Avoiding the New $2,000 Surcharge May Raise Compliance Risks

for Larger Petitioners that Now Restructure into Several Smaller

Units Each with Less than 50 Nonimmigrant Employees

Introduction:

Outsourcing Business Model Targeted by Congress for Fee

Increase

Chairman Schumer's H-1B Anti-Outsourcing “Intent of

Congress” Speech

A. ENFORCEMENT: A Variety of Legal Standards Might be Applied to

Investigations

B. THE USCIS FRAUD DETECTION & NATIONAL SECURITY (FDNS)

“ARTICULABLE FRAUD INDICATORS” – Will Restructuring Make

the Petitioner Suspect and Result in Audits and Investigations?

STANDARDS OF LEGAL PROSECUTION

THE USDOL LCA “WILLFUL VIOLATION” MODEL

THE ICE IMMIGRATION FRAUDS MODEL

TAX EVASION MODEL – A Question of Motive: Fee Avoidance or Fee

Evasion?

SARBANES-OXLEY (SOX) INVESTIGATIONS

Introduction:

Under the Emergency Border Protection Act signed into law

Friday, August 13, 2010, filing fees will go up $2,000 for H-1b and

$2,250 for L-1, as an increase in the USCIS Fraud Prevention fee.

The measure will sunset September 30, 2014.

In passage of this Bill, comments by Congressional leaders

clearly signaled DHS and other agencies that Congress supports

administrative measures already in place to roll-back the offshore

outsourcing industry, and to eliminate the cost advantage attached

to the dual-tier offshoring model, and that it stands ready to pass

these restrictions into legislation.

This has become a very aggressive and risky regulatory

environment for foreign IT consulting and staffing firms. Under the

circumstances, USCIS, ICE and other interested agencies may easily

take this latest action by Congress as a green light to monitor

targeted firms for evasion of this new law, including steps that

might be construed as an effort to evade new discriminatory fees.

At the very least, evasion could be penalized as a “willful

violation” of LCA requirements, and potentially raises further

fraud issues. In what some will view as a bitter coincidence, on

August 13 the U.S. District Court for D.C. dismissed with prejudice

an injunction request brought by H-1B staffing firms seeking the

court's protection of their business model.

In this environment, there may be little protection and some very

harsh consequences for companies that attempt to evade the fee

surcharge. Larger staffing companies that employ the traditional

outsourcing model may face enforcement action for alleged fraud if

they restructure into business units smaller than 50 employees

solely to avoid paying the new fees.  Those found to do

so may be identified under the FDNS-DS “articulable

fraud” criteria. FDNS is the unit within USCIS that currently

conducts worksite audits of petitioning employers, and it also runs

a database system (DS). A wide variety of USCIS I-forms and the

accompanying documents are run through the FDNS Data System (DS)

which identifies patterns of what agency administrators consider

fraud indicators. The system is essentially a giant data-mining

operation, which is shared with other federal agencies. The FDNS-DS

has developed a set of “articulable fraud indictators”

that are the basis by which USCIS selects petitioners for site

audits. There are 21 known FDNS-DS indicators, the top three

are:

  • (Petitioner)Gross annual income less that $10

    million.

  • Company claims less than 25 employees.
  • Company established for less than 10

    years.

Any company that matches those 3 indicators is subject to a

“100 percent referral” policy for follow-up

investigation, according to USCIS documents.

Altogether, these indicators are far more expansive than the

legal standards for immigration-related fraud that might be used in

a criminal prosecution in a court of law. Any larger company

employing 50 percent H-1B and L-1 non-immigrants – even

if they are not subject to H-1B dependent classification — that

now restructures into smaller business units employing less than 50

workers is likely to trigger a red-flag at the FDNS-DS unit which

is now operating at every USCIS Service Center. That may lead to

enforcement actions by several agencies, including ICE and UDOL

Wage & Hour Division (WHD).

In cases where an LCA violation is found by WHD, an appeal may

be lodged with a USDOL Administrative Law Judge and the

Administrative Review Board (ARB). There is a sizable body of

administrative law precedent regarding willful misrepresentation of

the LCA attestations along with failure to create and retain

accurate records that may be applied. One should expect that

similar evidentiary standards and case law establishing willful

violations would be applied to any sanctions arising from improper

evasion of the LCA fee surcharge.  

While it is not clear at what point evasion of the surcharge

would rise to a criminal fraud violation, it is likely to result in

some very close administrative auditing and investigation, along

with questioning of motives at points of contact by USCIS, USDOL,

and Consuls.  Evasion of the surcharge may be considered cause

for investigation if federal officers determine that there was no

legitimate purpose behind a restructuring other than intent to

evade compliance with the law. Any evidence of intent to defraud

the U.S. is a strongly aggravating factor in the sentencing phase

under federal sentencing guidelines.

As this paper shows, firms that already have compliance problems

should be very, very careful about how they proceed in this

environment. 

Finally, we will discuss the investigative and prosecutorial

frameworks which federal agencies may apply to these issues. The

most likely potential prosecutorial models can be drawn from ICE

investigations, IRS tax evasion cases, SOX fraud matters, and money

laundering prosecutions. 

Chairman Schumer's H-1B Anti-Outsourcing

“Intent of Congress” Speech

On August 13, President Obama signed the Emergency Border

Security Supplemental Appropriations Act (H.R. 6080/S.

3721)1 that imposes steep fee increases upon H-1B and

L-1 petitions submitted by some employers.

According to Congressional leaders, the measure is intended to

directly target large foreign staffing firms. Senate Immigration

and Homeland Security Committee Chairman Charles Schumer, the

principal Senate sponsor, stated his view of the intent of Congress

upon introducing the Bill2 for the Senate vote which

carried by unanimous consent. Schumer made it clear that he and

others in Congress see the business model of such firms as harmful

and contrary to the original intent of American nonimmigrant visa

programs that are used by these firms:

The business model of these newer companies is not to make any

new products or technologies like Microsoft or Apple does. Instead,

their business model is to bring foreign tech workers into the

United States who are willing to accept less pay than their

American counterparts, place these workers into other companies in

exchange for a “consulting fee,” and transfer these

workers from company to company in order to maximize profits from

placement fees. In other words, these companies are petitioning for

foreign workers simply to then turn around and provide these same

workers to other companies who need cheap labor for various short

term projects.

