Business owners nationwide have become acutely aware of the perils of becoming the focus of a federal worksite enforcement investigation. The Department of Homeland Security, Immigration and Customs Enforcement (ICE), along with other federal, state and local government agencies conduct raids and investigations with the goal of developing facts to support more ominous felony criminal prosecutions rather than the administrative fine process it deemed inadequate to deter the employment of unauthorized workers.1

In recent years, ICE has set a vigorous enforcement pace, making thousands of criminal and administrative arrests,2 with a significant percentage of those involving the owners, managers, supervisors and human resources employees of target companies. While businesses in virtually every state have experienced this enforcement trend,3 Houston, Texas has had a large share of high profile cases. Although many feel certain that the near future will bring immigration law reform and relief for undocumented immigrants, the new Administration has been very clear about its plans for continued strong enforcement at the workplace.4 As such, employers should understand how raids come about, the liabilities that arise from worksite enforcement efforts, and how to minimize the associated risk.

 

High Profile Houston Cases and How They Started

Federal probes can be prompted by everything from anonymous tips to identity theft reports to private employment discrimination suits.

 

Republic Services Inc.

Republic Services Inc., a local waste collection company, was one of the first local businesses to experience ICE’s reinvigorated workplace enforcement efforts. The case against the company developed in November 2005 when a local television station aired a story alleging that Republic was disposing of non-city waste collected from outside of Houston, allegedly overbilling the City of Houston in the process.5 ICE initiated its own investigation into the company’s hiring practices and alleged that from 2002 to 2005, approximately 25 percent of Republic Service’s workers were not authorized to work in the U.S.6 ICE executed a federal search warrant at the facility in January of 2007, seizing documents and computers.7 In addition, ICE arrested 28 Republic Services employees and 24 temporary employment agency employees.8

Citing the “collateral consequences that a criminal prosecution would have on the company’s contracts with municipalities across the US,” federal prosecutors declined to bring criminal charges and opted for a non-prosecution agreement.9 The agreement requires Republic to pay $2 million to the City of Houston for recycling purposes and a $1 million penalty to the U.S. Department of Treasury.10 Naturally, the company was required to bring its employment practices into compliance with federal law and agreed to continue to cooperate in the ongoing criminal investigations.11

 

IFCO

Houston-based IFCO Systems, the largest pallet services company in the country, also found itself under investigation in 2005 after a disgruntled employee at an IFCO plant in Albany, New York called ICE regarding alleged undocumented worker violations.12 The tip alleged that Hispanic workers were ripping up W-2 forms, which a plant manager indicated were unnecessary since they were based on fraudulent Social Security Numbers and would not be submitted to the government.13 Following an investigation, criminal charges were filed against a vice president, new market development managers, a foreman and operations manager, and a human resources manager among others.14 The indictment alleged that more than half of the company’s roughly 5,800 employees employed in 2005 had invalid or mismatched Social Security numbers and also included multiple counts of engaging in a conspiracy to harbor illegal aliens, encouraging and inducing illegal aliens to reside in the United States, knowingly hiring illegal aliens, and transporting illegal aliens for the purpose of commercial advantage and financial gain.15

In the following three years, nine current and former IFCO managers have pleaded guilty to felonies or misdemeanors for criminal conduct.16 Four managers are currently pending trial on a felony indictment in U.S. District Court in the Northern District of New York and the investigation of IFCO employees continues.17 The liability of the corporation itself was finalized in the IFCO settlement agreement which includes a payment of $20.7 million in civil forfeitures and penalties over four years.18 The United States Attorney for the Northern District of New York agreed not to pursue corporate criminal charges against IFCO for the pre-April 2006 conduct of its employees in hiring illegal alien workers as long as the company fully complies with the terms of the agreement.19

 

