A “concerning increase” in state and federal payroll tax evasion and workers’ compensation insurance fraud in residential and commercial real estate construction has led federal financial crime investigators to issue a notice to financial institutions, the agencies said Tuesday.
The notice includes a checklist of developments that banks, credit unions and other financial institutions should be watching for in uncovering any such illicit activity.
In the notice issued by the Financial Crimes Enforcement Network (FinCEN) and IRS Criminal Investigation Service, the agencies said fraud schemes targeting tax evasion and workers’ compensation insurance fraud involve networks of individuals and the use of shell companies and fraudulent documents. The agencies asserted that the schemes further affect the local and national construction job markets and put legitimate construction contractors and their employees at a competitive disadvantage.
When considering whether a fraud scheme is in action, the agencies urged financial institutions to be on the lookout for:
- A new customer (e.g., of less than two years) from a small construction company specializing in one type of construction trade (e.g., framing, drywall, stucco, masonry, painting, etc.) with minimal to no online presence and has indicators of being a shell company for illicit activity.
- The person or company opening the account has no known prior involvement with, or in, the construction industry, and the individual opening the account provides a non-U.S. passport as a form of identification.
- Beneficial owners of the shell company have no known prior involvement with, or in, the construction company and may have prior convictions involving fraud.
- The company’s recently acquired workers’ compensation insurance policy, which may be verifiable through an official state website, was issued within the last year and covers only a small number of employees. However, a high volume of transactions is observed in the company’s bank accounts, which is not commensurate with a construction company of that size, the agencies said.
- A customer who receives weekly deposits in their account that exceed normal account activity from several construction contractors involved in multiple construction trades (g., framing, drywall, stucco, masonry, painting, etc.). The deposits may be conducted from locations in multiple cities or states.
- A customer who engages in behavior that suggests efforts to evade currency transaction report (CTR) filing requirements (e.g., the account holder or company representative alters or cancels a transaction when advised a CTR would be filed or engages in structuring with multiple check payments of less than $10,000).
- A representative of the construction company who conducts large or unusual volumes of cash withdrawals or negotiation of checks for cash when accompanied by another involved person(s) or using an armored car service to deliver bulk cash.
- Large volumes of checks for under $1,000 are drawn on the company’s bank account and made payable to separate individuals (e.g., the workers), which are subsequently negotiated for cash by the payee.
- The company’s bank account has minimal to no tax- or payroll-related payments to the IRS, state and local tax authorities, or a third-party payroll company despite a large volume of deposits from clients.
- The Internet Protocol (IP) address identified from the account holder’s online banking activity also may be associated with the online banking activity for another customer involved in the same type of purported construction-related activity.
- The account holder or company representative makes statements to bank tellers or check cashers that the purpose of the cash withdrawals, negotiation of checks for cash, or check cashing activity is for payroll and the volume, amount, and frequency of transactions are uncharacteristic for a construction company with a small number of employees.