On August 15, 2023, FinCEN issued a Notice alerting financial institutions to increasing payroll tax evasion and workers compensation fraud within the construction sector. It pointed out that such schemes are perpetrated by networks of people who use shell companies and fraudulent documents.
This Notice provides a detailed explanation of how such schemes work, highlights a real-life example of payroll tax evasion, and outlines 11 red flags for financial institutions to be on the lookout for. Some of these red flags include:
- The customer is a new (i.e., less than two years old) 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.
- A customer receives weekly deposits in their account that exceed normal account activity from several construction contractors involved in multiple construction trades (e.g., framing, drywall, stucco, masonry, painting, etc.). The deposits may be conducted from locations in multiple cities or states.
- 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.
FinCEN also asks that any suspicious activity reports (SARs) filed related to this type of suspected activity include “FIN-2023-NTC1” in SAR Field 2 (Filing Institution Note to FinCEN) and the Narrative.
Published
2023/08/24