Action Rags USA

The Southern District of Texas witnessed still more immigration-related prosecutions on July 31, 2008 when the owner of Action Rags USA, an exporter of used clothing, and two managers were indicted for violating federal immigration laws.20 The indictment included counts of conspiracy to harbor illegal aliens, to induce illegal aliens to come to the U.S. for commercial advantage, engaging in a pattern or practice of hiring illegal aliens, and knowingly accepting false documents as proof of citizenship for those workers.21 The counts carry a maximum term of 10 years imprisonment or a $250,000 fine, or both.22

ICE instituted an undercover investigation into Action Rags following tips from a former employee.23 According to the criminal complaint previously filed in this case, investigators located and interviewed a number of former and current plant employees.24 The yearlong investigation revealed that the company did not properly complete the required I-9 forms to verify employment eligibility.25 The investigation also determined that the company knowingly hired illegal aliens and reportedly paid them in cash until they were able to purchase fraudulent identity and social security cards from local flea markets.26

The investigation ultimately led to ICE agents executing a search warrant at Action Rags on June 25, 2008.27 The Indictment alleges that illegal aliens made up roughly 85 percent of the Action Rags workforce and that the defendants engaged in acts that openly flouted federal immigration law.28

 

Shipley Do-Nut Flour and Supply Company Inc.

Finally, Shipley Do-Nut’s, headquartered in Houston since the Great Depression and popular among locals, was the subject of a federal worksite investigation. Prompted by an employment discrimination suit against the company, ICE used transcripts and documents emanating from that case to launch its criminal investigation into whether the company knew it was hiring undocumented workers.29 ICE continued the investigation using the typical methods in worksite enforcement cases, including interviews with former employees and analysis of I-9 forms and Social Security Administration (SSA) No Match letters.30

Three managers pleaded guilty to misdemeanor charges of hiring or continuing to hire illegal aliens and were sentenced to six months probation.31 Cumulatively, they were fined $4,500.32 The company president also pleaded guilty to continuing to hire illegal aliens and was sentenced to a six months probation and fined $6,000.33 The government seized the company-owned residences where unauthorized workers lived; however, the government accepted a payment of $1.3 million rather than require forfeiture of the property itself.34

The government also charged the company itself with conspiring to harbor illegal aliens, which carries a maximum fine of $500,000 and up to five years probation.35

 

How Employers Are Selected for Investigation

With varying levels of resources,36 immigration authorities have long maintained an investigative division focused on the apprehension of foreign nationals working illegally in the United States. Prior to 2001 the government had two primary case starting points: lead-driven cases and General Administrative Plan (GAP) cases.37 Although the post-September 11, 2001 enforcement focus shifted heavily towards monitoring employers closely tied to the U.S. infrastructure, such as those at airports, power and water sources, and military bases,38 the general leads are still used, as are random visits based on GAP, although to a lesser extent.

Lead-driven cases come from calls and letters or referrals from other agencies such as DOL, and state and local officials. Since the initiation of the employment eligibility verification laws,39 GAP cases have been randomly selected by the immigration headquarters Investigations Division from a national database of U.S. employers.40 Currently, though, employers are less likely to receive a GAP-based “educational” visit and are more likely to be the focus of a lead-driven investigation – perhaps even long before they realize it.41 Cases involving national security or public safety implications receive top priority, as do investigations involving allegations of egregious worker exploitation, where the welfare of the employees may be at risk.42 

 

Inter-Agency Cooperation

I-9 inspections can also arise during a Department of Labor compliance officer’s labor standards investigation.43 DOL inspectors only review I-9 forms for basic compliance and do not pursue an investigation into potential hiring violations. It is also beyond the scope of a DOL investigation to make inquiries regarding the immigration status of workers. Just as with inspections conducted by immigration officials, employers are entitled to three days’ notice prior to the I-9 form inspection. In contrast to ICE procedures, if the employer does not store its I-9 forms on-site, the DOL inspector will not require that the documents be produced for inspection. In that instance, DOL will simply notify ICE of its inability to conduct a compliance review. Although DOL inspectors will not issue fines or warnings for paperwork violations,44 they will send an “ESA-91” referral form to ICE specifying the alleged violations and any other relevant information.45

 

Potential Consequences for Violations

Whatever the origin of an investigation, employers are very likely to face some type of penalty for infractions, and not just civil penalties. Just as the investigation selection process has undergone changes, so too have the potential outcomes where violations are found.

