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Last June, the U.S. Government seized fourteen 7-Eleven stores and arrested the owners on charges that they employed and exploited illegal immigrants.  The investigation is ongoing, with more arrests and seizures likely to occur.  Although not charged, the parent company, 7-Eleven, Inc., was criticized for failing to have sufficient internal controls over the franchisee payroll systems.

 

This case highlights a major shift in federal immigration enforcement policy.  This shift greatly raises the stakes for franchisees who employ illegal workers, even unwittingly.  The Government believes that aggressive enforcement actions against employers will be a deterrent that ultimately decreases employment opportunities for illegal workers.  As shown in the 7-Eleven case, in addition to fines and potential prison time, the Government is now using its forfeiture power to take away assets from owners.  While criminal intent is required to prosecute a franchisee, negligent and unintentional conduct could be a basis for forfeiture.  Therefore, it is more critical than ever to have strong compliance programs and internal controls in place.

 

The Government is also cracking down on the tax side.  Franchisees must be scrupulous to collect and pay over all required employment taxes.  In a recent case out of Michigan, the owner of nine pizza franchises was indicted for tax evasion.  Among the charges were evading employee payroll taxes.

 

Especially in times of tight budgets, the Government is looking for creative ways to enforce the law while still generating revenue.  This situation creates substantial risks for franchisees who are not scrupulous about compliance.

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