08/23/2023

FinCEN Notice Highlights Concerning Increase in Payroll Tax Evasion, Workers’ Compensation Fraud in the Construction Sector

FinCEN

WASHINGTON— Today, the Financial Crimes Enforcement Network (FinCEN), in coordination with IRS Criminal Investigation (CI), issued a Notice to financial institutions calling attention to 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. Every year, state and federal tax authorities lose hundreds of millions of dollars to these schemes, which are perpetrated by illicit actors primarily through banks and check cashers.

“FinCEN is committed to combating fraud by shedding light on how illicit actors within the construction industry are using shell companies and other tactics to commit workers’ compensation fraud and avoid payroll taxes,” said FinCEN Acting Director Himamauli Das. “We are proud of our collaboration with CI in issuing this Notice and exposing tax and insurance fraud that has plagued the construction industry and undermines law-abiding construction firms. Today’s Notice provides information that financial institutions can use to remain vigilant in monitoring, detecting, and reporting suspicious activity that may be indicative of payroll tax evasion and workers’ compensation fraud in the construction industry.”

“Earlier this year, we touted how Bank Secrecy Act data plays an instrumental role in the agency’s criminal investigations, and we believe the data we receive in response to today’s Notice will expose a number of payroll tax evasion and workman’s compensation schemes,” said CI Chief Jim Lee. “By enlisting the help of financial institutions, we hope to crack down on fraudsters and level the playing field for legitimate business owners.” The Notice describes how payroll tax evasion and workers’ compensation fraud schemes may involve networks of individuals and the use of shell companies and fraudulent documents. These schemes affect the local and national construction job markets and put legitimate construction contractors and their employees at a competitive disadvantage. The 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 Suspicious Activity Report (SAR) filing instructions.

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