Posted by Law.com on April 21, 2009
By Sue Reisinger, Corporate Counsel
In February 2005, federal agents received a tip that illegal aliens working at an Albany, N.Y., wood pallet plant were ripping up their W-2 income tax forms to avoid detection. Quietly, the feds began to investigate. The probe culminated more than a year later, when teams of U.S. immigration agents stormed 40 plants nationwide belonging to IFCO Systems North America, Inc.
The agents rounded up more than 1,100 illegal aliens working at IFCO plants in 26 states. At least a dozen supervisors were indicted for hiring the workers, and most have since pled guilty. The agents who conducted the raid work for the U.S. Immigration and Customs Enforcement service, known as ICE, the investigative arm of the U.S. Department of Homeland Security. John Torres, acting assistant secretary of Homeland Security for ICE, hailed the IFCO case as the agency's largest enforcement action ever. And when federal prosecutors finished with the company, the case also gave ICE its largest single payday.
That's because last December, IFCO signed a $20.7 million nonprosecution agreement. In the deal, IFCO accepted responsibility for the wrongdoing, vowed to implement numerous reforms, and agreed to pay $2.6 million in back pay and penalties, plus more than $18 million in asset forfeiture to keep the company itself from being charged. IFCO's legal department, through a spokesman, declined to comment for this story.
The size and nature of the IFCO case have thrown a spotlight on how aggressively ICE has been cracking down on U.S. corporations, and on how varied -- some say inconsistent -- its legal approaches can be. Pressured by conservative groups like the Federation for American Immigration Reform, former president George Bush called for more work site enforcement. ICE answered the call, with a bold shift in its workplace actions and the penalties it seeks. In response, the number of work site arrests has exploded tenfold since 2003. ICE also increasingly sought controversial asset forfeitures from companies, as it did with IFCO. ICE uses the money to purchase equipment and conduct investigations.
But if company executives think they can suss out ICE's next move, they're wrong. In fact, execs caught with illegal workers have no idea what ICE will do to them or ask of their company, says Josie Gonzalez, managing partner of the Pasadena, Calif., firm Gonzalez & Harris, who has been an immigration attorney for 30 years. "You just keep your fingers crossed," Gonzalez says. "It would be a great idea if [ICE] would provide guidelines on what factors support criminal prosecution over civil penalties," she says, or how it calculates financial penalties. The new Obama administration has pledged to reform immigration law, but its response to the economic crisis has demanded most of its attention.
An analysis by Corporate Counsel of dozens of major work site cases supports Gonzalez's contentions. The study reveals that ICE is nothing if not unpredictable. Sometimes the agency brings civil charges and other times criminal ones. Sometimes top-level executives are arrested and charged, while other times ICE charges lower-level managers. Cases can be settled -- but owners also are dragged into court. Often, the penalties are in the millions of dollars.
For example, in March 2005, Wal-Mart Stores Inc. agreed to an $11 million civil settlement after signing a "consent decree" without admitting guilt for using illegal janitorial workers. No one at Wal-Mart was criminally charged. A company spokeswoman, Michelle Bradford, says it has since adopted a stringent program of double-checking employment eligibility and monitoring the compliance of third-party vendors.
Only five months after the Wal-Mart civil settlement, ICE raided the offices of the Golden State Fence Co. near San Diego. Unlike the civil outcome in the Wal-Mart case, the fence company owner and his top executive were criminally charged. The owner finally reached a court-approved plea bargain two years later in which he forfeited $4.7 million in profits to ICE. The U.S. Attorney sought jail time, but the judge sentenced the owner and his top hand to probation.
Then, last year, ICE adopted a new tactic: deferred and nonprosecution agreements. ICE settled three cases in 2008 with such agreements, including IFCO, where the top executives were not criminally charged, but lower-level supervisors were. Some other work site cases in 2008, though, saw owners and top executives criminally charged with everything from hiring and harboring illegal aliens to money laundering and racketeering. At least one company, Agriprocessors Inc., a kosher meat packer in Postville, Iowa, went into bankruptcy after ICE raided it in May 2008. Its chief executive, the son of the owner, was criminally charged. Seven other companies have recently been debarred from doing business with the government.
How does a company know what to expect? It doesn't. And ICE likes it that way.
Paul Gleason, associate legal adviser in ICE's law department, admits that legal approaches vary widely. But that's no different from a criminal tax or other case, he insists. Gleason explains that the approach depends on a number of factors, including the strength of the case, the company's willingness to cooperate, and the legal proclivities of whichever U.S. attorney is involved. "Every case is different," Gleason says. "So I can't give you a straight answer."