The President made no reference in his signing statement to

objections raised by the Indian government and trade groups which

view the move as discriminatory and directed at large, successful

global outsourcing firms based in that country.3

Outsourcing Business Model Targeted by Congress for

Fee Increases

Sec. 402 of the Act imposes large hikes in filing fees for H-1B

and L-1 petitions from companies having 50 or more employees with

50 percent of their workforce made up of non-immigrants in those

categories. Filing fees are slated to go up $2,000 for H-1b and

$2,250 for L-1, as an increase in the USCIS Fraud Prevention fee,

the proceeds to go to pay for additional Border Patrol manpower and

infrastructure improvements it the Southwest. The measure will

sunset September 30, 2014.

Chairman Schumer's H-1B Anti-Outsourcing

“Intent of Congress” Speech- Target Larger, Newer Foreign

Staffing Agencies that Don't Market Their Own Proprietary

Products and Processes.

Congressional leaders clearly intend that USCIS apply this fee

increase in such a way that it particularly targets larger, newer

foreign staffing agencies that do not market their own proprietary

products and processes. Schumer (D-NY) stated that it is his

intention to introduce significant additional restrictions on H-1B

outsourcing in a proposed Comprehensive Immigration Reform (CIR)

measure that he says will be pushed through next year.

The Bill, which originated as a House measure co-sponsored by

border state Democrats, received rare bipartisan support in both

houses, and may be a good indicator of where U.S. immigration

policy is headed.

House Speaker Nancy Pelosi stated that she views HR 6080 as the

first leg of CIR, and the House as well as Senate version of that

larger immigration package contain measures that would carry into

law current administrative restrictions on the outsourcing

model.

In his prepared remarks on the Senate floor before the vote

Thursday4, Chairman Schumer made some unusually harsh

remarks about H-1B and some of the companies and workers that use

the program. He said that the H-1B program has been exploited by

“multinational temp agencies” that “undercut U.S.

wages and discourage students from entering tech fields.”

Sen. Schumer also made it clear that the next round of

Comprehensive Immigration Reform (CIR) legislation coming from

Congress will back up existing USCIS administrative measures

restricting L-1 and H-1B. Some agency actions – such as

the 2008 GSTechnical Services AAO decision and the January

2010 H-1 directive, the Neufeld memo — have been

criticized as substantially deviating from existing legislation.

The pending CIR Bills already contain sections addressing these

measures.

There is additional reason for outsourcing firms to be alarmed.

Simultaneous with the President's signature of the surcharge

measure on Friday August 13, the U.S. District Court for the

District of Columbia dismissed with prejudice a federal law suit

that had been filed in June by several IT staffing groups and firms

challenging the Neufeld memo. That decision clears the way

of legal obstacles to further implementation of USCIS rules that

outsourcing firms must establish that they fully control the

employment of nonimmigrant workers assigned to third-party client

sites, a requirement that Plaintiffs had claimed was inimical to

their business model. U.S. District Court Judge Joan Kessler

rejected that argument, and refused to extend APA protection to

that business model, holding that the Neufeld memo is not

inconsistent with existing USCIS regulations.

Schumer Pledges that Business Model of Global Staffing

Firms Will No Longer Enjoy a Cost Advantage – Green Light Signaled

for Further Fee Increases and Restrictions

Sen. Schumer concludes by stating that he considers the

traditional global staffing firm business model to be antithetical

to the intent of Congress:

“Congress does not want the H-1B visa program to be a

vehicle for creating multinational temp agencies where workers do

not know what projects they will be working on—or what

cities they will be working in—when they enter the

country.”

 

The fee is based solely upon the business model of the company, not

the location of the company. ” 

Of course, this does not bode well for the future of the H-1B

and L-1 nonimmigrant programs, and those companies which have

utilized them to staff third-party projects in the U.S. While

Schumer expressly singled-out H-1B for criticism, the Act also

penalizes multinational firms that employ a high percentage of L-1

Temporary Workers. L-1B employers are already restricted from

placing their workers at most third-party client sites by a 2004

law, and H-1B employers are now required to similarly document the

element of common law “control” over their workers by a

USCIS administrative directive, the Neufeld memo, imposed

in January. Schumer did not reference these measures or explain why

they may have been inadequate to stem the perceived problems with

outsourcing of non-immigrant workers.

Sen. Schumer concluded his speech by acknowledging that it is

the intent of this law's sponsors “that our bill will make

it more expensive to bring in foreign tech workers to compete with

American tech workers for jobs here in America. That means these

companies are going to start having to hire U.S. tech workers

again.” The Senator cites a recent article in The Economic

Times of India that quotes Jeya Kumar, a CEO of a top Indian

IT company, who said that this bill would “erode cost

arbitrage and cause a change in the operational model of Indian

offshore providers.

It may also have a negative impact on the decisions made by

multinationals, if they find they are blocked from hiring global

talent or cannot do so a cost-effective way, to locate research and

development jobs outside the United States.

The U.S. Chamber of Commerce has released an American Council of International Personnel (ACIP)

study that makes a case for the H-1B program. That report

concludes, “In the global economy, investment follows the

talent and attempts to restrict the hiring of talented foreign-born

professionals in the United States encourages such hiring to take

place overseas, where the investment dollars will follow.”

C. ENFORCEMENT: A Variety of Legal Standards Might be

Applied

THE USCIS FRAUD DETECTION & NATIONAL SECURITY (FDNS)

“ARTICULABLE FRAUD INDICATORS” – Will Restructuring Make

the Petitioner Suspect of Fraud and Subject to Additional

Audits?

