The notice provides information to bank officials about how bad actors carry out their schemes through the use of shell companies. The schemes impact the construction job market and negatively affect legitimate contractors and their workers by putting them at a competitive disadvantage, FinCEN said.
Fraudulent construction businesses conduct their schemes through two major categories, according to FinCEN. First, operators will establish a shell company, then take out a minimal workers’ compensation policy to rent or sell to contractors that employ more workers than the policy is designed to cover. That constitutes insurance fraud, FinCEN said.
Second, the shell company’s operators commit tax fraud, as contractors use the shell company to pay workers “off the books,” therefore not paying state and federal government payroll taxes.
FinCEN highlighted the case of Melesio Gomez-Rivera, a Portland, Oregon, area contractor recently sentenced to federal prison for his role in a scheme to evade payroll and income taxes on the wages of workers.
https://www.constructiondive.com/news/feds-warn-banks-construction-fraud-workers-comp/691305/