Criminal Defense Lawyers

What is Check Cashing Tax Fraud

Check cashing tax fraud is when you cash checks instead of depositing them to hide income from the IRS. That sounds straightforward enough. But here’s what nobody explains: the crime isn’t about the money being dirty. The crime is about the paperwork you didn’t file. You can cash a check from a legitimate customer for completely legitimate work and commit a federal crime – not because anything was wrong with the transaction, but because you skipped the reporting requirements. The IRS doesn’t care that the money was clean. They care that you hid it from them.

Welcome to Spodek Law Group. We’re putting this information on our website because check cashing fraud is one of those crimes where people genuinely don’t understand what they did wrong until they’re facing federal charges. The construction company owner thinks he’s just paying workers. The check cashing business thinks it’s just providing a service. Then both of them end up in federal prison because of how money moved, not what it was for. Todd Spodek has represented clients who thought they were running legitimate operations and discovered that one piece of missing paperwork transformed their business into a federal crime.

The numbers should terrify anyone operating in this space. For Bank Secrecy Act violations specifically – the laws that govern check cashing reporting – the conviction rate is 97.3%. That’s not a typo. Ninety-seven point three percent. If the government charges you with failing to file the required reports, you’re almost certainly going to prison. The average sentence is 37 months. These aren’t warning letters. These aren’t fines you can negotiate. This is federal prison for paperwork crimes.

The Crime Nobody Sees Coming

Heres the paradox that destroys people. You can run a completly legitimate business, cash checks from completly legitimate customers, and still end up with federal charges. The question isnt whether the underlying transaction was legal. The question is whether you filed the Currency Transaction Report. Did the check clear? Nobody cares. Did you file the CTR? Thats what determines if your going to prison.

Think about how insane this is from the business owners perspective. Your customer pays you with a check. You cash it at a check cashing store instead of depositing it. The work was real. The payment was real. But becuase you cashed instead of deposited, and becuase nobody filed the required reports, youve potentialy commited a federal crime. The transaction worked perfectly. The paperwork failed. And the paperwork failure is what sends you to prison.

This is the inversion that catches people off guard. There used to thinking about crime as doing something wrong. Stealing. Fraud. Deception. But check cashing tax fraud isnt about doing something wrong – its about not doing something right. The affirmative duty to report. Skip that duty, and the perfectly legal transaction becomes criminal.

How Check Cashing Schemes Actually Work

Heres how these schemes typicaly operate. A business recieves checks from customers in the ordinary course of business. Some of those checks get deposited into the business bank account like normal. But others – usualy the ones that would push reported income above a comfortable level – get cashed instead.

The cashed checks never hit the books. There not deposited anywhere that creates a record. The cash gets used for things the business owner dosent want documented – most commonly, off-the-books payroll. Workers get paid in cash. No W-2s are filed. No payroll taxes are withheld. No income gets reported. The business owner avoids income tax on there end, and the workers avoid income tax on there end. Everyone wins. Except the IRS.

The check casher becomes the critical link in this chain. There supposed to file Currency Transaction Reports for any transaction over $10,000. There supposed to file Suspicious Activity Reports when patterns look unusual. There supposed to verify customer identity and maintain records. But the check cashers who participate in these schemes dont do any of that. Thats why they can charge 4-15% fees instead of the normal 1-3%. Your paying a premium for there willingness to break the law.

David Motovich ran a lumber yard in the Midwood section of Brooklyn. From the second floor of Midwood Lumber on Coney Island Avenue, he operated an illegal check cashing operation. Construction company owners would bring there payroll checks to him. He would cash them – millions of dollars worth – and those owners would use the cash to pay workers off the books. His customers understood that he wouldnt file Suspicious Activity Reports or Currency Transaction Reports. Thats why they came to him instead of licensed check cashers. He moved $55 million through that lumber yard. The government convicted him. Fifteen years in federal prison. He forfeited $38 million, including a penthouse apartment on the Upper East Side of Manhattan with a private indoor swimming pool.

The Paper Trail You Can’t Escape

Heres the thing people dont understand about checks. They think cashing a check instead of depositing it somehow makes the money invisible. The opposite is true. Checks leave MORE evidence then cash deposits becuase both sides of the transaction are recorded.

When you cash a check, the bank scans your ID. They record the transaction. They keep copies of the check itself – front and back, with your endorsement signature. This creates a permanant record that investigators can access. The idea that cashing a check makes it disappear from the financial system is a fantasy. Every check creates a digital footprint.

But heres the part thats really devastating. The person who WROTE the check almost certainly deducted it as a business expense on there taxes. They reported paying you. They filed a 1099 or claimed it as a business deduction. So the IRS has a record that you recieved money from that person. Then they look at your tax return. Did you report recieving that income? If not, the mismatch triggers an investigation.