Fraud Now Presumed for Many Routine H-1B

Petitions

In recent years, the federal government has spent billions of

dollars hooking up databases and creating software tools used by

DHS fraud investigators. USCIS Service Centers now have

sophisticated data-mining to pinpoint patterns of document and

benefits fraud, but that system has serious problems, according to

a DHS Inspector General's review.

A redacted portion of the IG report reveals that DHS has created

a system – the National Security Fraud Detection Data

System (FDNS-DS) — that automatically classifies characteristics

common to many applicants as “articulable fraud.”

Previously, discretion was allowed examiners, as uneven as it

sometimes was, to determine which cases USCIS referred to ICE for

fraud investigations. The IG report found the result was to

overload and slow the system of USCIS adjudications, deterring

access and reducing the numbers of petitions, which the author

hints may have been a long-term goal of these changes, according to

the IG review.

As most immigration lawyers have noticed in recent years, the

Service Centers have issued thousands of Requests for Evidence

(RFEs) for cases that were previously routinely approved.

Increasing numbers of companies and lawyers are being investigated.

The FDNS system was expanded in 2009 to include site inspections

and audits by teams of investigators. In some cases, the result has

been unfair labeling of applications by companies — particularly

smaller firms, start-ups, along with information consulting firms

— as fraudulent. Fraud is now equated with national security

threat, and both are reviewed for the same criteria by FDNS-DS.

The USCIS H-1B Fraud Referral Sheet

In March, 2009, a copy of a single-page excerpt of an internal

USCIS H-1B Petition Fraud Sheet

was released by USCIS, apparently inadvertently, to an

immigration lawyer. That was subsequently posted by AILA and

reproduced by others 5 Research performed for

Fakhoury Law Group (FLG) reveals that the document is actually part

of a four-page redacted portion of a 2008 DHS Office of Inspector

General Review of the USCIS Benefit Fraud

Referral Process (Redacted …

That DHS review exposed problems with a then new fraud

detection program known as the Fraud Detection National Security

Detection System (FDNS-DS)6. The OIG report was critical

of how the program was being managed, and questioned its strategic

goals.

Fig. 1, above, shows the referral sheet and the 21 fraud

indicators (page reproduced in full at Appendix 1, below).

Fig. 2, below, reproduces the page of the 2008 OIG report

that references the decision-tree employed in fraud referrals in

case where the USCIS FDNS-DS system develops evidence of suspected

benefits and document fraud at the examinations stage.

Singled out for criticism in the OIG report is a USCIS

policy that required “100 percent referral” to ICE

investigations of applications that match criteria for

“articulable fraud.” The OIG found that the policy of

referring all application with certain indicators was delaying and

diverting attention from actual major frauds investigations that

ICE should be pursuing, and had created a large backlog of cases

awaiting investigation before they could have been approved. Much

of the delays in adjudication and huge increase in RFEs seen in

recent years is due to FDNS-DS policies, which include more

intensive background checks and referring for investigation every

application received at the Service Center that has

“articulable fraud” factors.

The OIG review further reveals that cases referred from the

FDNS-DS unit to ICE were often ignored by ICE investigators, who

felt that FDNS managers were not well-qualified to make fraud

determinations. Considerable friction arose between USCIS and ICE

over these referrals, and it bogged down the systems of both Exams

and Investigations:

Based on a February 2006 Memorandum of Agreement, USCIS was

required to refer all articulable fraud cases to ICE. As described

in Figure 2: FDNS Referral Flow Chart, the referral process is long

and complex. Procedures require adjudicators reviewing benefit

applications to use a four-page Fraud Referral Memorandum to send

all cases with articulable fraud to the local FDNS office . . .

Despite these problems, FDNS-DS became a central part of the

transformation of USCIS from a relatively business-friendly

government benefits administrator into a zealous investigative arm

of DHS. Under FDNS procedures, the Fraud Sheet and Memorandum

becomes part of any petitioner's record, and it triggers an

initial fraud investigation at the Service Center. Fig. 2 shows

that can result in two results, either “Denial/Notice to

Appear/RFE/Approval” or “100% referral” to ICE. Any

application that scores high enough in the FDNS-DS system is

referred to ICE investigation. If ICE finds what it considers

probable cause of criminal activity, the case goes to ICE HQ for

review and possible prosecution by the U.S. Attorney.

The Sheet and its findings are shared with other federal

agencies, including the State Department, under an

information-sharing agreement. If such a case later reaches the

Consul, consular officials may do further investigation for the

same factors. While FDNS-DS has been integrated into the everyday

part of processing immigration petitions, and backlogs have been

cleared, the system operates today essentially as it was outlined,

above.

21 “Articulable Fraud” Indicators

Revealed

Unfortunately, this system brands as fraud indicators some

factors that are common to a large percentage of applicants in

particular industries. Some of these identifiers, such as smaller

firms with less than 25 employees, and companies in existence less

than 10 years, are not in themselves anything at all resembling

fraudulent practices. See, Appendix 1 for complete list. But, the

FDNS-DS associates them with fraud, so all petitions from companies

with these characteristics are now treated as suspect and subjected

to at least the initial level of escalating investigation.

The H-1B fraud referral sheet lists 21 “articulable

fraud” indicators. The fraud referral sheet has a notation

referring to “the 10/25/10 criteria” – two out

three of these will trigger a “100 percent” referral

requirement. (More about that, below)

Any application that has been referred by an USCIS examiner is

run through the FDNS data system, where it is potentially

designated for a full ICE field investigation. ICE may work with a

Benefits Fraud Task Force of several federal agencies and local law

enforcement inside the U.S. An investigation may also be carried

out abroad by State Dept. Diplomatic Security (DS) agents attached

to Embassies working with foreign police services. The case may

finally be assigned for priority prosecution by the US

Attorney's office. You do not want to be a company that climbs

that ladder.

