Can rerouting vendor invoices for false revenue be illegal?

Question

I work for a logistics company that orders and ships materials for clients. Recently, I was instructed to stop ordering directly from vendors. Instead, a sister company under the same parent organization will now place those orders, receive the original invoices, and send marked-up invoices to us. I currently receive the invoices from vendors, but starting next week, the invoices will go to the sister company and could be marked up before they are sent to me.

We, in turn, will pay these inflated invoices and bill the client at the original vendor cost, absorbing the difference and losing margin, while the sister company shows "revenue." The client is unaware that a third party is involved or that the invoice we paid was marked up. This change seems to be intended to shift revenue from our underperforming company to the sister company, which lacks revenue. My concern is whether this could be considered tax fraud, earnings manipulation, or another kind of financial misrepresentation. We have existing contracts with clients, but the invoicing change is being implemented mid-process, and my leadership stated the need to make it look like the sister company is generating revenue.

James L. Arrasmith · Answer

Yes, rerouting vendor invoices and marking them up to create false revenue can raise serious legal concerns. If the intent behind the change is to make it appear that the sister company is earning revenue when, in reality, it’s just a pass-through with artificial pricing, that could be seen as a form of earnings manipulation. This could potentially mislead investors, lenders, tax authorities, or auditors and may fall under financial misrepresentation or even wire fraud depending on how the scheme is carried out. 
 
The fact that your company is billing the client at the original vendor price, while knowingly paying an inflated invoice to the sister company, could trigger regulatory scrutiny—especially if the client is unaware of the change. If this affects how income is reported across entities for tax purposes, it may cross the line into tax fraud. What makes the situation riskier is that it's being implemented mid-contract, possibly violating the terms agreed upon with clients or creating undisclosed conflicts of interest. 
 
Even if all companies are under the same corporate umbrella, the intentional shifting of profit in this way—particularly to make one entity appear more successful—can have legal consequences. Internal whistleblowing protections may apply if you decide to raise concerns. It would be wise to document your understanding and consult a trusted legal professional outside your organization before taking further steps. The consequences for the company—and possibly for individuals involved—can be significant.

Q: Can rerouting vendor invoices for false revenue be illegal?