 

Traditional Administrative Proceedings

Traditionally, employers charged with violating prohibitions on unauthorized employment could count on having to deal with civil penalties and the administrative fines process.46 The Immigration and Nationality Act establishes separate and escalating ranges of penalties including (1) failure to properly complete or maintain the I-9 form ($110- $1,100 per employee); (2) knowingly hiring, recruiting, referring, or continuing to employ unauthorized aliens ($275-$11,000 per alien); and (3) engaging in a pattern or practice of violations of knowingly hiring, recruiting, referring, or continuing to employ unauthorized aliens (up to $3,000 per alien or up to six months imprisonment or both).47

After conducting inspections and audits of employment eligibility documents, immigration agents would serve businesses with a Notice of Intent to Fine (NIF) or a compliance notice. Over time the government observed that these monetary fines were routinely mitigated or ignored and had little to no deterrent effect.48 Immigration authorities concluded that violators of the law viewed the fines as a “cost of doing business” and sought out new methods of inducing changes to this “business model.”49

 

‘Criminal indictments ... are the future of worksite enforcement’50

Described as a “comprehensive layered approach,” ICE’s current worksite enforcement strategy is to conduct investigations that will support felony charges and not just the traditional misdemeanor worksite violations.51 ICE agents coordinate enforcement operations with investigative agents and officers from the Department of Labor, Social Security Administration, the Internal Revenue Service, U.S. Postal Inspection Service, U.S. Marshals Service and state and local police, as appropriate.52 If the evidence gathered supports a federal criminal prosecution, ICE works directly with the U.S. Attorney’s Office in subsequent court proceedings.53 Asset forfeiture is another key component in the ICE strategy to remove the financial incentive to hire unauthorized workers.54

In its shift from administrative proceedings to criminal prosecution, ICE most frequently uses the “harboring” provisions, which include conspiracy and aiding and abetting.55 “Harboring” holds the violator criminally liable for encouraging or inducing an alien to reside in the U.S., or knowingly or in reckless disregard of the fact that such residence violates the law.56 There are enhanced penalties where the offense was committed for commercial advantage or private financial gain.57 Employment had been statutorily exempt from the definition of “harboring” prior to the enactment of the Immigration Reform and Control Act in 1986. Even though technically mere employment could be considered “harboring,” most cases involve additional aggravating factors such as the transportation or housing of aliens.

Some prosecutions include obstruction of justice charges,58 or misprision of a felony59 where the company through its agents or employees was allegedly aware of criminal violations and took actions to prevent its discovery. The government occasionally relies on the statutory prohibition against knowingly accepting a forged or counterfeit document for I-9 purposes;60 however, it is not employed as often due to difficulties in establishing the requisite knowledge. Another charge that is increasingly invoked is “aggravated identity theft.”61

As part of its strategy to increase the deterrent effect on employers, the government regularly imposes “money laundering” charges. Most commonly identified with drug trafficking cases, “money laundering” is an auxiliary federal crime, intended to heighten the seriousness of other specific federal, state, and foreign crimes (predicate offenses). It is principally designed to stop the flow of money to and from the predicate offense(s).62 Alien harboring is a predicate offense and is included on the “money laundering” predicate offense list.63 The money laundering statute is broadly construed and reaches any financial transaction that occurs with the proceeds of an unlawful activity.64 In contrast to civil liability, if convicted of money laundering, the criminal defendant forfeits and the federal government may seize any property involved in the crime.65 Property traceable to assets involved in the crime is also subject to seizure and forfeiture.66

