Christine Jordan Sexton, 08/24/2011 – 03:47 PM

A new scheme involving money services businesses and shell companies is bilking the government out of taxes and costing workers compensation companies lost premiums, with the fraud estimated to cost at least $438 million, state insurance fraud regulators say.

More than two dozen people, mostly lobbyists, have been invited to meet with a number of state officials including Office of Financial Regulation Commissioner Tom Grady, Office of Insurance Regulation General Counsel Belinda Miller and the statewide prosecutor’s office to discuss the operations  that allow uninsured subcontractors to rent workers comp insurance policies from a shell company.

As laid out in documents from Chief Financial Officer Jeff Atwater’s office that will be discussed at the Thursday meeting, “facilitators” form shell companies to buy minimal workers compensation coverage and certificates of insurance from reputable agents. The facilitator then approaches uninsured contractors who want to work but can’t, because they don’t have the required coverage.

Willing contractors then will hire uninsured subcontractors, paying them with checks made out to the shell company. That check is cashed by the facilitator at a money service business such as a check casher, which cashes the check, issues a currency transfer report using the name of the owner of the shell company, and pockets between 5 percent and 10 percent of the value. The facilitator also skims a percentage off the top, and the remainder is given to the uninsured subcontractor to pay employees in cash, according to Atwater’s office.

The money paid to the shell company is never reported to the workers’ compensation carrier, nor does it appear as payroll.  With CTRs totaling $1 billion, the CFO’s office says the fraudulent scheme amounts to at least $438 million in unpaid state and federal employment taxes and Social Security, Medicare and workers compensation premiums. That figure doesn’t include any unpaid hospital bills or doctor’s bills.

The invited lobbyists represent an array of players in the workers compensation area, from the construction industry to the business community to workers compensation insurers, retailers and the check cashing industry.

“I am looking forward to working together to develop solutions for combating this growing crime trend,” said Atwater in a statement. “Bringing together stakeholders will take us one step closer to the solutions we need to expedite jail time for these con artists.”

Lobbyist Jim Daughton represents Amscot Financial, which offers check cashing, money orders, cash advances and prepaid services. His client, Daughton says, wants to ensure that the state use its current enforcement capabilities to crack down on fraudulent behavior.

“Everybody is going into this thing thinking, ‘how can we get to a solution?’” Daughton said, adding that many of the money services businesses are large publicly traded corporations with compliance officers. It could be, he said, that all that needs to occur is for state insurance fraud regulators to meet with companies compliance officials to “see what we can do together.”

“It seems like regulations are pretty stringent now,” Daughton said.