Common Crimes Small Business Owners Don't Realize They're at Risk For
Small business owners often focus on growth and daily operations, overlooking the hidden risks that can threaten their businesses. This article explores common crimes many small business owners don't realize they're vulnerable to, from internal theft and fraud to cybercrime and identity theft, and explains practical steps to recognize and reduce these risks before serious damage occurs.
Running a small business comes with legal risks, but you might not realize how vulnerable you are to certain types of criminal lawsuits. For example, many criminal cases against business owners involve serious federal crimes like wire fraud and money laundering. It doesn't matter how small your business is, or how little revenue you generate – if you break the law, you're at risk of being prosecuted.
Whether it's intentional or not, here are the most common crimes small business owners face.Payroll and employment tax crimes
The IRS doesn't take employment tax obligations lightly. Failing to withhold, report, or remit payroll taxes properly can turn into a criminal case fast. Many small business owners mistakenly assume that they can use withheld payroll taxes for operational expenses when they're experiencing cash flow problems, but that can trigger criminal charges. Once those funds have been withheld, they're considered trust assets.
Most payroll-related crimes are rooted in decisions that keep the business running rather than intentional fraud, but prosecutors can and will pursue criminal charges for misuse of withheld taxes.
Another common mistake small business owners make is misclassifying employees as independent contractors to save money and reduce their tax obligations. However, this is risky. The Department of Labor and the IRS routinely audit small businesses for misclassification, and repeated violations can support the argument for criminal intent.
If you get caught misclassifying employees as independent contractors, you could be required to pay a significant amount of money, both to your employees and the government.Sales tax collection and reporting violations
Managing sales tax isn't simple and errors in this domain are a leading cause of criminal investigations. Business owners are required to collect sales tax from customers in certain states and then remit it to each appropriate state. When sales tax is not remitted, it can be treated as theft.
Most business owners who violate sales tax laws start online businesses as side hustles without realizing their obligations. This is why it's crucial to obtain a business license and sales tax permit. You can't legally collect sales tax without a permit, and you need a permit to buy wholesale goods without paying sales tax upfront. If you don't have a permit to collect sales tax from customers, you're still required to remit sales tax to each state.Licensing and regulatory crimes
Operating without all required licenses and permits can lead to criminal charges, especially when it's a matter of safety or consumer protection. These situations often become visible during inspections or complaints.
Workplace safety violations are serious. When a situation results in serious injury or death, criminal charges usually follow. While OSHA is a regulatory body, it can and does refer cases for criminal prosecution when serious.
Environmental crimes are equally serious. Sometimes they involve business owners who aren't aware of proper disposal rules, but sometimes the violation is intentional. The EPA won't hesitate to prosecute anyone who mishandles chemicals or waste.Obstruction – failure to cooperate
Sometimes an issue can start out small and become a matter of obstruction. For example, making false statements to investigators is a crime all on its own, even when the original crime is minor. When answers conflict with documentation, that could be considered obstruction.
According to the Department of Justice, obstruction is one of the most common charges added to white collar cases. And it's actually obstruction – and other smaller charges – that secure convictions. For example, contrary to popular belief, Martha Stewart wasn't convicted of insider trading. She was found guilty of four counts of obstruction of justice.
It's also illegal to destroy or withhold records. Deleting emails or altering files after being notified of an investigation is a fast way to catch obstruction charges. Once an investigation is launched, intent is inferred from behavior. Not cooperating can result in criminal prosecution.Awareness is the best form of risk management
As a small business owner, the chances of being prosecuted for a crime are high. Anyone can sue you at any time, and one failed regulatory inspection can end in legal headaches. Knowing that operational shortcuts and delayed compliance are often the source of legal problems, your awareness and diligence play essential roles in risk management. Businesses are required to self-regulate. Knowing your risks helps you make informed decisions.
Civil lawsuits are disruptive, but criminal charges can be destructive. Fines, lost licenses, asset seizures, and incarceration are all real possibilities when facing criminal charges. That's why awareness is essential. Business owners who understand their legal obligations are in a better position to protect their business and their personal freedom.
