The U.S. Department of the Treasury’s Financial Crimes Enforcement Network has issued an alert to financial institutions on fraud schemes related to the Employee Retention Credit as part of the CARES Act.

According to the November 22, 2023, alert, FinCEN is “urging vigilance in identifying and reporting suspicious activity.”

The agency identified 10 “red flag indicators of ERCfraud,” including:

• A business account receives more than one ERC check deposit over multiple days;
• Small business accounts receive an ERC check deposit that is not commensurate with the size of the business, the number of employees, and the volume of the transaction;
• A large ERC is deposited into a business account and is subsequently transferred using P2P services or to an online banking institution, or withdrawn as cash at an ATM;
• A new business account is created for an established business, but no other business activity occurs in the account except to deposit of the ERC. This may be indicative of identity theft, where the established business was used as a fraudulent front to file for the ERC; and
• A customer reports or provides documents indicating that their ERC was obtained by a third-party firm whose credentials cannot be verified or is the subject of adverse media.

The alert also provides general information on suspicious activity reporting.

FinCEN reported that the Criminal Investigation division of the Internal Revenue Service has already opened 323 investigations involving more than $2.8 billion of potentially fraudulent ERC claims. It adds that some individuals “have fraudulently filed ERC claims with the IRS using fabricated and dormant entities. For ERC schemes, CI has observed that dormant entities typically had an EIN but did not have any activity and then filed taxes for at least one tax period during the claim period.”

By Gregory Twachtman, Washington News Editor