My friend needs an account opened for a previous company to help him out with his current contract. It cannot be in his name so the current company can't accuse him of making money on top of his contract. The money would be deposited and then transferred to the person. Is it legal to receive money from a company I don't work for and then transfer it to someone else?
TL;DR: Do not do this.
It cannot be in his name so the current company can't accuse him of making money on top of his contract.
Your boss cannot just call your bank and ask what other accounts you have. They will not tell him. Your "friend" is lying to you.
Is it legal to receive money from a company I don't work for and then transfer it to someone else?
The only reasons to have money going through someone else's account are to evade taxes and to launder money. Both of those are illegal.
How long have you known this "friend"?
If it is a long term friend who you've known since childhood, it might be legit (or at least as legit as tax fraud can be). Otherwise, it is a scam.
Here are the ways it can be a scam:
- Laundering money 1: The money is stolen and they need a fall guy/cut out.
- Laundering money 2: They are trying to evade taxes. You just helped.
- Stealing your money: They make a fake deposit in your account and you forward that money to another account where it gets withdrawn. Then your bank realizes that the deposit is fake and tries to reverse the transfer you made. When that fails, they send you a letter from an attorney indicating how much money you owe the bank.
If, and only if it is a long term friend, here is how to protect yourself (applicable in the US):
- Start a business (a DBA and/or a business license may be required in your area; consult a local attorney). An LLC is even better to protect yourself from any debts that result from this mess.
- Open the account in the business's name.
- In person, get the friends Social Security Number (SSN) and make a photo copy of the social security card and their driver's license or other state issued ID.
- Hold the funds in the account for 90+ days before transferring them.
- At tax time, account for the funds in and the funds out, indicating the SSN to which the funds were paid.
- Have them pay, up front, in cash for all of your expenses.
- Inform them about the 6 steps above and watch them "find another friend."
The things this accomplishes:
- because you will run this as a real business.
- to make it clear that you are not commingling your funds
- prevents a friend you've never met from giving you someone else's ID or just fake info. It also counts as part of your due diligence for when things go pear shaped.
- Is to prevent you from being left holding the bag if the funds are fake or stolen as it gives enough time for the banks to figure things out.
- keeps you off the hook at tax time and properly reports the friend's tax obligation to the state and federal tax authorities.
- why should you pay?
- cockroaches scurry away from the light.
This is a lot of work and expense to protect yourself. It also gives you plenty of time to think about why in the world you would want to get involved in this mess in the first place.