FinCEN Calls Attention to Payroll Tax Evasion and Workers’ Compensation Fraud in the Construction Sector

FIN-2023-NTC1 August 15, 2023
FinCEN Calls Attention to Payroll Tax Evasion and Workers’ Compensation Fraud in the Construction Sector The Financial Crimes Enforcement Network (FinCEN) is issuing this Notice to call financial institutions’1 attention to what law enforcement has identified as a concerning increase in state and federal payroll tax evasion and workers’ compensation insurance fraud in U.S. residential and commercial real estate construction industries.2 Every year across the United States, state and federal tax authorities lose hundreds of millions of dollars to these schemes, which are perpetrated by illicit actors primarily through banks3 and check cashers.4 As described in this Notice, many payroll tax evasion and workers’ compensation fraud schemes involve networks of individuals and the use of shell companies and fraudulent documents.5 These schemes further affect the local and national construction job markets, and put legitimate construction contractors and their employees at a competitive disadvantage. This Notice aligns with the anti-money laundering/countering the financing of terrorism (AML/CFT) National Priorities,6 and provides financial institutions with an overview of the underlying schemes, red flag indicators, and specific SAR filing instructions.

1. See 31 U.S.C. § 5312(a)(2); 31 CFR § 1010.100(t).
2. See, e.g., U.S. Department of Justice (DOJ), U.S. Attorney’s Office, Middle District of Florida, Press Release,
   “Jacksonville Man Sentenced To More Than Four Years In Federal Prison For Facilitating ‘Off The Books’ Pay Scheme As Part Of Conspiracies To Defraud The IRS And Workers’ Compensation Insurance Company” (Dec. 12, 2022); Internal Revenue Service (IRS)-Criminal Investigation (CI), Press Release, “Polk County Man Sentenced for Role in Construction-related Wire Fraud and Tax Fraud Conspiracy” (Jul. 12, 2022); IRS-CI, Press Release, “Couple Pleads Guilty to Conspiracy to Commit Wire Fraud and Conspiracy to Impede and Defraud the IRS” (Mar. 10, 2022); see also DOJ, U.S. Attorney’s Office, Middle District of Florida, Press Release, “Massachusetts Man Sentenced to Prison for Fraudulent Scheme to Evade Payroll Taxes and Workers’ Compensation Requirements in Construction Industry” (Jul. 7, 2021); DOJ, U.S. Attorney’s Office, District of South Carolina, Press Release, “Twelve Plead Guilty to Tax and Immigration Charges after Undercover Operation Marking Largest Criminal Tax Case in Pee Dee History” (Oct. 26, 2021); DOJ, U.S. Attorney’s Office, District of Oregon, Press Release, “Oregon Check Casher and Construction Company Operators Indicted in Payroll Tax Evasion Scheme” (Dec. 2, 2021).
3. See 31 CFR § 1010.100(d).
4. Check cashers are a type of money services business (MSB). See 31 CFR § 1010.100(ff)(2).
5. Shell companies are typically non-publicly traded corporations, limited liability companies, or other types of entities
   that have no physical presence beyond a mailing address, generate little to no independent economic value, and generally are created without disclosing their beneficial owners. See FinCEN, Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,501 (Sept. 30, 2022).
6. See FinCEN, “AML/CFT National Priorities” (June 30, 2021).
   Suspicious Activity Report (SAR)
   Filing Request:
   FinCEN requests financial institutions reference this Notice in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the following key term:
   “FIN-2023-NTC1”.