“A dangerous fraud scheme has infiltrated the construction industry in Florida over the last several years. Usually involving residential home building, it started in South Florida but has swept northward to encompass most major cities in the state. The scheme revolves around “shell companies,” which on the surface look legitimate and have proper workers comp coverage, but in reality are operating a giant pool of off-the-books labor and are hiding millions of dollars of unreported payroll.

The fraud starts when a labor broker, also called a facilitator, induces a (sometimes) innocent third party-often a foreign national with family to support in his or her home country-to set up a company with the state Division of Corporations that has a very generic name that may reference construction. The company’s name has to be generic, because different crews will be (a) working on many different job sites and (b) often performing all types of construction work. Often the words “Construction Services” or “Services Corp” are in the name. A series of three initials like “ABC Construction” is also common.

The owner then approaches an insurance agent to secure workers compensation coverage and reports just enough payroll in a construction class to look legitimate and to not arouse suspicion from the insurance carrier. Most often, the class code is one that typically uses unskilled labor, such as drywall, framing or concrete.

After the workers comp coverage is in place, the business owner takes his certificate of insurance (COI) listing the company’s workers comp coverage and then rents that COI out for a fee to dozens of different construction crews doing work on many different job sites.

When the general contractor pays the crew for work performed, the labor broker takes that check to a check-cashing store, gets the cash, takes his (substantial) cut, gives the check cashing store its cut, and gives what’s left to the crew leader to pay his crew for doing the work. The labor broker can have dozens of crews using hundreds of workers on different jobs sites at any one time, which means he is cashing millions of dollars in payroll checks in any given policy period.

The victims

None of this payroll is reported to the company’s insurance agent or workers comp carrier. Neither the carrier nor the agent know the true exposure associated with the policy for the shell company. For example, what is supposed to be a company with $50,000 in framing payroll that is paying $8,500 in annual premium could in reality be a company with $5 million in framing, drywall and concrete payroll that should be paying $850,000 annually.
This results in hundreds of thousands of dollars of unpaid premium that the insurance carrier never receives. If claims are made on the policy, they usually are from workers the insurance carrier never knew they were covering and for which they never received a penny. Of course, the shell game also reduces the commission the insurance agent should have received.

Other victims of this scheme are the undocumented workers who are injured working for one of these companies. They are the ones doing the hard work, and if they are hurt on the job, they have no idea what to do. Usually the only name they know is their crew leader; they don’t know the name of the shell company and they don’t know the name of the shell company’s insurance carrier. This complicated structure means injured workers can be left on their own to try and find medical help for injuries. ”

Read more about how to identify this very illegal activity so that you will not be caught in the scam at The Shell Game.

An article by Karen Phillips in Rough Notes, Special Report, June 2016.