On November 22, 2023, the U.S. Treasury Department Financial Crimes Enforcement Network (FinCEN) issued an alert urging financial institutions to be vigilant about identifying and reporting possible fraud schemes related to the COVID-19 Employee Retention Credit (ERC). FinCEN issued the alert “in close coordination” with IRS Criminal Investigation (CI).
FinCEN states that CI has identified fraud relating to the ERC that, so far, has resulted in 323 investigations involving more than $2.8 billion in potentially fraudulent ERC claims during tax years 2020, 2021, 2022, and 2023. FinCEN warns of third-party promoters who have used aggressive marketing tactics, like mail notices designed to look like official IRS communications, or media advertisements, to convince businesses to pay the promoters to use their services to apply for the ERC.
FinCEN provides financial institutions with an overview of the “Trends and Typologies of ERC-Related Financial Crimes;” urges vigilance in identifying ERC-related suspicious activity; and reminds financial institutions of their reporting requirements under the Bank Secrecy Act (BSA).
FinCEN identifies ten “Financial Red Flag Indicators of ERC Fraud” to assist financial institutions in detecting a suspicious transaction associated with ERC fraud and filing a required BSA Suspicious Activity Report (SAR). FinCEN reminds that the ERC is credited only through a Treasury-issued check mailed to the business’s address, with the lower left showing the tax quarter and the IRS employment return associated with the credit, such as Forms 941, 943, 944, or 7200. The ten red flags that financial institutions should pay attention to are:
- A business account receives more than one ERC check deposit over multiple days.
- A small business account receives an ERC check deposit not commensurate with the size of the business, the number of its employees, and its gross receipts.
- A large ERC is deposited into a business account and is then transferred using Peer-To-Peer (P2P) services or to an online banking institution; withdrawn as cash at an ATM; transferred from the account into separate accounts; or paid to new businesses with which a bank customer has not previously had transactions.
- The account receiving an ERC check has no deposits other than Treasury-issued checks or has no regular business transactions.
- A customer tries to deposit an altered Treasury ERC check, or the financial institution is unable to verify the validity of a check that a customer attempts to deposit.
- An ERC check is deposited into a business account that did not exist in 2020 or 2021.
- An account is created in the name of an established business, but no business activity occurs other than the deposit of the ERC. This may indicate identity theft with an established business used as a fraudulent front to file for the ERC.
- A dormant business account suddenly receives an ERC check deposit.
- An ERC check is deposited into a business account with no payroll history.
- A customer reports or provides documents that indicate its ERC was obtained by a third-party firm whose credentials cannot be verified or has been the subject of adverse media.
The FinCEN alert can be found here.
A press release about the alert can be found at FinCEN Alert on COVID-19 Employee Retention Credit Fraud | FinCEN.gov
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