Less Profit, More Oversight Needed for Exchange Sponsors

By Jessica M. Vaughan on March 21, 2012

An excellent NBC Rock Center expose [video of the expose is no longer available] discussed yet another sad side to the appallingly under-regulated foreign exchange visitor program. The story revealed how the State Department's lax rules have resulted in dozens of high school exchange students being placed with hosts who sexually molested them, even as their non-profit sponsors rake in millions of dollars a year. One young victim described this centerpiece of American public diplomacy as a "scam".

When properly run, foreign exchange programs are a great way to showcase our people, our institutions, and our culture, and to provide Americans with invaluable experiences overseas. The vast majority of them work out well. But the horrifying experiences are further illustration of our government's chronic unwillingness to provide proper oversight, or insist that someone else provide proper oversight. (For more on dysfunction in another exchange program, see my colleague Jerry Kammer's recent report on the Summer Work Travel program, Cheap Labor as Cultural Exchange.)

As with so many other visa programs, the responsible federal agency, in this case the State Department, has shown little interest in collecting enough fees from participating entities to better regulate them and help prevent these terrible abuses from happening again. (For more on how to raise funds for better oversight of various immigration programs, see my colleague David North's May 2010 Backgrounder, "Charging More for Immigration: Closing Financial Loopholes in the U.S. Migration Process".)

A brief look into the money changing hands in connection with these programs confirms that there is a barely tapped reservoir of funds that could be used toward this end. In the last couple of years, the State Department has budgeted just under $65 million to administer a dozen exchange programs. This sum includes money for salaries and benefits for about 60 staffers, many of whom are not involved in oversight. With about 25,000 annual participants, the high school exchange programs bring in about 10 percent of all exchange visitors. Let's assume they require a proportional share of the administrative budget.

Each of the 80 non-profit organizations that runs a high school exchange program pays $2,700 every year or two to apply for designation as an approved sponsor. That provides the State Department with no more than $216,000 every year toward the $6.5 million needed to administer these programs. The rest presumably comes from taxpayers. No wonder there is so little oversight. Why not charge the sponsors an amount closer to what it would actually cost to do this program right?

It's not like they can't afford it. According to the website of Educational Resource Development Trust (ERDT), the organization that allowed its employee Doyle Meyers to host and molest a series of exchange students before he was sent to prison for four years, each family pays more than $2,300 directly to ERDT to set up the exchange. The families pay an additional $8,000 in travel and fees to ERDT's partner organizations overseas. The partner organizations, also known as third parties, are essentially headhunters, who make money by recruiting students for ERDT. Typically, partner organizations share some of that second fee with the U.S.-based, non-profit designated sponsoring organizations. The more students, the more fees for sponsors and partners to share.

According to the regulations (written by the State Department with input from sponsors), it is the non-profit sponsors who are responsible for monitoring the activities of the partners, and for making sure that the students have a good experience. In other words, the department has outsourced regulation to the sponsors — the ones who are making money from the programs. This self-policing system has been preserved in the latest round of reforms announced by State.

I use the term "non-profit" in the narrowest technical sense, meaning that the sponsors are 501(c)(3) organizations that use all revenues for operational expenses. Here are a few tidbits from the tax return of one such organization, Ayusa International, whose office is at 600 California St. in San Francisco, Calif. Ayusa is one of the 14 high school exchange programs where NBC documented recent incidents of sexual abuse.

Ayusa took in over $13 million in 2009, of which $8.4 million was from contributions and grants and $5 million was in program revenues, presumably fees from exchange participants. Ayusa reported spending $3.6 million on salaries for its 482 employees. The highest-paid, full-time employee was Executive Director Sherry Carpenter, who was paid $149,000 that year. Seems appropriate for a non-profit director in an expensive part of the country.

But there were two others in the organization who were quite well compensated: Ayusa paid John Wilhelm, the president, $164,000 for working 15 hours per week. The Ayusa tax return also shows that Wilhelm was paid another $280,000 that year by related entities. Ayusa paid Takeshi Yokota, the vice president, $157,000, also for a 15-hour work week, and he received another $275,000 from related entities.

The related entities were International Training Exchange, Inc., also known as Intex, and Au Pair Care, Inc. Both are located at the same 600 California St. address. Ayusa, the non-profit, paid Intex just over $1 million that year for expenses associated with sharing an office.

The founder and chairman of Intex is, you guessed it, John Wilhelm. This company makes money by organizing a range of other types of "exchange" programs, including placing foreign interns in U.S. companies, summer work travel visitors, au pairs, teachers, and other notorious ways to bring in cheap, docile labor to U.S. employers. In other words, Intex is a cheap labor body shop operating under a facade of cross-cultural understanding.

I'm certainly not opposed to people making good money in legitimate business pursuits, or establishing non-profits to promote world peace. But because these foreign exchange programs are so loosely regulated, they are causing all kinds of problems; not just providing targets to sexual predators, but also enabling employers to bypass U.S. workers and facilitating illegal immigration when the "visitors" don't go home.

After years of damning reports, the State Department finally has made some important reforms to the program, but they don't go far enough. I personally would like to see sponsors barred from using third-party recruiters and better regulation of the ties between the sponsors and their for-profit entities. The department should also look at charging program sponsors something closer to what it actually costs to monitor these programs in a meaningful way. In addition, Congress should provide the department with the ability to impose more meaningful sanctions on sponsors who allow abuse to occur.