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ICE Raids Impact IFCO Financials:IFCO Managers Plead Guilty To Immigration Violations
IFCO ICE Raid Developments: Managers from several IFCO facilities pleaded guilty to federal charges involving the hiring of illegal aliens and setting up elaborate systems to do so. This article covers the implications of these cases and their economic impact on the nation’s largest pallet recycler.
By Chaille Brindley
Date Posted: 4/1/2007
Five current and former IFCO Systems managers have entered guilty pleas in charges resulting from raids by U.S. Immigration and Customs Enforcement (ICE) last April. These managers admitted to illegal conduct involving the hiring of illegal aliens and the establishment of an intricate system to do so.
During the raids, ICE detained nearly 1,200 illegal aliens working at the plants. The facilities primarily affected by these cases were in Albany, N.Y.; Westborough, Mass.; Knoxville, Tenn.; Cincinnati, Ohio; and Houston, Texas.
ICE raids have negatively impacted IFCO systems, the largest pallet recycler in the United States. The company recently announced short-term financial losses related to the raids. Although IFCO has been able to hire workers to fill the void left by the arrests, disruptions led to a loss in operational productivity.
New workers were not as productive as those that IFCO lost. In some areas, IFCO had to scramble to serve customers although it claims that it maintained service levels despite the disruptions.
IFCO’s pallet services division saw its 2006 earnings decline by 50.1% to US $17 million. Additionally, the company spent $7.1 million in non-recurring legal costs associated with the ICE investigation.
The raids have pushed IFCO to enact new policies, which will drive up labor costs. Many recyclers have reported taking clients from IFCO because of the raids. The recycling giant remains a dominant presence in many markets although it may be more vulnerable now than ever. Also, a number of key managers have left the company since the raids.
IFCO managers admitted to hiring unauthorized aliens, manipulating the identities of alien workers on employee paperwork, interstate transport of aliens for work purposes, housing alien workers in residences secured by IFCO, transporting the alien workers to and from work on a daily basis, providing the alien workers financial support in addition to pay, assisting alien workers in cashing checks, and helping some alien workers obtain fraudulent identification documents. These managers also submitted tax withholding information on behalf of alien workers which significantly overstated exemptions to increase net pay and failed to pay legal overtime rates to piece-rate alien workers.
The U.S. Department of Justice stated that the defendants claimed that supervisors were aware of many of these practices and that the practices were not unusual at IFCO.
According to Tina Sciocchetti, the assistant U.S. attorney who is prosecuting these cases, said that the defendants who submitted guilty pleas have agreed to cooperate with the government in exchange for the possibility of leniency. Tina said that charges remain pending against three other managers, and the government’s investigation is continuing.
Mike Hachtman, IFCO’s senior vice president of sales and business development, denied government allegations of consistent wrongdoing at the company. He said, “It was not a matter of corporate strategy to hire undocumented workers or to exploit any of our employees.”
United States Attorney Glenn Suddaby said, “It’s very fair to say that they put some of their competitors around the country out of business.” Along with taking advantage of what he called “throw away employees,” Suddaby said that IFCO used illegal aliens to gain a competitive advantage.
IFCO stated, ““The senior management of IFCO was surprised by the determination, as a result of the government enforcement action on April 19, 2006, that more than 1,100 of our workers were not authorized to work in the United States. While every U.S. business, and especially decentralized ones like IFCO, must deal with the complexity of our nation’s employment and immigration policies, the company deeply regrets that it had even a single ineligible worker on its payroll.”
The sheer number of illegal aliens found to be working at IFCO and the government’s initial statements during the raids call into the question how isolated these practices may have been. IFCO is attempting to put a good face on a bad situation and is working to do the right things to clean up its image.
The company has announced a number of steps geared toward improving its hiring policies. This includes enrolling in the Department of Homeland Security’s “Basic Pilot” Employment Verification Program, providing all local managers with enhanced I-9 training, and reviewing the work authorization status of its employees. Additionally, the company has hired a number of people to help institute new policies, including a vice president for corporate compliance and an internal auditor to monitor progress.
IFCO will soon roll out nationwide a new automated point-of-hire I-9 compliance program. There are a number of companies that offer similar programs. The Pallet Enterprise recently featured Lookout Services (www.lookoutservices.net) as one of the pioneers of I-9 compliance software.