Think about the irony here. The person paying you creates the exact evidence trail that catches you. There deduction proves your income. You thought you were hiding money by cashing instead of depositing. In reality, you just created a gap in your records that investigators will exploit. The payer reported paying. You didnt report recieving. That mismatch is how they find you.

The Construction Industry Pipeline

The construction industry is ground zero for check cashing tax fraud. FinCEN – the Financial Crimes Enforcement Network – has issued specific notices to financial institutions about payroll tax evasion in construction. There not guessing that its a problem. There activly hunting it.

Heres how the construction scheme works. A construction company has workers – some documented, some not. Paying those workers through normal payroll creates records, requires withholding, triggers payroll tax obligations. So instead, the company owner takes payroll checks to a check cashing business. Gets cash. Pays workers in cash. No W-2s. No payroll taxes. No records of who worked on what job.

The workers are doing real work – framing houses, laying concrete, installing drywall. Thats all legal. The labor itself is completly legitimate. But the way there being paid transforms legal work into a federal crime. The inversion is brutal: not “was the worker doing legal work” but “was the wage reported.” The labor was fine. The payment method is the crime.

David Katz operated Check Cash Pacific, a chain of check cashing businesses in Oregon and Washington. From 2014 to 2017, he conspired with construction company owners to cash $177 million in payroll checks. The cash went to pay workers off the books. The IRS lost $68 million in payroll and income taxes. Katz took a 2% commission on every transaction – which sounds small until you realize 2% of $177 million is over $4 million. He made four million dollars helping construction companies cheat on there taxes. A federal jury convicted him.

Melesio Gomez-Rivera was one of the construction company operators who used Katz’s service. He got 30 months in federal prison. The judge ordered him to pay $29.9 million in restitution to the IRS. Thats not a fine. Thats what he owes in back taxes, penalties, and interest. Nearly thirty million dollars. And thats on top of going to prison.

Why the Premium Fees?

Heres something that should make you pause. Licensed check cashing businesses charge 1-3% to cash a check. The illegal operators – the ones who dont file reports – charge 4-15%. Sometimes even higher. Why would anyone pay a premium?

Becuase there paying for the crime. The premium fee is the cost of the check casher’s willingness to break the law. Your not just paying to convert a check to cash. Your paying for there silence. Your paying for there failure to file the Currency Transaction Report. Your paying for there refusal to submit Suspicious Activity Reports. The higher fee is the crime premium.

This completely inverts what check cashing businesses are supposed to be. There supposed to help people without bank accounts access there money legally. There supposed to provide a service to the unbanked. Instead, the illegal operators become vehicles for hiding workers from the IRS, helping employers avoid payroll taxes, and enabling tax evasion at massive scale.

The paradox is almost absurd. Customers are literaly paying a premium for the privilege of breaking the law. There spending more money to commit a crime then they would spend to do things legally. David Motovich charged 4-15% becuase his customers knew he wouldnt file reports. They paid extra becuase paying extra was the cost of the scheme.

The Conviction Machine

IRS Criminal Investigation has a 90.6% conviction rate on cases they accept for prosecution. But for Bank Secrecy Act violations specificaly – the laws governing check cashing reporting – the conviction rate is even higher: 97.3%. Read that number again. Ninety-seven point three percent.

If the government charges you with BSA violations, your going to prison. There not bringing cases they might loose. By the time charges are filed, theyve already built an airtight case. The average sentence is 37 months. Thats over three years in federal prison. Federal prison has no parole – you serve 85% of your sentence minimum. Three years means nearly three years behind bars.

For money laundering charges – which often get added to check cashing fraud cases – the average sentence is 62 months. Thats over five years. And 89.8% of people convicted of money laundering are sentenced to prison. These arent crimes were people get probation. These are crimes were people get destroyed.

The conviction machine works becuase of how much evidence exists. Every check that was cashed has a record. Every CTR that wasnt filed is documentable. Every SAR that should have been submitted is traceable. The government dosent have to prove intent based on what you were thinking. They can prove intent based on patterns of conduct. Hundreds of checks cashed without reports filed. Thats not a mistake. Thats a scheme.

What Willful Blindness Really Means

Heres an uncomfortable truth that gets people convicted. You cant protect yourself by simply not asking questions. The legal doctrine of “willful blindness” means that deliberatly avoiding knowledge of criminal activity is treated the same as actualy knowing about it.

Obinna Njoku owned a check cashing business in Dallas. People came to him with checks that he beleived were probly from fraudulent tax refunds. He didnt ask for details. He deliberatly blinded himself to what he suspected was the source of the checks. He thought if he didnt know for sure, he couldnt be liable. He was wrong. He got 21 months in federal prison. The court found that his deliberate ignorance was itself evidence of criminal intent.

