DEFINITION of 'Cross-Firing Scam'

A type of scam in which a business transfers money between its various departments or shell companies in order to give lending institutions the impression that the business is financially healthy. A cross-firing scam seeks to exploit the difficulty in obtaining clear information on all transactions as different lending institutions may be involved. As a result, it makes creditors believe the company is still solvent, which is often not the case.

BREAKING DOWN 'Cross-Firing Scam'

This type of fraud may also occur by having one department charge a shell company for work rendered, while having the shell company simultaneously charge the department for a different set of work. A cross-firing scam may be difficult for auditors to track due to the number of transactions flowing between the various components of the business. Tracking this sort of fraud is also made more difficult if inadequate information is available about the nature of all companies involved, or if the exchange is made between foreign companies.

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