The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a notice to financial institutions Tuesday regarding its observations of increasing payroll tax evasion and workers’ compensation fraud taking place in the U.S. residential and commercial real estate construction industries.
The notice is aligned with FinCEN’s ongoing implementation of the Corporate Transparency Act, which will include the establishment of a beneficial ownership information registry requiring certain reporting companies to file basic information with the agency about who controls their finances. The registry is set to take effect in 2024.
“[M]any payroll tax evasion and workers’ compensation fraud schemes involve networks of individuals and the use of shell companies and fraudulent documents,” said FinCEN in its notice. “… This notice aligns with the anti-money laundering/countering the financing of terrorism national priorities and provides financial institutions with an overview of the underlying schemes, red flag indicators, and specific SAR (suspicious activity report) filing instructions.”
Red flags FinCEN noted regarding payroll tax evasion and workers’ compensation fraud schemes included:
- The person or company opening an account has no known prior involvement with, or in, the construction industry;
- Beneficial owners of the shell company have no known prior involvement with, or in, the construction company;
- A high volume of transactions is observed in the company’s bank accounts at a rate not commensurate with its size;
- A customer engages in behavior that suggests efforts to evade currency transaction report filing requirements; or
- The IP address identified from the account holder’s online banking activity appears associated with the activity of another customer involved in the same type of purported construction-related business.
FinCEN concluded the notice with a reminder for banks regarding their obligations to file SARs as required under the Bank Secrecy Act.