The US Financial Crimes Enforcement Network (FinCEN), in collaboration with the Internal Revenue Service Criminal Investigation (IRS CI), has issued a notice to financial institutions urging them to report indicators of workers’ compensation fraud and payroll tax evasion in the construction industry. The regulator believes that these schemes are responsible for significant losses in tax revenue and create an unfair advantage for illegitimate contractors who underbid honest competitors.
The notice is part of FinCEN’s ongoing efforts to combat the use of shell companies for illicit activities, aligning with the Anti-Money Laundering/Countering the Financing of Terrorism National Priorities. In 2022, FinCEN issued a final rule requiring most US corporations and entities to report their beneficial owners, which will take effect in January 2024 and is expected to discourage the use of shell companies for illegal purposes.
The notice provides information on typologies, red flags, and reporting requirements related to workers’ compensation fraud and tax evasion in the construction industry. It outlines the two-part scheme typically used, involving workers’ compensation fraud followed by tax evasion, and provides red flags to help financial institutions identify suspicious activity.
Financial institutions, particularly banks and check cashers, are encouraged to review the notice to familiarize themselves with the red flags and reporting requirements. They are reminded of their reporting obligations under the Bank Secrecy Act (BSA) and the USA Patriot Act section 314(b). Firms are asked to report current information on payroll fraud-related activity to local tax authorities or the nearest IRS CI field office and report information related to workers’ compensation fraud, wire fraud, or labor exploitation to Homeland Security Investigations.
Staying informed about FinCEN’s guidance and requirements is essential for financial institutions to effectively combat financial crimes and maintain compliance with anti-money laundering regulations.
By FCCT Editorial Team
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