Criminal law expert Rachel Barkow, a professor at New York University School of Law, says ICE and the U.S. Department of Justice could be more transparent about their activities without compromising their cases. Barkow, faculty director of New York University's NYU's Center on the Administration of Criminal Law, says the government should discuss "how decisions get made in each U.S. Attorney's Office, whether the office follows written or unwritten guidelines, and who makes decisions about such things as charging, cooperation, and sentencing."
Barkow adds, "Currently, though, [Justice] won't talk about any of this, making it all but impossible for researchers to analyze and evaluate how things are working."
For ICE, transparency isn't part of its strategy. Kevin Sibley, unit chief for ICE work site enforcement in Washington, D.C., says the whole point is to induce corporate compliance. "We don't want to advertise what we are doing or how we are doing it," Sibley says. Then he adds, "[In the interest] of full transparency, employers need to know this: If there is a charge we can bring or a tool we can use, we will do it."
ICE was not always so brash. The agency was established in March 2003 as the key investigative arm to help Homeland Security track and repel terrorists. It was created by combining the former Immigration and Naturalization Service and the U.S. Customs Service with the Federal Protective Service and the Federal Air Marshal Service. ICE's massive mission includes protecting U.S. borders, transportation, and roads and bridges, as well as U.S. workplaces with the potential for disaster, such as nuclear power plants.
The ICE budget has ballooned annually, more than doubling from $2.4 billion in 2002 to nearly $5.6 billion this year. And while ICE was created with public safety as its primary goal, the hefty budget increases have also brought tougher oversight for corporations and for illegal immigrants who only want to work in the U.S.
Historically, the government didn't criminally prosecute employers, and it simply deported illegals. But in 2005, according to ICE's Gleason, the agency grew more aggressive. That's when ICE went from a somewhat ineffective agency to a fierce enforcer of criminal laws.
ICE's Web site openly states its latest goals: "Today ICE relies heavily on criminal prosecutions and the seizure of company assets to gain compliance from businesses that violate the employment provisions of our nation's immigration laws."
Why the change? The shift came after several conservative groups criticized the Bush administration for not cracking down on illegal workers. They reasoned that if you stop companies from hiring illegal immigrants, then millions of aliens will quit sneaking across the border to hunt for jobs.
One way to stop companies is by imposing criminal charges. Gleason, who works in ICE's Office of the Principal Legal Advisor, says the smaller civil penalties were "not as effective as they could [have been] because companies treated them as the cost of doing business." But criminal prosecutions, with larger financial penalties and jail time, have proven to be "a significant deterrent," he adds.
ICE added the legal office in 2004 to support its growing needs. Headed by the principal legal adviser with dozens of associates in Washington, the department handles duties ranging from representing ICE in courts and administrative proceedings to coordinating criminal prosecutions with the Justice Department. The law department is divided into 38 divisions, including work site enforcement. It has grown from a few hundred attorneys to 849 full-time and 34 part-time lawyers, many spread out across the country to work with regional ICE units. The agency has chief counsel located in at least 26 major cities.
Gonzalez, the Pasadena defense attorney, says ICE's shift from emphasizing civil to criminal enforcement "happened overnight" with very little warning to employers. "You had this very laissez-faire attitude for 15 years," she recalls, "and the workforce grew to be composed of many undocumenteds." Then, suddenly, that scenario was a crime.
Golden State Fence, the suburban San Diego company, was one of the early criminal targets. Gonzalez, who helped defend that company and its owner, says that ICE threatened to prosecute numerous managers who hired and supervised the illegals, but the owner stepped up to the plate. He took full responsibility, pled guilty, paid a personal fine, and agreed to an asset forfeiture of $4.7 million to protect his employees, she says.
Why did ICE go after Golden State with criminal charges? Gonzalez thinks that politics played a key role. Then-U.S. Attorney Carol Lam reluctantly brought the criminal allegations, Gonzalez says, "but the pressure was coming from Washington." Before the case ended, the Bush administration replaced Lam, allegedly because she failed to aggressively pursue illegal immigration. Lam, now a deputy general counsel at Qualcomm Inc. in San Diego, didn't return calls for comment.
If political considerations bolstered ICE's aggressiveness, a change in government might also tame it down. The Obama administration is already reviewing the agency's work site enforcement policies
The Golden State case was one of the first work site enforcement actions to end with an asset forfeiture. But it won't be the last, unless the new administration tackles reform quickly. Since 2005, ICE has made growing use of this controversial financial weapon, hitting companies where they are the most sensitive -- the bottom line.
Forfeitures are allowed under the Financial Institution Reform, Recovery and Enforcement Act of 1989. The act lets certain government units, such as the Drug Enforcement Agency, seize assets of criminal enterprises. Over the years, the act has been amended to both strengthen law enforcement's hand and to add other agencies, including ICE.
