While FCPA and health care fraud probably run one and two in garnering the attention of compliance departments, human trafficking and its permutations are coming up on the outside in government enforcement like Orb at the Belmont Stakes. Evidence of increased attention being focused on corporate complicity in the human trafficking problem might be seen as recently as yesterday, when federal, state, and local law enforcement agencies descended upon 7-Eleven stores in New York and Virginia seemingly with their fingers – at least tangentially – in that pie.
The New York Times reported that federal authorities seized fourteen 7-Eleven stores on Long Island and in Virginia while arresting nine owners and managers and seizing property – including five homes – after one of the largest criminal immigrant employment investigations ever conducted by the Justice and Homeland Security Departments. The investigation of 40 other 7-Eleven franchises in New York City is continuing and presents additional concerns for the convenience store giant.
Charges against eight people that included wire fraud, conspiracy, and aggravated identity theft were announced at a news conference by Loretta E. Lynch, the U.S. Attorney in Brooklyn and James T. Hayes, who is in charge of ICE’s investigations in New York City. Also present were officials from the New York State Police and the Suffolk County Police Department. The charges resulted from an investigation that began two years ago when one 7-Eleven employee approached the NYSP and another contacted the SCPD about not being paid for their work. It ultimately led to two families and their associates with roots in Pakistan and the Philippines who recruited workers from their own ethnic communities.
In an uncomplicated scheme, the defendants found more than 50 illegal immigrants and gave them identities stolen from American citizens, including children and dead people. These employees then worked for as much as 100 hours a week, but were paid for a fraction of that time, and were forced to live in substandard housing owned by the operators of the convenience stores. In one instance, an employee of one franchise was paid using the Social Security number of a former 7-Eleven employee – a person who had not worked for the store for 10 years – despite the same individual being the target of IRS collection efforts much of that time. Lynch described the scenario as “a modern-day plantation system.”
The organizational concern for 7-Eleven ought to be predicated upon its role in failing to detect this scam, paying these illegal immigrant employees, and any resulting liability that it might have for the same. As reported by the Times, the defendants entered each employee’s personal information and hours worked into computer terminals at the stores. The parent company then processed the payroll and sent the wages to the employers for distribution. Allegedly, the employers then paid the workers fractional amounts of that which they were due and pocketed the rest.
Lynch said that 7-Eleven, Inc. made “little to no effort to insure the integrity of [its] payroll system.” This failure to have anti-fraud safeguards in place by the company – which has more than 7,600 stores in the United States – allowed the store owners and managers to escape notice for as much as a decade. During that time, they realized more than $180 million in revenue.
The conduct of the eight defendants at issue here implicates not only the wire fraud and identity theft crimes alleged but should also implicate human trafficking activity if employees were brought in and compelled to live in company houses and work for substandard wages as reported. Given the normal zealousness of federal law enforcement, it is a somewhat of surprise that the individual defendants were not charged with human rights crimes, although that might still be a possibility.
But what of 7-Eleven’s role on the payroll fraud and the higher-profile human trafficking angles, if any?
If the company adheres to even yesterday’s best practices, it should have audit and compliance monitoring rights over its suppliers and franchisees. If so – and if Loretta Lynch is wrong about 7-Eleven making no effort whatsoever to monitor its payroll system – then 7-Eleven’s people should have caught onto the entire fraud scheme and conducted an internal investigation that would have yielded not only the payroll scam, but the concomitant human rights abuses that reportedly went along with it.
Given that the latter is rising on the government’s enforcement priority list and that the circumstances for these employees mimic those recently garnering the attention of a recent, analogous Wall Street Journal story, 7-Eleven would have been wise to commission an internal inquiry into the payroll matter in the past and/or to begin a parallel one now, with an eye toward exonerating itself and its systems from participation in the more heinous human trafficking aspect of this case.
Further, its future due diligence efforts as regards suppliers and franchisees should include a review for human rights abuses such as those suggested here. Otherwise, it will have to sell a helluva lot of Slurpees to pay the fines, costs, and disgorgements that a failure to do so will no doubt entail.