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Commerce Fraud Bureau to get new powers to investigate wage theft, other financial crimes

Posted by National Alliance for Fair Contracting on

Max Nesterak
May 25, 2022

Labor leaders are calling a bill that passed the state House and Senate on Sunday the most significant piece of legislation for combating wage theft since it was made a felony in 2019.

The bill (HF 3255), which is awaiting Gov. Tim Walz’s signature, gives the Commerce Fraud Bureau new powers to criminally investigate financial crimes along with more than $800,000 a year to hire five more investigators.

“This is a very big deal,” said state Rep. Zack Stephenson, DFL-Coon Rapids, who authored the bill in the House. “All across the state, white collar crimes are in desperate need of more enforcement.”

Until now, the Commerce Fraud Bureau has been restricted by law to insurance fraud investigations — a function of the department being entirely funded by a tax on insurance companies.

The new law maintains that at least 70% of the department’s work must continue to focus on insurance fraud, but allows the department to investigate all financial crimes with money appropriated from the general fund.

That puts new power behind the state’s ability to criminally investigate labor violations that are rampant in construction and hospitality — yet seldom prosecuted. Payroll fraud in the construction industry alone costs the state upwards of $136 million a year in lost tax revenue, according to one estimate by the Midwest Economic Policy Institute.

“Wage theft and tax fraud are business models,” said Adam Duininck, director of governmental affairs for the North Central States Regional Council of Carpenters. “When we see it in such a concerted manner, the only way to patrol that is with aggressive enforcement.”

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Construction firms owe $1.1 million in back pay (IL)

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State decision on prevailing wage follows complaint by carpenters council.

By David Roeder
Feb 24, 2020

The Chicago Regional Council of Carpenters said Monday the developer and subcontractors that built a senior living center in Northbrook have been ordered to pay $1.1 million to employees for violating state law on prevailing wages and benefits.

The Illinois Department of Labor, responding to charges the council filed, ordered the back pay for employees who constructed the Lodge of Northbrook, a 164-unit facility at 2150 Founders Drive, Northbrook. The project benefited from bonds issued by the Illinois Finance Authority, making it subject to the state’s Prevailing Wage Act. …

Executive Secretary-Treasurer Gary Perinar of the carpenters council said the back pay award is the largest in its history. He said many workers will receive thousands of dollars paid out over a year.

“We have a new department dedicated to combating wage theft and are putting unscrupulous contractors on notice that cheating workers and taxpayers will not be tolerated,” he said. The council is a part owner of Sun-Times Media. …

“Wage theft and the loss of tax revenue affects everyone,” Perinar said. “It takes advantage of workers, many of whom are unaware of their right to receive fair wages and benefits for themselves and their families. It puts signatory union contractors at a disadvantage for competitively bid projects. And it cheats communities out of tax dollars to increase future growth, new projects and public services. Thanks to our research team for discovering this injustice and to the Department of Labor for enforcing the law.”

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Opinion: Criminalizing wage theft is only one step in the right direction (CO)

Posted by National Alliance for Fair Contracting on

APR 29, 2019 4:05AM MDT
Rebecca Galemba

A day worked is a day paid,” a day laborer in Lakewood, Colorado stated. But according to the Colorado Fiscal Institute (CFI), this is not the case for many Colorado workers. Each year, half a million Coloradans suffer from wage theft, amounting to $750 million a year, in addition to the associated $25 million to $47 million in lost state tax revenue and potential public services.

Wage theft refers to the denial of earned wages and benefits protected under state and federal labor laws. The CFI numbers are likely vast under-estimates due to underreporting and pervasive worker misclassification.

New legislation, like Colorado House Bill 1267, would recognize wage theft for the insidious, and often intentional, crime it is. This legislation would treat wage theft as “theft” so that the intentional withholding of wages over $2,000 would be considered a felony.

When employers get away with cheating their workers, it not only harms Colorado’s most vulnerable people, but also undermines wages and working conditions for all workers and creates unfair business advantages for unscrupulous employers. When penalties are low or not applied, committing wage theft is relatively low-risk, profitable, and normal.