An ICE investigation will also entail running the application

through ICEPIC, a data mining and predictive analysis system used

to probe suspected terrorist networks and criminal immigration

violations, alike. The 21 “articulable fraud” indicators

are so broad and encompassing that they potentially validate and

initiate the application to almost any H-1B petition of ICEPIC, a

highly intrusive system that DHS originally justified as necessary

in the so-called Global War Against Terrorism. In practice,

virtually any FDNS case now meets the standard for system

utilization: “All ICEPIC activity is predicated on valid and

ongoing law enforcement investigations.”7

Even if the petition is eventually approved by USCIS, but FDNS

or ICEPIC has tagged problems associated with the case, the Consul

may take a close, independent look at the application. Field

investigations abroad are commonplace at certain “high

fraud” designated posts.

On September 18, 2008, DHS published notice in the Federal

Register of implementation of FDNS-DS and the intent to exempt the

program from the Privacy Act requirements.

USCIS has also entered into a Memorandum of

Understanding with the Department of State providing it with

read-only access to the FDNS-DS. http://www.dhs.gov/xlibrary/assets/privacy/privacy_pia_cis_fdns.pdf

FDNS-DS remains a core component of the overall DHS strategy for

restructuring USCIS benefits programs, and this poses yet another

cause for concern for petitioners, particularly those who may

inadvertently and unavoidably fall into the “articulable

fraud” criteria.

Some Types of Employers Get Investigated More Often Than

Others

Certain types of employers automatically get close review by

USCIS, ICE and the Consul. Any H-1B or L-1B that suggests the

possibility that the beneficiary is going to be assigned to client

sites requires extensive documentation that the petitioner is not a

“job shop”, and will control the employment of its

workers at all times. The H-1B referral sheet list, for instance,

starts with small and recently established (or restructured)

firms:

  • (Petitioner)Gross annual income less that $10

    million.

  • Company claims less than 25 employees.
  • Company established for less than 10

    years.

It then goes on to single-out consulting firms:

  • Contracts for consultants or staffing agency show no

    end-client (no work description or itinerary).

Unfortunately, nothing can be done by smaller, newer companies

to avoid being designated under these criteria. The January 2010

Neufeld memo has made disclosure of end-user contracts all but

mandatory, so this criteria may have been somewhat modified. The

presumption of fraud for consulting firms is agency dictum that can

only be overcome with very specific contracts that document the

terms of control over the workers assigned to client sites. These

should be accompanied by persuasive documentation – such

as tax and payroll records — that assignments are generally

short-term and that employees are paid full wages and benefits

during assignments and any layoffs. Petitioners can expect that

such documents will be compared with records held by the Treasury

Department and other agencies, as well as with public sources, the

Internet, and records such as credit histories obtained from

commercial data aggregation companies.

Other petitions are also tagged as “articulable fraud”

indicators based on FDNS profiles, including:

  • Occupations – Accounting, Human Resources,

    Analysts, and Managers, (i.e., marketing research analysts,

    business analysts, financial analysts, managers for advertising,

    marketing, and promotions, public relations and sales requested by

    marginal companies lacking organizational complexity required to

    support the position on a full-time basis for a three-year period

    such as liquor stores, dry cleaners, gas stations, residential care

    facilities, convenience stores, donut shops, fast food restaurants,

    dental office, 99 cent stores, parking lots, etc.)

Again, these smaller, less capitalized firms and start-ups are

not inherently fraudulent, but the FDNS-DS referral sheet operates

to designate all small businesses as such. It has always been a

challenge to win approval for petitions submitted by small

businesses, and agency case law and regulations state the factors

that can show a legitimate need for employment of H-1B worker.

Nonetheless, smaller companies and start-ups are now put in the

cross-hairs for investigation. Any larger firm that is

highly-reliant on non-immigrants that restructures into smaller

business units to avoid the August 13 surcharge should expect that

it will match FDNS fraud indicator criteria, and may be treated

accordingly by several federal agencies.

A related risk is the fact that the FDNS-DS contains a

sub-directory, dubbed FID (likely, “Fraud Investigation

Database”) with a “black-list” of attorneys who are

suspected of involvement with fraud or related serious crimes. That

is itself a separate “articulable fraud” indicator on the

referral sheet, the legal standard for which is nebulous. If an

attorney's name gets on that list, his or her cases are likely

to have a startlingly high denial rate.

To that list, in addition you should expect that any client who

has past compliance problems – even non-immigration

– such as tax, labor, import/export control violations

– are also going to get close scrutiny, as examiners with

access to a variety of other government data bases will be alerted

to this.

Finally, companies and beneficiaries in defense, nuclear energy,

high-technology, or other fields with potential military or

national security applications are likely to require a Security

Investigation before a petition can be approved or a visa issued.

Certain nationalities are also subject to automatic security

checks. The background check for those can be very intensive, and

stretch on for extended periods. In addition to outsourcing firms,

companies in such high-risk categories should also be wary about

restructuring to avoid the additional fees, and should consult

counsel with expertise in these compliance issues.

C.LEGAL STANDARDS AND PROSECUTION

The USDOL LCA Willful Violation Model

There are three types of civil penalty a company may face for

violations regarding an LCA attestation and the Public Inspection

File (PIF): 1) civil monetary fines; 2) restricted H-1B program to

additional H–1B workers; and 3) the payment of back

wages. In addition, there is the possibility of criminal

prosecution and penalties for various forms of fraud, Perjury, or

Obstruction of Justice for false statements to a federal

investigator, misrepresentation of a material fact, or the

falsification or destruction of records in the PIF or otherwise

presented to a government agency.

I. CIVIL MONETARY PENALTIES

There are three levels of civil fines attached to LCA

violations. Each level requires a different sort of misconduct.

Fines increase depending on which level the violation falls

into.

Level One: The least serious violations include

substantial omission of fact pertaining to the notification

regulations, inaccuracy or negligent misrepresentation in a filed

LCA, or a substantial failure to adequately recruit U.S. workers if

the firm is H-1B Dependent. A firm that is required to pay the

$2000 surcharge may also be H-1B Dependent, but the standards are

different. For instance, H-1B workers paid more $60,000 or with

higher degrees are not counted toward H-1B dependency, whereas the

Surcharge law makes no such distinction, and further makes no

distinction between L-1 and H-1B workers for the purpose of

assessing the surcharge (other than the amount of the surcharge).

