IFCO Reaches Record Immigration Settlement
By Chaille Brindley
Date Posted: 1/1/2009
After more than two years of investigations by federal officials, IFCO Systems North America has reached a settlement with the Department of Justice over its activities involved in hiring illegal aliens and violating U.S. immigration laws. IFCO has agreed to pay $20.7 million over four years. This is the largest corporate settlement ever for a U.S. business connected to charges of employing illegal immigrants.
The settlement allows the company to move ahead while sending the signal that hiring illegal aliens and systematically exploiting them does not pay, according to Andrew T. Baxter, the Acting United States Attorney overseeing the case.
Federal authorities began their investigation of IFCO following a tip to the Immigration Custom Enforcement (ICE) agency in February 2005. On April 19, 2006, ICE agents, in concert with other federal and state authorities, conducted a work site enforcement action at over 40 IFCO pallet plants in 26 states, which resulted in the detention of 1,182 illegal aliens working at those plants.
The settlement amount includes $2.6 million dollars in back pay and penalties relating to IFCO's overtime violations with respect to 1,700 of its pallet workers. IFCO is also paying $18.1 million in civil forfeitures that will be for future law enforcement activities. The settlement is almost double the $11 million that Wal-Mart Stores agreed to pay in 2005 to settle allegations it used hundreds of illegal immigrants to clean its stories.
The government will continue its investigations and prosecutions of individual IFCO managers and employees. This settlement only exempts the company itself from prosecution. To date, nine IFCO managers and employees have entered guilty pleas related to criminal conduct stemming from the government’s investigation into IFCO’s employment practices.
The government's investigation documented that several IFCO managers and employees harbored and transported illegal aliens, and encouraged and induced them to remain in the United States as pallet workers. Government analysis of IFCO’s payroll information suggests that as many as 6,000 illegal aliens worked at IFCO pallet plants from 2003 to April 2006.
IFCO received repeated notice from the Social Security Administration (SSA) going back as far as 2000 noting irregularities in the social security numbers used for employment purposes by many of its pallet workers. According to federal prosecutors, IFCO, its managers and employees, failed to take significant measures to verify the social security numbers of these workers.
Further investigation concluded that back wages were due at 30 IFCO facilities resulting from violations of the Fair Labor Standards Act. IFCO owned piece-wage pallet workers for improperly calculated wages – the vast majority of whom were illegal aliens.
Under the settlement agreement, IFCO acknowledges and accepts responsibility for the unlawful conduct of its managers and employees, as described in the agreement. The company further agrees to cooperate fully and actively with the U.S. Attorney's Office and the government entities involved in the investigation.
The agreement further includes a precedent-setting, compliance and reporting program, designed to prevent the employment of illegal aliens at IFCO plants in the future. IFCO has agreed to use of the federal government’s E-Verify screening program for all new hires, and will verify the social security numbers of all IFCO employees through SSA. IFCO is also required to maintain an employee hotline to receive reports of any suspected violation of law at the company.
John Torres, Acting Assistant Secretary of Homeland Security for ICE said that the IFCO settlement and prosecution of nine company managers will “send a powerful message that ICE will investigate and bring to justice companies which hire illegal workers.”
Torres added, “Companies who break the law by employing illegal aliens often exploit them and gain an unfair competitive advantage in the marketplace. By hiring illegal workers, these companies are unjustly able to undercut their law-abiding competition.”
The government's investigation of the involvement of certain IFCO's managers and employees in the hiring of illegal aliens and related conduct is continuing.
David Russell, president of IFCO Systems North America, said, “Over the last 32 months, we at IFCO have significantly upgraded our compliance procedures to go well beyond what the law requires, so that today I am confident that IFCO is the most compliant company in the industry.”
The settlement may partially explain the recent financial results from the third quarter of 2008. Profits fell 75.6% or $7.6 million to $2.5 million, the company reported, compared to the third quarter of 2007. Higher legal defense fees related to the federal immigration investigation drained IFCO Systems profits.
Beyond falling prophets, Standard & Poor's Ratings Services recently downgraded the debt rating on IFCO Systems N.V. Concerned about the company’s weakened liquidity, the rating service placed IFCO on the CreditWatch list and given a BB- long-term credit rating.
Standard & Poor's credit analyst Izabela Listowska, said, “The CreditWatch placement reflects our heightened concerns over the company's weakened liquidity since the beginning of the year, mainly because extraordinary cash drawings have diminished availability under the revolving credit facility.”
