It appears there is a valuable lesson to be learned from recent cases in North Carolina and Texas. Both emanate from actions by software consulting/staffing companies that were engaged in the business of placing consultants at third party client sites. In the first case, an Indian national pleaded guilty on March 20th for his role in a conspiracy to violate U.S. laws by filing fraudulent immigration documents and related offenses. In the second case, a grand jury indicted six members of a Texas information technology company that sponsored H-1B visas with their office as the primary location, but actually ended up placing the workers at end client sites in other locations.

The ICE Press Release announcing the first case is revealing.

Phani Raju Bhima Raju, 41, of Charlotte, pleaded guilty to five federal charges ranging from conspiracy to violate U.S. laws to money laundering conspiracy for his participation in a fraudulent scheme to obtain false H-1B immigration visas for foreign workers. The H-1B visa program allows U.S. employers to temporarily employ foreign workers in designated specialty occupations.

According to filed court documents, beginning in 2006 and through November 2012, Raju executed a fraudulent scheme to defraud the United States by submitting materially false documents to obtain H-1B immigration visas for foreign nationals seeking employment in the U.S. Raju was the president of iFuturistics, a Delaware company with headquarters in Pineville, N.C. Court records show that Raju and others falsely represented to the U.S. Department of Labor (DOL) and the Department of Homeland Security’s U.S. Citizenship and Immigration Services (USCIS) that iFuturistics was hiring H-1B visa holders to work directly for the company. Contrary to the statements made on DOL and USCIS forms submitted by iFuturistics, when the applicants were granted H-1B visas they were placed in work locations with various companies throughout the U.S.

Filed documents also indicate that in November 2009, Raju and others attempted to hide their fraudulent activities from law enforcement and immigration agents during a scheduled inspection visit of the company’s Pineville offices. In anticipation of the visit, Raju and others had set up work stations, moved in furniture and recruited several persons to pretend to be iFuturistics workers for the duration of the inspection visit, when, in fact, the office space prior to the site visit had been empty and unoccupied. When law enforcement and immigration agents returned to the company’s offices a month after the site visit, the office space was dark and unoccupied, as it had been prior to the planned inspection.

In the second case, in the Grand Jury indictment, the H-1B Fraud Scheme was described in part as follows:

Dibon’s H-IB Visa Fraud Scheme

As part of their scheme, the conspirators recruited foreign workers with computer expertise who wanted to work in the United States. The conspirators sponsored the workers’ H-IB visas with the stated purpose of working at Dibon headquarters in Carrollton, Texas, but, in fact, required the workers to provide consulting services to third-party companies located elsewhere. Contrary to the representations made by the conspirators to the workers (and the government), the conspirators paid the workers only when the conspirators placed the workers at a third-party company and only if the third party company actually paid Dibon first for the workers’ services.

There were other miscellaneous violations, but the critical question is whether these two companies engaged in what is commonly referred to as ‘speculative employment’. On Jan. 8, 2010, the United States Citizenship and Immigration Services (USCIS) issued what has come to be known as the “Neufeld Memo” clarifying the elements of a valid employer-employee relationship to qualify for an H-1B Visa. The memorandum clarifies such relationships, particularly as they pertain to independent contractors, self-employed beneficiaries, and beneficiaries placed at third-party worksites. The memorandum is titled, “Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third-Party Site Placements: Additions to Officer’s Field Manual (AFM) Chapter 31.3(g)(15)(AFM Update AD 10-24).” In addition to clarifying the requirements for a valid employer-employee relationship, the memorandum also discusses the types of evidence petitioners may provide to establish that an employer-employee relationship exists and will continue to exist with the beneficiary throughout the duration of the requested H-1B validity period.

The USCIS has an FAQ on the subject on its website. Question 13 specifically deals with Consulting/Staffing companies:

Q13: The memorandum provides an example of when a computer consulting company had not established a valid employer-employee relationship. Are there any situations in which a consulting company or a staffing company would be able to establish a valid employer-employee relationship?

A13: Yes. A consulting company or staffing company may be able to establish that a valid employer-employee relationship will exist, including where the beneficiary will be working at a third-party worksite, if the petitioning consulting or staffing company can demonstrate by a preponderance of the evidence that it has the right to control the work of the beneficiary. Relevant factors include, but are not limited to, whether the petitioner will pay the beneficiary’s salary; whether the petitioner will determine the beneficiary’s location and relocation assignments (i.e. where the beneficiary is to report to work); and whether the petitioner will perform supervisory duties such as conducting performance reviews, training, and counseling for the beneficiary. The memorandum provides a non-exhaustive list of types of evidence that could demonstrate an employer-employee relationship.

Most staffing and consulting companies satisfy the USCIS requirements by producing letters from end clients documenting their ability to control the employee at the client site. (Note: the Memo makes a distinction between the right to control and actual control in a footnote No. 6 on page 3 – The right to control the beneficiary is different from actual control. An employer may have the right to control the beneficiary’s job related duties and yet not exercise actual control over each function performed by that beneficiary. The employer-employee relationship hinges on the right to control the beneficiary). However, as is evident from the above examples in Dibon and iFuturistics, some resort to devious ways of convincing the USCIS of the existence of valid employment. For instance, this may involve presenting the USCIS with evidence of (as in the case of iFuturistics) software development. Unfortunately, most are without any basis in fact. These claims are clearly fraudulent and come with criminal consequences. More importantly, the USCIS will immediately know of this fraudulent claim when conducting an Administrative Site Visit and Verification (ASVVP).

Even if the Petitioner files without any such claims, providing the Employer’s address when the employee will clearly be working at a client site could be considered fraudulent. In other words, any and all information provided to the USCIS must be truthful, factual, accurate and above all, verifiable.