Additionally, a failure to maintain accurate and complete records

for full amount of time that an LCA file must be retained

constitutes a level one violation. These “paperwork

violations,” inadvertent or isolated violations, are the most

commonly found and sanctioned by USDOL investigators. A petitioner

that failed to provide or post the required notice for a single

H–1B employee likely would be fined for a level one

violation. The maximum fine for each level one violation is

$1,000.00.

Level Two: The nature of these violations is

the same as for the first level. The distinction is that a

violation found at level two is one that was “willful.”

Willful violations are imputed when the record shows the employer

had knowledge of repeated violations, formed or carried out a plan

to violate LCA regulations, or had a prolonged history of

commission of any of the above violations. If the investigator

determines that records have been altered or false documentation

created knowingly to evade the regulations, a willful violation is

presumed. A maximum fine of $5,000.00 per violation may be imposed

for Level Two violations.

Level Three: This level of violation involves

actions that are identical to the second level. The sole

distinction is that Level Three violations are invoked when a

company has terminated or downsized a U.S. employee 90 days before

and 90 days after the filing of an H–1B petition in

connection with any of the violations. The H–1B worker

must replace the U.S. worker in essentially the same position. The

violation must have been willful relating to that H–1B

worker. A maximum fine of $35,000.00 may be assessed per Level

Three violation.

Aggravating and Mitigating Circumstances. USDOL

has wide discretion when determining the amount of a civil fine in

all levels of violations. The statute requires that USDOL consider

several factors in making their determination: an employer that

openly acknowledges an error is less likely to incur a heavy fine

than one that contests or obfuscates. Employers which refuse to

accept responsibility or attempts to alter or withhold evidence

will incur maximum penalties. The regulations list the following

factors:

  1. Any previous history of violations.
  2. The number of workers involved in violations.
  3. The severity of the violations.
  4. Good-faith efforts made by the employer to comply with the

    regulations.

  5. The plausibility of the employer's explanation of the

    violation.

  6. The apparent commitment of the employer to gain future

    compliance.

  7. The extent of financial gain due to the violation, or the

    potential financial loss, potential injury or adverse effect with

    respect to other interested parties, which may include the

    government.

II. SUSPENSION OF LCA APPROVALS FOR ADDITIONAL

H–1B WORKERS

The next level of penalty USDOL may impose is suspension or

debarment of an employer from from approved LCAs. Such an employer

is prevented from hiring additional H–1B workers for a

period of time. The duration of such a “suspension”,

which may last up to three years, depends on the level and

seriousness of the violation as outlined in Subsection I,

above.

A company found to have committed a Level One violation is

potentially disqualified from LCA approval for one year, as well as

non-approval of pending H-1B petitions. A Level Two violation may

result in disqualification from additional LCAs and H-1B approvals

for two years. A level three violation may entail disqualification

from having additional LCAs and H-1B petitions approved for three

years.

III. MANDATORY PAYMENT OF BACK WAGES

USDOL may order a company that has paid below the actual

prevailing wage because of an LCA violation to pay back wages to

affected H-1B employees, in addition to any fines that may be

imposed.

IV. FEDERAL CRIMINAL OFFENSES

In addition to civil penalties under the INA, a company or

individual may be prosecuted under other federal laws related to

frauds, obstruction of justice, tax evasion, money laundering, or

related offenses. Altering or postdating documents, lying or making

misleading statements to a federal investigator, defrauding the

government or unlawful enrichment can and does result in long

prison terms, as the next section shows.

ICE Immigration Frauds Prosecution Model

Continuing an ongoing trend, recent ICE investigations show that

the agency is now involved in federal task forces investigating a

wide variety of crimes that are only distantly linked to

immigration matters. The frame of legal reference for investigators

working these cases is drawn from a variety of federal criminal and

civil statutes, each of which suggests a widening variety of

strategies for prosecuting firms that are viewed as evading the

law.

Immigration practitioners and employers, alike, should keep in

mind that ICE views its mission broadly and pursues cases

aggressively. Immigration-related actions that may have been once

treated as technical violations by legacy INS are more likely today

to be treated as criminal fraud or as a potential national security

threat. The agency describes itself in the following terms:

“U.S. Immigration and Customs Enforcement (ICE) is the

largest investigative arm of the Department of Homeland

Security.

ICE is a 21st century law enforcement agency with broad

responsibilities for a number of key homeland security

priorities.

Money laundering along with various financial and wire fraud

charges, as several of the ICE investigative reports show in

Appendix II, below, is a favored

prosecutorial tool in many of these cases, as it carries penalties

that far exceed those that may be attached to underlying

immigration offenses. Any evidence of intent to defraud the U.S. is

also a strongly aggravating factor in the sentencing phase under

federal sentencing guidelines.

Attorneys for client firms that are targeted by multi-agency

government task forces are themselves a target for prosecution as

accessories to a variety of crimes, and have been subjected to

conspiracy as well as money laundering convictions for accepting

tainted fees.

THE TAX EVASION MODEL – A Question of Motive: Fee

Avoidance or Fee Evasion?

It must be noted that the U.S. Internal Revenue Code contains a

specific tax evasion offense, Sec. 7201. There is no such statute

that applies specifically to evasion of payment of government

agency fees, such as the surcharge on the I-129 filing fee.

However, a willful and deliberate attempt to evade payment of a

government fee by restructuring a business could be considered a

criminal fraud, as well as a willful violation of LCA requirements,

if the same elements of fraud that attach to tax evasion

– actual evasion of assessment or payment of a tax due,

an affirmative act evidencing guilty conduct, and mental

willfulness or criminal intent — were shown to apply to a

restructuring to evade payment of a government filing fee.

Definition of tax evasion in the United

States

The application of the U.S. tax evasion statute may be

illustrated in brief as follows, in order to illustrate how U.S.

