Two men pleaded guilty last week to a fraudulent scheme to avoid payroll taxes and construction industry workers' compensation requirements in Jacksonville, Florida, according to an announcement from the U.S. Department of Justice.
Gregorio Jose Fuentes-Zelaya, 27, and Dennis Alexander Barahona, 38, pled guilty to charges that they established shell companies purported to be involved in the construction industry, then obtained workers' compensation insurance policies to cover a minimal payroll for fake employees. According to the DOJ, they then "rented" the insurance to work crews who had obtained subcontracts with contractors on projects across Florida.
The U.S. will seek forfeiture of $1.4 million — the approximate amount of proceeds obtained as a result of the offenses — as well as funds seized from two banks utilized during the scheme totaling $230,764. Fuentes-Zelaya and Barahona also owe approximately $5.8 million in restitution for the tax fraud offenses.
Fuentes-Zelaya pled guilty to five counts of wire fraud and two counts of tax fraud. Barahona pled guilty to one count of wire fraud and one count of tax fraud. Each wire fraud count carries a maximum penalty of 20 years in prison, and each tax fraud count carries a 5 year maximum penalty.
Florida law requires crews to have workers compensation insurance. Fuentes-Zelaya and Barahona sent the contractors to whom they had rented the policy a certificate as "proof" of that insurance, DOJ said citing court documents. By sending the certificate, they falsely represented that the crews worked for their shell companies. Over the course of the scheme, they rented the certificates to hundreds of work crews, the DOJ alleges.
The contractors would then issue payroll checks for the workers' wages to Fuentes-Zelaya and Barahona's shell companies. The pair would cash those checks, then distribute the cash to the work crew after scraping off their fee — which was roughly 6% of the payroll. During the scheme, the conspirators cashed approximately $22.8 million in payroll checks, with their fees totaling $1,367,625.
Neither the shell companies nor the contractors reported to government authorities that the wages were paid to the workers, nor did they pay the employers' or employees' payroll taxes. The estimated amount of payroll taxes due on the wages is $5,766,286.
The scheme also avoided the higher cost of obtaining adequate workers' compensation insurance for the hundreds of construction crews who rented the certificates. Had the employers actually purchased policies for the work crews, the premiums on the $22.8 million in salaries would have totaled approximately $3.6 million for insurance companies, the DOJ statement said.