ICE obtained more than $31 million in criminal fines, restitutions and civil judgments as a result of worksite related enforcement actions in fiscal year 2007.67 Fiscal year 2008 was even more aggressive with ICE making more than 1,100 criminal arrests tied to worksite enforcement investigations, 135 of which are owners, managers, supervisors or human resources employees who face “harboring” and “knowing hire” charges and the related fines.68

 

Federal Contract Debarment

Another tool invoked to ensure immigration employment law compliance is the federal contract debarment process. Under certain circumstances, the federal government can refuse to contract with businesses that employ an illegal workforce and “unscrupulously undercut their competitors to gain an unfair market advantage because of reduced labor costs.”69 Contractors may be considered for debarment if they have been found to have either knowingly hired an unauthorized worker or to continue to employ an alien who is or becomes unauthorized.70 Debarred companies are prohibited from competing for new government contracts government-wide.71

 

An Ounce of Prevention

While the Houston enforcement cases illustrate the government’s new enforcement strategy in action, they also provide guidance as to what the government views as convincing mitigating behavior. For instance, the U.S. Attorney handling the Shipley Do-Nut case credited the company’s upgraded compliance program and hiring of a consultant for the government’s decision not to pursue more severe prosecution.72 Likewise, prosecutors found Republic’s remedial measures substantial.73 ICE views the following specific post-investigation compliance efforts very favorably: terminating or disciplining individuals who violate the immigration employment laws; providing formal training on I-9 procedures; conducting I-9 self-audits; retaining and consulting with qualified immigration counsel; creating and properly administering a tip line; and appointing a trained employee to serve as an I-9 compliance officer.74

To encourage proactive employer compliance, ICE publicizes “best hiring practices” intended to reduce unauthorized employment and the use of fraudulent identity documents before a problem requiring investigation occurs. 75 Hallmarks of the “best practices” include use of the E-Verify employment eligibility verification program for all hiring, establishing an internal training program, restricting I-9 administration to a few well-trained employees, and annual I-9 audits conducted by objective sources. Compliance is the best risk management plan against investigations and prosecutions that can disrupt operations and lives. Therefore, employers are well-advised to begin immediately to review, develop and implement a comprehensive workforce authorization compliance policy.

Leigh N. Ganchan leads the Business Immigration Practice Group for Haynes and Boone LLP. She provides clients with comprehensive business immigration solutions, including I-9 compliance assistance and work authorization strategies & applications. She is Board Certified in Immigration & Nationality Law by the Texas Board of Legal Specialization. Ganchan began her career as an Assistant District Counsel at the U.S. Department of Justice, Immigration and Naturalization Service.

 

