Their accountant (probably a relative) may have gotten really steamed about participating in this set-up. Or, a disgruntled former employee tried to shake them down over it. Or, they might have been blackmailed by the mob. Or, a woman....
The best way to do this is with the illegals. They're off the books. They can't blackmail you. You can threaten to call IRS on them.
American employees, it's better just to pay them honestly.