Internal Revenue Code distinguishes tax evasion, which is criminal,

from tax evasion or “tax mitigation,” which is an

accepted and legitimate practice.

The pertinent statute is Internal Revenue Code, Section

7201:

Any person who willfully attempts in any manner to evade or

defeat any tax imposed by this title or the payment thereof shall,

in addition to other penalties provided by law, be guilty of a

felony and, upon conviction thereof, shall be fined not more than

$100,000 ($500,000 in the case of a corporation), or imprisoned not

more than 5 years, or both, together with the costs of

prosecution.

Under this statute and related case law, the prosecution must

prove, beyond a reasonable doubt, each of the following three

elements:

1. “attendant circumstance” of the existence of a tax

deficiency — an unpaid tax liability; and

2. the “actus reus” (i.e., guilty conduct) —

an affirmative act (and not merely an omission or failure to act)

in any manner constituting evasion or an attempt to evade

either:

  1. the assessment of a tax, or
  2. the payment of a tax.

3. The “mens rea” or “mental” element of

willfulness — the specific intent to violate an actually

known legal duty;

An affirmative act “in any manner” is sufficient to

satisfy the third element of the offense. That is, an act which

would otherwise be perfectly legal (such as moving funds from one

bank account to another) could be grounds for a tax evasion

conviction (possibly an attempt to evade “payment”),

provided the other two elements are also met. Intentionally filing

a false tax return (a separate crime in itself) could constitute an

attempt to evade the “assessment” of the tax, as the

Internal Revenue Service bases initial assessments (i.e., the

formal recordation of the tax on the books of the U.S. Treasury) on

the tax amount shown on the return.

Sarbanes-Oxley (SOX) Enforcement Model

Further civil penalties may apply if the fraud is shown to have

had a deleterious effect upon stockholders of public companies. Sarbanes-Oxley Act (SOX), 18 USC §

1514A

Under the Corporate and Criminal Fraud Accountability Act, Title

VIII of the Sarbanes-Oxley Act (SOX), employees of certain publicly

traded companies, companies with certain reporting requirements

with the Securities and Exchange Commission (SEC), and their

contractors, subcontractors, and agents may file complaints with a

number of federal agencies for a variety of frauds. Furthermore,

whistleblowers enjoy the protection of USDOL Occupational Safety

& Health Administration (OSHA) if they believe that they have

experienced discrimination or retaliation for reporting alleged

violations of the federal mail, wire, bank, or securities fraud

statutes, any rule or regulation of the SEC, or any other provision

of federal law relating to fraud against shareholders. 

Fraud against shareholders can be broadly construed to include

any improper, misleading, or unethical action by responsible

officers of any public company that erodes the value, actual or

reputational, of shareholder equity. While tax evasion is not an

included offense under SOX, willful failure to meet government

filing regulations or related misconduct – including,

potentially, willful evasion of requirements to pay filing fees and

related misrepresentations or errors in LCA preparation — may be

considered a possible SOX violation. Officers of public companies

also need to be aware of that potential liability.

APPENDIX I

The FDNS-DS fraud referral sheet lists the following items as

significant indicators of fraud, for which any H-1B petition can be

sent to ICE for follow-up investigation. Among the factors USCIS

treats as indicating fraud are the following:

1) (Petitioner)Gross annual income less that $10 million.

2) Company claims less than 25 employees.

3) Company established for less than 10 years.

4) Contracts for consultants or staffing agency show no

end-client (no work description or itinerary).

5) Not paying the claimed wage.

6) Suspect documents – altered, counterfeit, or boilerplate,

etc. (i.e., All employment letters have virtually the same text and

signatures with letterheads being the only difference)

7) Location on the Labor Condition Application (LCA) ETA 9035

differs from the place of employment.

8) H-1B Dependent – Claims not to be dependent but

check of CLAIMS mainframe reveals may not be true.

9) LCA Code does not match the claimed duties listed in the

petition and cover letter.

10) Evasive or ambiguous answers or complete failure to respond

to requested information.

11) Zoning inconsistent with indicated business internet data

– petitioner's address indicates zoned residential

rather than commercial.

12) Petitioner filing outside of jurisdiction.

13) Attorney identified on the FID [Likely acronym for

“Fraud Investigation Database”].

14) Multiple filings: DHS records should indicate significant

discrepancies between the number of petitions filed in the last

three (3) years and the current number of employees.

15) Incomplete, inconsistent, or misstated information in

petition – excessive blanks, inflated figures, etc.

16) NO website for IT Consulting Company. Also be aware of

websites that look good but are always under construction.

17) Preparer and Preparer's Address – The

preparer, notary, petitioner, etc. are the same person and they

have the same address while the actual work location shows a

different location.

18) Photographs of petitioner's premises have been altered

(i.e., company logos and signs have been added after the picture

taken, may times digitally).

19) Occupations – Accounting, Human Resources,

Analysts, and Managers, (i.e., marketing research analysts,

business analysts, financial analysts, managers for advertising,

marketing, and promotions, public relations and sales requested by

marginal companies lacking organizational complexity required to

support the position on a full-time basis for a three-year period

such as liquor stores, dry cleaners, gas stations, residential care

facilities, convenience stores, donut shops, fast food restaurants,

dental office, 99 cent stores, parking lots, etc.)

20) Abandonment or withdrawal after Request For Evidence

issued.

21) Questionable educational credentials.

22) FID Update – see additional relevant information

to update the FID.

Accompanying instructions read:

“In order to insure an actionable fraud referral is sent to

the Center Fraud Detection Facility (CFDO), all petitions that

possess 2 of the 3 10/25/10 criteria must be referred to the

CFDO.”

The “10/25/10 criteria” is not defined on the released

page, which appears as part of a redacted portion of a report

published by DHS OIG, Review of the USCIS Benefit Fraud Referral

Process (Redacted …(April 2008).8

NOTE: To some degree, these criteria appear to match up

with the results of the 2008 USCIS “H-1B Benefit Fraud

& Compliance Assessment” September 2008.