Endnotes

1. Julia Preston, U.S. Puts Onus on Employers of Immigrants , N.Y. Times, July 31, 2006, at A6 (quoting then Assistant Secretary for ICE Julie L. Myers); see also, U.S. Government Accountability Office, No. GAO-05-822T, Immigration Enforcement: Preliminary Observations on Employment Verification and Worksite Enforcement Efforts 4 (June 21, 2005), at www.gao.gov/new.items/d05822t.pdf.   2. U.S. Immigration and Customs Enforcements, ICE Fiscal Year 2007 Annual Report at 7.   3. Centro Legal, Comprehensive Documentation of Immigration Enforcement Operations for 2006, 2007 and 2008, available at www.centrolegal.org.   4.  U.S. Senate Committee on Homeland Security and Governmental Affairs Pre-hearing Questionnaire for the Nomination of Janet A. Napolitano to be Secretary of Homeland Security  pp 46, 48, January 7, 2009. (with sworn responses of nominee Napolitano.)   5. Office of City Controller, Audit Targets Republic Waste for Allegedly Overbilling Houston, announcement of initiation of investigation, available at http://www.houstontx.gov/controller/mail/Newt1205.htm#Was; see also, Contract Compliance Review of Republic Waste Services of Texas Ltd. and BFI Waste Systems North America Inc., City of Houston, Report No. 06-08, April 2006.   6.Houston waste collection company agrees to pay $3 million penalty, ICE News Release, October 1, 2008, at www.ice.gov.   7. Id.   8. Id.   9.Republic Services Inc. Enters Into Agreement to Cooperate With Ongoing Criminal Investigation, The U.S. Attorney’s Office, So. Dist. of Texas, News Release, October 1, 2008, at www.usdoj.gov/usao/txs/releases/October%202008/100108Republic.htm   10. Id.   11. Non-Prosecution Agreement at http://abclocal.go.com/ktrk/story?section=news/13_undercover&id=6426828.   12.ICE Agents Arrest Seven Managers of Nationwide Pallet Company and 1,187 of the Firm’s Illegal Alien Employees in 26 States, DHS News Release, Apr. 20, 2006 at http://www.dhs.gov/xnews/releases/press_release_0891.shtm.   13. Id.   14.Five IFCO managers indicted on federal charges stemming from employing illegal aliens, ICE News Release, Feb. 28, 2008, at http://www.ice.gov/pi/news/newsreleases/articles/080228albany.htm.   15. Id.   16.IFCO Systems enters into record $20.7 million settlement of claims related to employment of illegal aliens, ICE News Release, Dec. 19, 2008, at http://www.ice.gov/pi/nr/0812/081219albany.htm.   17. Id.   18. Id.   19. Id.   20.Indictment Returned Against Action Rags USA Owner and Two Managers, ICE Press Release, July 31, 2008, at  http://www.ice.gov/pi/nr/0807/080731houston.   21. Id.   22. Id.   23. Id.   24. See Complaint in No. H-07-475M; United States v. Mandanlal (S.D. Tex.).   25. Id.   26. Id.   27. Id.   28. Id.   29.Houston-area donut company, its president, and three managers are charged with immigration violations, ICE News Release (Aug. 28, 2008), available at www.ice.gov.   30. Id.   31.Shipley Do-Nut Flour and Supply Company agrees to pay $1.334 million, ICE News Release (Sep. 5, 2008), available at www.ice.gov.   32. Id.   33. Id.   34. Id.   35. U.S. v. Shipley Do-nut Flour and Supply Co., Criminal Information No. 08-576 (Aug. 22, 2008). 36. Immigration and Naturalization Service Efforts to Combat Harboring and Employing Illegal Immigrants in Sweatshops, Department of Justice Office of the Inspector General, Inspections Division, Report Number I-96-08, May 1996; United States Department of Homeland Security, Yearbook of Immigration Statistics: 2007, Washington, D.C.; U.S. Department of Homeland Security, Office of Immigration Statistics, 2008.   37. Id.   38. Leigh Ganchan, Immigration and Naturalization Service Worksite Enforcement Operations Re-Emerge as National Security Priority, 40 The Houston Lawyer 4 (2003).   39. Immigration Reform and Control Act 1986, 8 U.S.C. 1101 (2008).   40.INS Immigration Officer’s Field Manual for Employer Sanctions (M-278) (Nov. 20, 1987).   