College's H-1B Fraud Leads to a Criminal Plea Agreement

By David North on November 21, 2018

The H-1B program now has an interesting employer-participant – a university that has concluded a criminal plea agreement with a U.S. Attorney regarding its abuse of that program.

That's correct, a university and a criminal plea agreement; an unlikely pairing, but a real one.

The errant institution is not one of those exploitative visa mills we write about from time to time. Instead, it is Wright State University near Dayton, Ohio, a public institution, part of Ohio's higher education system. It has some 15,000 students, and programs at the bachelor's, master's, and doctorate levels. It was named for the Wright brothers.

It agreed to pay the federal government $1 million, over time, and in return the U.S. Attorney agreed:

not to bring any criminal action against Wright State University ... for any crimes for ... visa fraud ... "Statements or Entries Generally ... Perjury Generally Conspiracy to Commit Offense or Defraud United States" and . . . "Laundering of Monetary Instruments ... "

The U.S. Attorney made it clear that:

This Agreement does not provide any protection against criminal prosecution of any present or former trustee, officer, employee, agent, or consultant of WSU for any violations committed by them.

The agreement was signed on November 16 by the WSU President, Cheryl B. Schrader, three other WSU officials, and by Benjamin C. Glassman, U.S. Attorney for the Southern District of Ohio. The full text of the agreement and the attached "Agreed Statement of Facts", an even more interesting document, can be seen here.

The Strange Story. What did WSU do to get into so much trouble? Someone at the university decided several years ago that it would:

  • take advantage of its privileged role as a university to secure the admission of at least two dozen H-1B workers, apparently all computer programmers, without regard to the ceilings that apply to corporations; and then,
  • rent them out, like Infosys or other outsourcers, to a labor contractor for a fee, with the former renting those workers out again to other corporations.
  • The university got a fee (the "wrap rate") ranging from 15 to 26 percent of the actual wage and benefit costs, for the rental of these workers.

The problem, as seen by the U.S. Attorney, has nothing to do with the fact that these jobs should have gone to U.S. workers or that the foreign workers concerned were exploited. Instead, the problem was with the lies that the university told, and the fraud committed, as the university had signed government applications indicating that the alien workers would work on the grounds of the university, and on university projects. That they would be rented out to others was not mentioned in the forms filed with the U.S. departments of Labor and Homeland Security.

In my years watching the H-1B program I have not seen such a case brought against a genuine university for such actions; in all likelihood it has happened somewhere else, but no one else has been caught. We reported earlier on the creation of a phony university playing the same game, that time with a rent-a-foreign-nurse program. Our own coverage of the WSU case started more than three years ago.

In this case there is no allegation, so far, that someone on the university staff received a bribe to bring these H-1Bs to the U.S. I have a hard time believing that all this chicanery was employed simply to bring a few hundred thousand dollars to WSU, and nothing to private pockets. So far, though, this is just speculation on my part; I have not seen it in writing anywhere.

This brings us to the meager benefits of this illicit activity and the massive costs to WSU.

Costs and Benefits. The Statement of Facts reports that WSU received from Webyoga. Inc. a total of $1.8 million in reimbursement for the wages and benefits of the 24 workers concerned, as well as for the "wrap rate" mentioned earlier. If we average the "wrap rate" at 20 percent, then the wages and benefits came to about $1,500,000 and the "wrap rate" pocketed by the university $300,000. Webyoga then turned around and rented out the workers to other corporations, getting a profit (its own wrap rate) of an unknown size.

My strong suspicion is that the $1.8 million in bookings is probably an understatement, for reasons spelled out in the estimation note below; but let's say that the university's take could have been at least twice as high, say $600,000.

What price did WSU pay for $300,000 to $600,000 in benefits?

A very steep one in terms of reputation and leadership turnover, as well as in money.

Off and on over the last three years, as the Wright State scandals developed, the University faced numerous negative headlines in the Ohio press, such as "Visa probe may have cost Wright State millions in international student tuition" from the Dayton Daily News of November 17, 2017.

In addition there must have been sniping from students at nearby universities as they interacted with WSU students such as: "Well, MY university did not have to enter a criminal plea agreement with anybody!"

As to executive turnover, Dr. Schrader is the third University president or acting president in the last three years. The university provost in 2015, Sundaram Narayanan, was placed on paid leave for three years and then, more recently, was fired. The university's long-time general counsel, Gwenn Mattison, took an early retirement, another official was fired and yet another one resigned.

WSU's financial costs included not only the $1 million payment to the government, and the costs of its legal defense; it also purchased (but did not release for years) a 104-page auditor's report on the H-1B scheme. Further, it eased the departure of the general counsel with a golden parachute worth more than $300,000, and kept the provost on the payroll for three years, paying him (and here it gets a little imprecise) at a full professor's salary, which was less than the $350,000 a year he made in 2013; let's say something like $500,000 for those years.

All of these costs related to actions of the U.S. Attorney and the university itself.

WSU Continues to use the H-1B program. Did any entity in the federal immigration control business take any actions against the university for this well-documented, three-year-old scandal?

The answer is no, or at least not yet.

While WSU richly deserves to be placed on the Department of Labor's very small list of debarred H-1B employers, it is not on the current list.

Further, WSU has been regularly using the H-1B program, though at somewhat less fulsome rate, in recent years. According to the myvisajobs website (which is based on DoL records), WSU received the following number of H-1B certifications for DoL. A minority of the certifications were not used by the university, and there were only a handful of IT professionals in the last few years, but in 2016 it was granted permission to hire an H-1B to fill one of those tough-to-fill-in-America-jobs, Assistant Swimming Coach. These were the number of H-1B certifications issued to WSU in the last four years:

                                                            2015                24       

                                                            2016                38

                                                            2017                3

                                                            2018                6

Estimation Note. The "Agreed Statement of Facts" probably understates the amount of money received by WSU for its participation in the H-1B scheme. The lawyers probably reported on only those moneys received for which they had the most solid of evidence, and did not feel that they needed to go any further.

The "Statement" reported on 24 H-1B slots, and said that the scheme went on for a period of five years. Myvisajobs shows that six of the eight IT people hired by WSU in 2011 were to be paid at $40,000 a year, with the two exceptions getting $50,000 and $60,000, respectively. We know from other work that H-1B visas run for three years, with a further three-year extension being granted almost automatically.

The "Statement" also said that in addition to the dealings with Webyoga, that there were other similar deals with other firms, but provided no further data.

What happens when one plays all those facts against the $1,800,000 in billings?

If 24 workers were involved, and each had been paid $40,000 in wages and there were no wage increases over the years, and if WSU provided, say, 20 percent in fringes and payroll taxes, the cost to the university was $48,000 each annually. If the "wrap rate" had been another 20 percent that would bring the fully burdened rate to $57,600 a year.

If we divide the $1,800,000 by $57,600 we get 31.25 years of employment, meaning that each of the 24 worked for 1.30 years before they left their jobs or, in some cases, left the country.

Now the H-1B program is a low-turnover affair; that is one of its attractions for employers. That the average work period of these 24 workers would be only one year and about four months is hard to believe.

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The author is grateful to a sharp-eyed reader who brought the most recent bit of WSU news to my attention.