August 15, 2023

Today, the Financial Crimes Enforcement Network (FinCEN), in coordination with the Internal Revenue Service’s Criminal Investigation Division, issued a detailed notice urging U.S. financial institutions to take extra precautions to prevent the banking system from being used to facilitate a “concerning increase in state and federal payroll tax evasion and workers’ compensation insurance fraud in the U.S. residential and commercial real estate construction industries.”

The notice echoes several points that SWACCA has consistently pressed with FinCEN. It details how “many payroll tax evasion and workers’ compensation fraud schemes involve networks of individuals and the use of shell companies and fraudulent documents.” The FinCEN notice reflects arguments SWACCA has been making to FinCEN for over three years, including in written comments SWACCA’s advocacy team submitted in March 2021, February 2022, and February 2023 about how the agency can help address payroll fraud and tax evasion through the reporting processes it is charged with overseeing and that SWACCA has been influencing for the benefit of its members and to fight misclassification in our industry.

The notice includes a guide for financial institutions to detect payroll tax evasion and workers’ compensation fraud schemes, noting that they are perpetrated by “illicit actors primarily through banks and check cashers.” It also illustrates the types of “shell company” schemes about which SWACCA has been educating FinCEN through its advocacy. The notice also highlights “red flags” indicating construction-related payroll tax evasion and workers’ compensation fraud, including, among others: (1) 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; (2) 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; (3) a representative of the construction company 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; and (4) 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.

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