Recognizing the crime of wage theft is a step forward in mitigating this unfair business practice. House Bill 1267 can pave the way for more proactive policies to target routine violators, ramp up public enforcement, enhance retaliation protections, monitor industries with pervasive violations and create partnerships to assist workers who may lack the ability to come forward in a claims-driven enforcement environment.

In Colorado, the construction sector accounts for the largest share of violations of the Fair Labor Standards Act; it is estimated that a third of workers in construction may be misclassified, leading employers to avoid obligations to their workers as well as payroll taxes. In my research survey of over 400 day laborers, we found that 62% of workers surveyed had experienced wage theft, but that only half ever pursued their unpaid wages.

Fewer than 40% asked for assistance even though an amendment to the Colorado Wage Claims Act, which went into effect in 2015, authorized the Colorado Department of Labor and Employment’s Division of Labor Standards and Statistics to adjudicate wage claims and levy fines and penalties to deter bad behavior regardless of a worker’s legal status.

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Union: Construction tax fraud costs governments $450B annually (PA)

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Bob Bauder
Monday, April 15, 2019 3:37 p.m.

Several hundred carpenters’ union members and public officials rallied Monday in Downtown Pittsburgh to call for an end to construction industry fraud.

Union officials said unscrupulous contractors and labor brokers rob the public of federal and local tax revenue by paying workers cash “under the table,” misclassifying them as independent contractors and failing to pay such benefits as workman’s compensation and unemployment.

The fraud costs local governments across the United States an estimated $450 billion annually in lost tax revenue, officials said.

“When you talk about tax fraud, it’s about people that are cheating,” said Bill Waterkotte, eastern district vice president of the Keystone Mountain Lakes Regional Council of Carpenters. “They’re not paying taxes. They’re paying cash. Four hundred and fifty billion (dollars), in evading taxes. That could go to building our roads and bridges, our schools, our veterans, helping the people who need help, and they’re stealing it.”

The union estimates fraud costs Pennsylvania governments about $200 million each year, but offered no specifics for the Pittsburgh region.

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Pittsburgh City Council late last year approved a resolution proposed by Councilman Corey O’Connor that created a task force to investigate the issue. O’Connor said the members plan to offer future legislative remedies to council and the mayor.

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“We are going to go after those bad workers, those people that take our tax money, that take your jobs because subcontractors and contractors are undercutting city bids. We have to stop that,” O’Connor said.

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Council passes resolution to examine construction industry fraud (PA)

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Ashley Murray
December 27, 2018

Allegations of widespread fraud in the construction industry led Pittsburgh City Council on Thursday to vote 8-0 to create a new task force, but there wasn’t unanimity on the nature and degree of the problem.

“Basically we know that this activity is happening and we’re losing tax revenue from it,” said the bill’s sponsor, councilman Corey O’Connor, though he did not have specific figures.

The resolution, co-sponsored by councilwoman Darlene Harris, directs the mayor to convene representatives from council, and the offices of the city controller, Allegheny County district attorney, as well as trade unions and the state’s Department of Labor and Industry. It would explore tax fraud – sometimes referred to as paying people under the table – and other “unfair” practices within the city’s construction industry.

Past approaches to construction industry fraud – and even some recent pronouncements by advocates for the task force – have referenced undocumented workers. Thursday, though, backers emphasized that the bill isn’t about immigration.

Members of the United Brotherhood of Carpenters gathered in Council Chambers Thursday to support the bill’s passing.

“We have people getting paid cash on the job sites, and that’s not fair,” said Steve Mazza, representative for the Keystone Mountain Lakes Regional Council of Carpenters, based in Collier. “I have to pay taxes. Everybody should be paying taxes. Why is that being unchecked?”

Mr. Mazza’s union claims that Pennsylvania has lost hundreds of millions of dollars in taxes because of industry fraud, though it did not detail that figure Thursday.
The scope of loss for the city is unclear.

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