This destroys the “I didnt know” defense. You cant run a check cashing business, see obvious patterns of suspicious activity, and then claim innocence becuase you didnt ask questions. The failure to ask IS the crime. The willful blindness IS the intent. Prosecutors dont need to prove you knew the money was dirty. They need to prove you deliberately avoided finding out – and your deliberate avoidance proves you knew something was wrong.

Todd Spodek has seen this play out repeatedly with clients. They think there being clever by not asking questions. There actualy building the case for there own conviction. The pattern of not asking, combined with the pattern of high fees, combined with the pattern of no reports filed – thats what proves the scheme. You dont have to confess. Your conduct confesses for you.

People Who Thought They Were Safe

Lets look at what happens to people who thought there operations were invisible.

David Motovich thought running the scheme from a lumber yard would provide cover. Who investigates a lumber yard for money laundering? The government did. Fifteen years in federal prison. Thirty-eight million dollars forfeited. His Upper East Side penthouse with the private indoor swimming pool – gone. Commercial real estate in Brooklyn – gone. Luxury jewelry and handbags – gone. Everything he bought with scheme money became government property.

John Drago thought he could avoid detection by having employees structure transactions. He owned several check cashing businesses on Long Island. He had his employees cash checks in amounts designed to avoid triggering CTR requirements. Kept individual transactions under $10,000 so reports wouldnt be filed. The government found out anyway. Four years in federal prison. $9.5 million in concealed transactions exposed.

The common thread in all these cases is the beleif that the scheme was invisible. Motovich thought a lumber yard was good cover. Katz thought processing through multiple locations would obscure the pattern. Drago thought structuring transactions below the threshold would avoid detection. None of them understood that banks file SARs on patterns, not just individual transactions. None of them understood that the IRS matches payments reported by payers against income reported by reciepients. None of them understood that the paper trail they thought didnt exist was actually comprehensive.

The Cascade Nobody Explains

Heres how check cashing fraud actualy unfolds for the business owner. You cash a check without filing the Currency Transaction Report. You think thats the end of it. Its actualy the begining.

The bank that processed the check – even the bank that just cashed it – notices patterns. Multiple transactions near but under $10,000. Same customers appearing repeatedly. Cash going out without corresponding deposits. The bank files a Suspicious Activity Report. That SAR goes to FinCEN. Now your in a federal database of suspicious activity.

IRS Criminal Investigation recieves the SAR. They open an investigation. Subpoenas go out for bank records – not just your records, but the records of everyone who cashed checks with you. Now they have every transaction. Every ID you scanned. Every check you cashed. The pattern becomes undeniable.

Prosecution follows. Then forfeiture. Everything you bought with money from the scheme – your house, your car, your investments – becomes subject to seizure. The government dosent just send you to prison. They take everything you accumulated while running the scheme. You come out with nothing.

The cascade works in reverse too. Workers who recieved off-the-books payments get investigated. Some of them cooperate to reduce there own exposure. They name names. They identify the construction company that paid them in cash. That construction company names the check cashing business that provided the cash. Everyone in the chain gets connected. Everyone in the chain gets prosecuted.

What This Means For Your Business

If your running a business that handles cash or cashes checks, you need to understand how easily this can go wrong.

The person paying you creates the evidence trail. When they write a check and deduct it as a business expense, there reporting that payment to the IRS. If you cash that check and dont report the income, the mismatch is automatic. There records show they paid you. Your records dont show you recieved it. Thats how investigations start.

Currency Transaction Reports are automaticaly required for transactions over $10,000. This isnt a judgment call. Its systemic. If your cashing checks over that threshold and no CTRs are being filed, thats documentable evidence of a scheme. The defense “I didnt know I had to file” dosent work. The requirement is well-established. Ignorance isnt a defense.

Clients come to Spodek Law Group after making the mistakes this article describes. They thought cashing checks was a way to manage cash flow. They thought paying workers in cash was just more convienient. They thought the check cashing business was handling all the reporting. Then they discovered that nobody filed anything, and now there facing federal charges.

If your already involved in something like this – if your cashing checks without filing reports, or recieving cash payments you havent reported – you need to understand the exposure. The 97.3% conviction rate for BSA violations means the government dosent charge people they cant convict. By the time you see charges, the case is already built. The question becomes how to limit damage – how to negotiate, how to cooperate, how to minimize the inevitable consequences.

Spodek Law Group has handled cases exactly like this. We understand how the government builds these prosecutions, what evidence they collect, and were the weaknesses might be. If your recieving checks and not reporting the income, or if your cashing checks without filing required reports, the government may already be building a case. Every day you wait is another day of evidence they collect.

Call us at 212-300-5196. The consultation is free. Loosing everything you built becuase you didnt file paperwork isnt.