APPENDIX II

RECENT ICE IMMIGRATION FRAUD INVESTIGATIONS

Some Recent ICE Enforcement Actions – Prosecution

Immigration Fraud and Fraud Against Gov't

June 22, 2010

Sholom Rubashkin sentenced to 27 years in federal

prison

CEDAR RAPIDS, Iowa – The former CEO of Agriprocessors Inc. was

sentenced on Tuesday to 27 years in federal prison. This sentence

resulted from a two-year investigation by U.S. Immigration and

Customs Enforcement (ICE).

Sholom Rubashkin, 51, from Postville, Iowa, received his

sentence after jury verdicts found him guilty of 86 counts of

financial fraud and related offenses Nov. 12, 2009. Evidence at

trial showed Rubashkin inflated Agriprocessors' sales to

fraudulently obtain millions of dollars in bank loans that were not

backed by any collateral.

Rubashkin also diverted millions of dollars in customer payments

that were supposed to go to Agriprocessors' primary lender. He

committed money laundering by running tens of millions of dollars

through bank accounts at a Postville grocery store and a religious

school. The trial evidence showed Rubashkin was personally involved

in harboring hundreds of illegal aliens at Agriprocessors, and

unlawfully delaying payments to Agriprocessors' cattle

suppliers. He paid for fabricated identity documents for illegal

aliens, and he personally inspected those documents. Evidence

showed Rubashkin's fraud resulted in over $26 million in actual

loss to Agriprocessors' lenders.

Over a two-year time period, when money was being fraudulently

obtained from a lender, Rubashkin funneled about $1.5 million from

Agriprocessors'accounts to his personal bank accounts. The

money was used, in part, to pay for the following items:

  • about $300,000 on his credit card bills,
  • about $200,000 for a portion of the remodeling of his

    residence,

  • about $76,000 for his personal state and federal income

    tax,

  • about $41,000 for his mortgage payments on his personal

    residence,

  • about $25,000 for jewelry,
  • about $20,000 for sterling silver,
  • $1,245 per month for life insurance,
  • and $365 per month for his car payment.

“This prosecution and lengthy sentence resulted from an

extensive two-year ICE worksite enforcement operation and follow-up

investigation,” said Claude Arnold, special agent in charge

for the ICE office in Chicago which oversees Iowa. “This case

serves as a warning to employers that, if you build your business

on the backs of an illegal workforce, ICE and other federal

resources are there to make you pay the price.”

“Sholom Rubashkin expended enormous efforts to hide his

many crimes from the public and law enforcement. On top of that,

there have been orchestrated efforts to spread false information

intended to elicit sympathy for him. It is a tragedy that many

people were misled by this misinformation calculated to distract

the public from the truth. The truth came out at trial and

sentencing,” said U.S. Attorney Stephanie M. Rose. “No

one won anything today as the damage caused by Mr. Rubashkin cannot

be fully tallied. However, today the house of cards he constructed

finally was brought down. When something is built on lies, it

should be no surprise when it collapses under the weight of those

lies.”

Rubashkin was sentenced in Cedar Rapids by U.S. District Court

Chief Judge Linda R. Reade. His sentence was based, in part, on his

leadership role in the crimes and his efforts to obstruct justice

by testifying falsely at his trial. Rubashkin was sentenced to 324

months' imprisonment. Special assessments of $8,600 were

imposed, and he was ordered to make $26,852,152.51 in restitution.

He must also serve a five-year term of supervised release after the

prison term. There is no parole in the federal system.

The U.S. Attorney's Office works to ensure victims are made

whole as quickly as possible and is seeking the public's

assistance in locating or identifying Rubashkin's assets. If

anyone has information regarding Rubashkin's assets with a

significant value, they are urged to call 319-731-4080.

Rubashkin is being held in U.S. Marshals custody until he can be

transported to a federal prison.

The investigation began in October 2007 and continued after ICE

executed search warrants at Agriprocessors on May 12, 2008.

The case was prosecuted by Assistant U.S. Attorneys Peter

Deegan, C.J. Williams, and Matthew Cole.  The investigation

has been led by U.S. Immigration and Customs Enforcement and the

FBI. Prior assistance was provided by the following agencies: U.S.

Marshals Service, U.S. Postal Inspections Service, Iowa Department

of Public Safety, Iowa Department of Transportation, Federal

Protective Service, Internal Revenue Service's Criminal

Investigations, U.S. Department of Labor, Public Health Service,

U.S. Department of Agriculture, U.S. Environmental Protection

Agency, Iowa Department of Natural Resources, Drug Enforcement

Administration, Waterloo Police Department, and Postville Police

Department.

Court file information is available at: https://ecf.iand.uscourts.gov/cgi-bin/login.pl.

The case file number is CR 08-1324 LRR.

Read the U.S. Attorney's statement on the

Agriprocessors case.

June 15, 2010

17 individuals charged and 12 locations searched in

major health care fraud and money laundering

prosecution

BROOKLYN, N.Y. – U. S. Attorney Loretta E. Lynch announced today

four separate indictments charging 17 individuals for their

participation in health care fraud and money laundering schemes in

the Eastern District of New York. In addition, agents of U.S.

Immigration and Customs Enforcement (ICE), the FBI and Internal

Revenue Service (IRS) searched offices of 12 durable medical

equipment retail companies located in South Brooklyn that were

operated by the defendants and seized assets from bank accounts

maintained by the defendants' retail companies.

According to the indictments, the defendants filed fraudulent

claims with private insurance companies with no-fault insurance

plans. Specifically, the defendants – through their retail

companies – allegedly submitted false invoices to the insurance

companies for reimbursable expenses for durable medical equipment

at prices well in excess of the price paid by the defendants, as

well as for durable medical equipment that was never obtained. The

indictments allege that it was also part of the defendants'

schemes to engage in financial transactions to conceal the

identity, source, and destination of the fraudulent proceeds by

“laundering” them through checks they issued to the same

wholesale companies. The checks were then negotiated at check

cashing stores and the resulting cash was delivered back to the

defendants.

