We are very fortunate to have Special Agent Jonathan Schnatz as our guest speaker in this podcast on international efforts to investigate tax evasion and money laundering, and how they relate to criminal investigations and civil audits of U.S. businesses and individuals.
Special Agent Schnatz
The Financial Crimes Enforcement Network (“FinCEN”) has issued a notice entitled “FinCEN Calls Attention to Payroll Tax Evasion and Workers’ Compensation Fraud in the Construction Sector” (the “Notice”). According to the Notice, “state and federal tax authorities [annually] lose hundreds of millions of dollars to these schemes, which are perpetrated by illicit actors primarily through banks and check cashers.”
The Notice describes these combined schemes as follows. Individuals create a shell company whose sole purpose is to allow construction contractors to avoid paying workers’ compensation premiums as well as state and federal payroll taxes. The operators of the shell company will take out a minimal workers’ compensation policy and “rent” or sell the policy to construction contractors that employ a much larger number of workers than the policy is designed to cover. The insurance policy enables the shell company to apply for and receive official business registration status. The shell company operators will include the business license and tax documents in the package “rented” to the contractors. This is the insurance fraud aspect. Although insurance fraud is a state and local crime, it easily can be charged federally through use of the mail and wire fraud statutes. Mail and wire fraud also can serve as predicate offenses – more precisely, “Specified Unlawful Activities” – underlying federal money laundering charges.