Jim Saunders of the News Service of Florida reports that pointing to rampant fraud in the construction industry, the state is trying to fight workers-compensation insurance schemes that involve creating shell companies and moving money through check-cashing businesses.
State officials met Thursday with representatives of the construction, insurance and money-services industries as they look for ways to curb the fraud — a situation that one participant likened to the “wild west.”
“This is an organized criminal enterprise,” said Geoffrey Branch, chief of workers-compensation fraud in the Florida Division of Insurance Fraud. “It doesn’t happen by accident.”
The schemes are multi-layered. But ultimately, state and industry officials said fraud can increase insurance premiums for legitimate businesses and lead to disputes about who should pay to care for injured workers.
“Those who are breaking the law are putting the workers of Florida at risk, and they are damaging the entire market dynamic for those honest players out there,” state Chief Financial Officer Jeff Atwater said.
The schemes center on people who create shell companies that are used to buy minimal workers-compensation insurance policies. With the policies in hand, operators of the shell companies then hook up with construction sub-contractors who need workers-compensation insurance to get jobs — but don’t want to buy it.
The shell-company policies are used to get what are known as “certificates of insurance,” which are sent to general contractors as proof of coverage. The sub-contractors are purported to be employees of the shell companies, which allows the sub-contractors to get the jobs.
When construction jobs are finished, general contractors write checks to the shell companies. Those checks are taken to money-services businesses, with the sub-contractors getting paid in cash and the operators of the shell companies taking a cut for providing the insurance certificates.
Authorities said Thursday that operators of money-services businesses also are often part of the scheme, as the shell companies typically provide the certificates to numerous sub-contractors. The businesses get a cut for cashing large numbers of checks and going along with the fraud.
In one South Florida case, for example, investigators found that about $28 million in payroll had gone through four check-cashing businesses over four years.
Assistant Statewide Prosecutor Margery Lexa said the schemes allow criminals to make large amounts of money more safely than if they were involved in such activities as the illegal-drug trade.
“It’s absolutely a lucrative, lucrative crime,” Lexa said.
The meeting Thursday was the first of a “working group” that is expected to come up with recommendations that will go to the Legislature. The group is expected to meet at least three more times.
The state believes the schemes, which are happening in various parts of Florida, have resulted in hundreds of millions of dollars in unpaid workers-compensation premiums and uncollected state and federal taxes.
Also, officials said the effects of the fraud filter through the workers-compensation system.
For instance, sub-contractors might have large numbers of workers who do risky work. If the sub-contractors bought coverage, they might have to pay hefty premiums. But under the schemes, those insurance costs aren’t covered.
Robin Westcott, the state’s insurance consumer advocate, said taxpayers might have to cover injured workers’ medical costs if carriers deny claims. Meanwhile, if carriers pay claims without receiving adequate premiums, she said that can lead to higher insurance costs in the future for legitimate businesses.
Miguel Fuentes, political director for the Florida Carpenters Regional Council, said the fraud also makes it difficult for legitimate construction companies to compete for jobs with those who cheat on workers-compensation insurance.
“There’s a cheat to compete mentality,” said Fuentes, who likened the situation to the “wild west.”