“The charges announced today, which have resulted in the

arrests of several operators of medical equipment companies that

allegedly engaged in schemes to defraud insurance companies, are

the product of a coordinated effort by federal and local law

enforcement agencies,” stated Lynch. “Those who engage in

such schemes are on notice that they will be met with the full

force of law enforcement.”

“The type of health care fraud and money laundering scheme

these individuals allegedly constructed and engaged in affects all

Americans and directly impacts America's health care

system,” said James T. Hayes, Jr., special agent in charge of

ICE's Homeland Security Investigations in New York. “Our

office is determined to find criminals who seek to illegally profit

from fraud no matter how sophisticated the scheme.”

FBI Acting Assistant Director in Charge George C. Venizelos

stated, “Health care fraud is a multibillion-dollar plague on

the U.S. economy annually, and it affects the cost and availability

of private and public insurance for everyone. Durable medical

equipment fraud is a large part of the problem. The cure is the

continuing commitment by the FBI and our partners to ferret out

those who engage in these frauds, whose prognosis is a possible

20-year prison term.”

IRS (New York) Special Agent in Charge Charles R. Pine stated,

“IRS Criminal Investigation investigates health care fraud

perpetrated against the federal and state governments, as well as

private insurance companies. We investigate money laundering when

either illegally obtained funds from health care fraud are used to

purchase assets or when the perpetrators of the schemes devise

elaborate methods to conceal their fraudulent proceeds.

Money laundering occurs in a wide range of fraudulent health

care schemes, including durable medical equipment fraud. Typical

health care fraud investigations are lengthy, labor intensive, and

involve complex issues. To assist in combating health care fraud,

IRS CI participates with multiple agencies by documenting that the

perpetrators of these schemes financially benefitted from their

fraudulent activities. IRS CI will continue to participate in all

types of health care fraud investigations. If there is a money

trail, we will follow it.”

If convicted, each of the defendants faces up to 20 years'

incarceration.

The government's case is being prosecuted by Assistant U. S.

Attorneys Daniel Brownell and Evan Weitz.

http://www.ice.gov/pi/nr/0909/090918norfolk.htm

September 18, 2009

Immigration Attorney Pleaded Guilty to Conspiracy

Charge

NORFOLK, Va. – Beth Ann Broyles, 30, of Evanston, Ill., pleaded

guilty in Norfolk federal court on Friday to conspiracy involving

visa fraud and inducing aliens to come to the United States

illegally. This case was the result of an investigation by U.S.

Immigration and Customs Enforcement (ICE) acting as part of a

larger task force.

Broyles is scheduled to be sentenced Dec. 14, 2009, and faces a

maximum penalty of five years of imprisonment, a fine of $250,000,

full restitution, a special assessment, and three years of

supervised release.

According to court documents, Beth Ann Broyles, an immigration

attorney based in Chicago, served as immigration counsel for the

Viktar Krus organization in Virginia Beach. Krus was recently

sentenced to 87 months imprisonment after being convicted on

conspiracy, visa fraud and tax evasion charges. As Krus's

lawyer, Broyles prepared successive fraudulent immigration

petitions, which she submitted to the Department of Labor and

thereafter to the Department of Homeland Security. Once approved by

these agencies, these fraudulent petitions allowed Krus

organization to recruit for and bring approximately 1,000 alien

workers into the United States illegally on H2B visas, where they

were allowed to work for periods of up to nine months. The majority

of these aliens were from eastern European countries and from

Jamaica. As a result of having access to this large pool of illegal

workers, the Krus organization was able to generate over $35

million in gross income from 2003 to 2009.

This case was investigated by a dedicated task force focused on

dismantling the Krus criminal organization. The task force

investigating this case included ICE, the IRS Criminal

Investigation, the U.S. State Department's Bureau of Diplomatic

Security, the U.S. Department of Labor, the U.S. Department of the

Treasury's Financial Crimes Enforcement Network, the U.S.

Postal Inspection Service, the FBI's Norfolk Field Office, the

Naval Criminal Investigative Service and the Virginia Beach Police

Department.

Immigration fraud poses a severe threat to national security and

public safety because it creates a vulnerability that may enable

terrorists, criminals, and illegal aliens to gain entry to and

remain in the United States. ICE uproots the infrastructure of

illegal immigration by detecting and deterring immigration

fraud.

Individuals and criminal enterprises often use fraudulent

documents to obtain drivers' licenses and social security

cards. Traffickers and alien smugglers use these documents to

facilitate movement into and within the United States and they are

also used to shield illegal aliens from detection within our

society. Fraudulent documents may be used to obtain financial

benefits and entitlements intended for U.S. citizens or lawful

permanent residents and to obtain unauthorized employment.

Footnotes

1. See, Making emergency supplemental appropriations for

border security for the fiscal year ending September 30, 2010, and

for other purposes, http://www.govtrack.us/congress/bill.xpd?bill=h111-6080

2. See, See, Senator Charles E. Schumer's speech on

border Security bill and …

3. See, Despite Indian concerns, Obama to sign border

security bill, 13 Aug 2010, 0453 hrs IST,PTI, http://economictimes.indiatimes.com/articleshow/6302669.cms

4. See, Senator Charles E. Schumer's speech on

border Security bill and …

5. http://www.aila.org/content/default.aspx?docid=8412

; also, available at, http://forums.immigration.com/blog_attachment.php?attachmentid=8&d=1237507390

6. http://www.dhs.gov/xoig/assets/mgmtrpts/OIGr_08-09_Apr08.pdf

7. USICE News, Immigration and Customs Enforcement (ICE)

Pattern Analysis and Information Collection System (ICEPIC),

January 2008, http://www.ice.gov/pi/news/factsheets/

icepic.htm

8. http:// www.dhs.gov/xoig/assets/mgmtrpts/OIGr_08-09_Apr08.pdf

The content of this article is intended to provide a general

guide to the subject matter. Specialist advice should be sought

about your specific circumstances.

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