41. “Anatomy of a Worksite Enforcement Case,” Worksite Enforcement Overview, DHS, ICE, updated Nov. 25, 2008 at http://www.ice.gov/doclib/pi/news/factsheets/worksite.pdf  (explaining that “ICE agents employ a variety of techniques to investigate. . .  including the use of undercover agents, confidential informants, cooperating defendants, and surveillance.)   42. Id.   43. Memorandum of Understanding on Workplace Inspections Between the Immigration and Naturalization Service Department of Justice and the Employment Standards Administration Department of Labor, Nov. 23, 1998 available at http://www.dol.gov/esa/whd/whatsnew/mou/nov98mou.htm (excluding investigation based on complaint alleging labor standards violations. This restriction is intended to encourage complaints from unauthorized employees who may be victims of labor standards violations.)   44. Id.   45. Id.   46. U.S. Government Accountability Office, No. GAO-05-822T, Immigration Enforcement: Preliminary Observations on Employment Verification and Worksite Enforcement Efforts 4 (June 21, 2005), at www.gao.gov/new.items/d05822t.pdf.   47. INA §§ 74A(e)(5), 274A(f)(1) (2008); 8 U.S.C. §§1324a(e)(5) , 1324a(f)(1)  (2008).   48. Julie L. Myers, Assistant Secretary U.S. Immigration and Customs Enforcement, U.S. Department of Homeland Security before the U.S. House Of Representatives Committee on Ways and Means (July 26, 2006), available at http://www.dhs.gov/xnews/testimony/testimony_0052.shtm.   49. Id.   50. Paul Cuadros, The New Tactics of Immigration Enforcement , Time Magazine, Aug. 7, 2006, at www.time.com/time/nation/article/0,8599,1223600,00.html. See generally Thomas C. Green & Ileana M. Ciobanu, Deputizing - and Then Prosecuting - America’s Businesses in the Fight Against Illegal Immigration , 43 Am. Cr. L. Rev. 1203 (2006).   51. Myers, supra n. 31, (referring to administrative proceedings set for under Section 274A of the Immigration and Nationality Act).   52. Id.   53. Indictment returned against Action Rags USA owner and 2 managers, ICE Press Release, July 31, 2008, at  http://www.ice.gov/pi/nr/0807/080731houston.   54. Myers, supra n. 31.   55. 8 USC1324(a) (2008).   56. Id.   57. 8 USC 1324(a)(1)(B) (2008).   58. Inquiry Finds Under-Age Workers at Meat Plant, Julia Preston, New York Times, August 6, 2008; Criminal Investigation into Iowa Company Targeted by ICE, Wendy Feliz Sefsaf, July 11, 2008, New America Media, (describing investigations for wage and hour, child labor, health and safety, and sexual harassment allegations.)   59. 18 U.S.C. § 1505 (2008).   60. 18 U.S.C. § 4 (2008).   61. 18 U.S.C. § 1028A (establishing penalties for aggravated identity theft, including instances when identity theft used as one step in process of more serious crimes, such as terrorist acts, immigration violations, and firearms offenses.)   62. 18 U.S.C.  §§ 1956, 1957 (2008).   63. Id.   64. Id.   65. Id.   66. 18 U.S.C. § 982(a)(6)(a) (2008).   67. President George W. Bush, State of the Union Address Fact Sheet, White House Office of Communications (Jan. 28, 2008).   68. U.S. Immigration and Customs Enforcement, Worksite Enforcement Fact Sheet (Nov. 25, 2008).   69. Julie L. Myers, Homeland Security Assistant Secretary for ICE,  Seven companies notified of potential debarment for unlawful employment practices, available at http://www.ice.gov/pi/nr/0809/080912washington1.htm.   70. The Federal Acquisition Regulations (FAR), 48 C.F.R. § 1 (2008).   71. 48 C.F.R. § 1 (2008) (that is, neither ICE, nor any other federal agency, may award a new contract while the company is listed in the database).   72. Houston-area donut company, its president and 3 managers plead guilty to immigration violations , ICE Press Release, Sept. 5, 2008, at  http://www.ice.gov/pi/nr/0809/080905houston.htm   73. Republic Services Inc. Enters Into Agreement to Cooperate With Ongoing Criminal Investigation, The U.S. Attorney’s Office, So. Dist. of Texas, News Release, October 1, 2008, at www.usdoj.gov/usao/txs/releases/October%202008/100108Republic.htm   74. Id.   75. ICE Best Hiring Practices available at http://www.ice.gov/partners/employers/worksite/besthire.htm.