Definition of Business Fraud
Fraud is broadly defined to include making false promises or material misrepresentations that are relied upon by others to your benefit or to their detriment. Fraud offenses can be used to obtain money or assets from individuals, businesses, and government institutions. While some fraud offenses are prosecuted by state law enforcement, many types of fraud can result in federal criminal charges with potential penalties including decades of incarceration.
If you are accused of fraud, you need to contact a business fraud lawyer for assistance in responding to charges, exploring options for defenses against charges, or negotiating a plea agreement with prosecutors.
Types of Fraud in Business
There are many types of fraud that involve businesses including:
Some business fraud involves the creation of a sham corporation or a fake merchant identity in order to launder money, steal cash or credit information, run unauthorized credit transactions, make sales but never provide merchandise, or push counterfeit merchandise. In other situations, a business will be the target of a fraud scheme or a legitimate business will be infiltrated for purposes of committing a fraud offense.
Many corporate fraud schemes involve multiple parties involved in the effort to mislead or make false material promises. If you are involved in any plan to commit business fraud, federal conspiracy laws in 18 U.S. Code Section 1349 make clear that you can be subject to the same penalties that apply to the underlying offenses you conspired to commit. Sarbanes-Oxley also imposed new obligations on accounting firms and company executives, imposing personal responsibility for accounting fraud schemes affecting the accuracy of financial reports that businesses produce.
Business Opportunity Fraud
The Federal Trade Commission enforces a Business Opportunity Rule requiring a one-page disclosure requirements when selling a work or investment opportunity. The disclosure document must:
- Identify the seller of the business
- Explain any legal actions involving key company personnel.
- State whether a claim is being made regarding potential earnings associated with the business opportunity
- Provide a list of references
The disclosure document must be provided at least seven days before a buyer signs any contract or pays any money for a business opportunity. If a claim is made about the amount of money a buyer can earn for a business opportunity, a separate Earnings Claim Statements must be included. The statement must contain:
- The specifics of the earnings claim and the date the claim is made
- The name of the person making the earnings claim
- The start and the end date during which the earnings were achieved
- The percentage or number of people who earned a similar amount or who earned more.
- Information about how the person making the earnings claim may differ from the potential buyer.
- A statement informing the buyer that written proof of the earnings claim is available
These strict rules for the marketing of business opportunities are designed to prevent business opportunity fraud including work at home scams; franchise scams; envelope-stuffing or at-home medical based business scams, mystery shopper scams, government job scams, and a variety of other related schemes.
Online Business Fraud
Online business fraud can involve making false offers of online work opportunities. It can also involve setting up a fake storefront to obtain consumer credit card information; selling counterfeit materials online; Internet auction fraud; or taking orders and payments for online orders that are never provided.
Online business fraud may be reported to the Internet Crime Complaint Center, and may trigger an investigation by the Federal Bureau of Investigation, among other law enforcement agencies. Online fraud schemes are often national or international fraud schemes, with defendants from different countries or states working together to perpetrate the fraud. Federal authorities can pursue extradition against defendants who are part of online fraud scams but who live abroad.
Small Business Tax Fraud
Both large and small businesses can be held responsible for:
- Attempts to evade income taxation under 26 U.S. Code Section 7201.
- Intentional failures to pay or to collect required taxes under 26 U.S. Code Section 7202
- Willful failure to file a return, pay taxes, or provide required information under 26 U.S. Code Section 7203
- False statements to employees in connection with taxes under 26 U.S. Code Section 7204
- Perjury on official sworn documents or helping others to make misleading statements or file false returns under 26 U.S. Code Section 7206
Small businesses often deal largely in cash. It is common for small businesses to fail to report all income earned or to pay employees under-the-table rather than complying with payroll tax obligations and other legal requirements of employment. Keeping two sets of books is a common technique of small businesses to engage in tax fraud. Over-reporting losses or expenses is also an example of small business tax fraud.
Penalties for Business Fraud
Penalties for business fraud can vary significantly depending upon the specific type of offense. A business created for the sole purpose of laundering money or running an improper credit card scheme could face charges for money laundering, bank fraud, and identity fraud. A business that is involved in online scams could add computer fraud crimes to the list of offenses. Tax fraud, securities and commodities fraud, accounting fraud, larceny, and embezzlement charges are possible. If the business fraud involves an effort to defraud the government, you could even be charged under the False Claims Act.
Many types of business fraud also involve wire fraud or postal fraud. Each of these offenses can result in 20 years incarceration or 30 years if the fraud affects financial institutions. Fines up to $1 million can be assessed. You can face multiple counts of wire fraud and other charges depending upon the fraudulent acts.
An individual and a business accused of company fraud can have assets seized through criminal or civil forfeiture and may be required to make restitution in addition to all other penalties.
Getting Help from a Business Fraud Lawyer
Business fraud offenses must be taken seriously because of the gravity of the penalties that come with conviction. A business fraud lawyer can provide invaluable assistance in determining what options you have if you have been charged with a business fraud crime.
Contact Arkady Bukh – a New York City criminal defense attorney with experience on these types of complex cases.