon
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