Shell Games

By Robert Barker, Infoglide Senior VP & Chief Marketing Officer

We’ve talked before about how some employers will dissolve a company, then re-form it with the same people but under a new name. The objective? Reduce payments to workers’ compensation programs, where premiums are based on the historical level of claims. Erase the history by forming a new company, and voila! Your premiums are now lower, but there’s a catch – doing that constitutes fraud and it’s illegal.

Now I just read a Computerworld article about what appears to be a similar scheme.  In the largest H-1B fraud case ever brought by the federal government, prosecutors have filed against a New Jersey IT services company that recruits talent from overseas and gets them H-1B visas. On the surface, that sounds legal, right?

Yes, but you’re required to pay those imported workers at the prevailing wage rate of the state in which they’ll be working. The law won’t let you pay less than the prevailing rate because that would penalize U.S. citizens who could be hired to do the same job.

So, this New Jersey firm allegedly decided to improve their profitability by creating shell firms in Iowa and obtaining the H-1B visas there, where the prevailing wage rate is significantly lower than wages in New Jersey. Oops – now there’s an 18-count indictment against them because they “have substantially deprived U.S. citizens of employment.”

So how would you automate detecting similar situations? I confess I’m not familiar with exactly how this company was caught, but it seems like an obvious opportunity to apply entity resolution technology. In this case, you’d use identity resolution software (see IRE as an example) to connect to multiple data sources, like a database of information on H-1B applicants in various statesand a database of companies who are H-1B filers along with other sources of data such as income tax filings and various corporate filings, then let the software do the work of finding the hidden connections.

Applying this technique to workers’ comp fraud where company officers similarly have formed shells and even dissolved existing companies and started new ones, the results have been quite successful. It would be interesting to consider a similar solution with someone with H-1B investigation experience.

If you’re out there, what are your thoughts?

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