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FinCEN Alerts Financial Institutions About Ongoing ERC-Related Fraud Schemes

FinCEN

Fraud related to COVID-19 relief programs continues to occur “at a concerning scale.”

Andrea Gacki, director of the Financial Crimes Enforcement Network (FinCEN), said this in a Thursday (Nov. 22) press release announcing the issuance of an alert to financial institutions on fraud schemes related to the COVID-19 Employee Retention Credit (ERC).

The alert was issued in close coordination with the Internal Revenue Service (IRS) Criminal Investigation (CI), according to the release.

“We are issuing this alert in partnership with CI to remind financial institutions that it is critical that they remain vigilant in identifying and reporting related suspicious activity and to protect businesses from being taken advantage of by fraudster,” Gacki said in the release.

The alert provides an overview of typologies associated with ERC fraud and scams, and highlights select red flags to help financial institutions identify and report suspicious activity, per the release. It also reminds financial institutions of their reporting requirements under the Bank Secrecy Act (BSA).

CI has identified ongoing frauds and scams related to the ERC, which is a tax credit to encourage businesses to keep employees on payroll during the COVID-19 pandemic, according to the release. During the tax years 2020 through 2023, CI has conducted 323 investigations involving more than $2.8 billion of potentially fraudulent CRC claims.

In response to the scope of this fraud, the IRS announced a moratorium on processing new ERC claims that will last at least through Dec. 31, the release said.

When announcing the moratorium on processing new ERC claims on Sept. 14, the IRS said there was growing concern about the influx of ineligible claims and aggressive marketing tactics that are putting businesses at financial risk when applying for the tax credit. There are many scams in which promoters pressure small businesses to apply for fraudulent claims.

“Tax credits like employee retention credits were meant to provide assistance to struggling business owners during the COVID-19 pandemic, but fraudsters, unfortunately, used the credits to line their own pockets,” CI Chief Jim Lee said in the Wednesday press release. “We hope this alert will help financial institutions recognize financial patterns that indicate fraud and help us recover funds stolen from U.S. taxpayers.”