It permits the agency to seize assets or profits associated with a criminal enterprise, and courts have held that includes a business operating with illegal labor. The process has put millions of dollars into a law enforcement fund that ICE can draw upon to purchase vehicles or to investigate future cases. The agency also can share forfeit proceeds with local law enforcement. For example, last October, ICE sent $200,000 from a $1 million forfeiture to the Naugatuck, Connecticut, police department for its "critical assistance" in a work site enforcement case.
Such payouts have riled critics, who have labeled asset forfeiture with terms like "policing for profit." Back in 1995, the late congressman Henry Hyde (R-Illinois) wrote a book seeking to reform U.S. forfeiture laws. "Civil asset forfeiture has allowed police to view all of America as some giant national K-Mart, where prices are not just lower, but nonexistent-a sort of law enforcement pick-and-dont-pay, he wrote.
Corporate attorney Jim Walden, a partner at Gibson, Dunn & Crutcher in New York, also sees dangers in the concept of asset forfeiture. "In a number of circumstances," Walden says, "when agencies are given too much discretion up front, they can seize assets marginally tied or not tied at all to what is being investigated."
Gonzalez says the government wields unfair bargaining power. By threatening to indict the company or its employees, or to debar or exclude a company from government contracts, the feds can intimidate management or boards of directors into major asset forfeiture, according to Gonzalez. "The way ICE invokes asset forfeiture is controversial," she adds. "There haven't been any challenges yet, but it's a strange and unfair formula."
How does the government decide on an amount? In the Golden State case, Gonzalez says she thinks the government "just went after what the owner had in the bank at the time." At least that deal went before a judge.
In contrast, there is no judicial oversight when civil forfeiture is done as part of a nonprosecution agreement, as happened with the record IFCO settlement. (U.S. Attorney Andrew Baxter, whose Albany office negotiated the IFCO deal, declined to comment.)
ICE's in-house lawyer, Gleason, says forfeiture amounts can be based on various factors. One, he says, is if the company allowed a disparity in the wages paid to illegal as compared with legal workers. "If the prevailing wage is $10 an hour, and we can show he is only paying $8 an hour, then we can put that dollar figure right on the employer," Gleason explains. At IFCO there was a wage disparity, and that accounted for some of the $2.6 million in back pay. But at Golden State Fence there was no disparity, according to court documents.
Another factor, Gleason says, is that if half of a company's workers are illegal, then ICE could argue that so are half of the profits. And if an employer is providing shelter to illegal workers, then that property can be seized as well.
ICE's Sibley says there is no way to know for sure if ICE will go after company assets, or how much it might seek. He sums it up this way: "There is no exact formula that says, if this, then that."
John Worrall, a professor of criminology at the University of Texas at Dallas, last year published a study of asset forfeiture, entitled "Is Policing for Profit?" In the study Worrall lists various experts' general criticisms of forfeiture. Among them: that the procedure encourages policing for profit by targeting assets rather than crimes, that 80 percent of all seizures are unaccompanied by any criminal prosecution, and that it is "predatory public finance" because it tends to target offenses that are both frequently repeated and victimless.
Worrall says his study found that "money matters," especially to local law enforcement when they receive a share. And he acknowledges that there have been some abuses by some agencies. But he adds, "We [the study] could not say forfeiture concerns superseded crime concerns."
Worrall, who often consults with law enforcement agencies, has his own opinion about seizing assets. "Forfeiture is a profoundly useful law enforcement strategy," he allows. "Hitting criminals where it hurts makes considerable sense, and even more sense in these times of economic turmoil."
If corporations want to avoid nasty asset forfeitures and other penalties, then the key is compliance, says attorney W. Stephen Cannon, chairman of the law firm Constantine Cannon in Washington, D.C. Cannon was general counsel of now-defunct retailer Circuit City Stores Inc., from 1994 to 2005; he now serves as outside general counsel to a group representing the country's largest retailers, the Retail Industry Leaders Association. Although he had no work site problems at Circuit City, Cannon calls the recent ICE raids and their resulting deals a "pretty amazing" development.
He explains that most retailers have a strong compliance program in place, starting with a federal I-9 form to verify each job applicant's employment eligibility. Beyond that, Cannon says, a company's internal auditing process checks compliance with good employment practices. "Given good-faith efforts to comply with the law," he asks, "under what circumstances does something justify criminal prosecution of a company?"
Gonzalez, the immigration attorney, would really like to know the answer to that one. She reasons that ICE could engender more corporate compliance if it provides employers with civil warnings and fines before escalating into criminal prosecution. Besides, Gonzalez argues, "in today's economy it serves no purpose to bankrupt and jail America's employers."