Given the highly regulated and government-audited environment in which banks operate, a large portion of the industry's resources are dedicated to the establishment of secure and effective corporate compliance programs. One significant aspect of compliance that banks need to start focusing more on is immigration, particularly employment eligibility and the use of E-Verify, an Internet-based employment verification system.

E-Verify is run by the Department of Homeland Security's (DHS) U.S. Citizenship and Immigration Services (USCIS) unit and the Social Security Administration (SSA). An employer using the system initiates a verification query after a new employee has completed form I-9, which is required by the Immigration Reform and Control Act of 1986 to verify employment eligibility. The employer electronically submits the employee's information from the I-9 form to the USCIS, which matches the data against DHS and SSA databases. The employer usually receives an approval within five seconds, unless problems are flagged, in which case further steps are required.

E-Verify still remains a voluntary program, except as it pertains to federal government contractors and employers in states in which it is required by state law. However, the program is quickly gaining popularity in Congress and could soon become mandatory for every employer in the U.S. That would open the doors to complex immigration issues and could greatly impact all industries, including banking.

Given that strong compliance remains a constant requirement in the banking arena, it is advantageous for financial institutions to use E-Verify. It strengthens banks' overall electronic corporate compliance programs against potential liability and allows them to query the government databases regarding the validity of documents presented for purposes of employment verification. An additional benefit is that such verification will be in alignment with requirements created by the Federal Deposit Insurance Corp. and the Patriot Act. E-Verify also grants banks safe harbor protection to avoid penalties in the event of the discovery of unauthorized workers.

According to the DHS, 96% of employees are confirmed for authorization to work within 24 hours when using E-Verify, while about 4% receive initial mismatches. Less than half of a percent of those mismatches are later confirmed to be authorized to work, which demonstrates that the system is generally reliable in spotting mismatches.

Internal compliance programs in the banking industry must always assess how well a bank is able to identify emerging risks that could greatly harm the institution. It is vital for banks to stay abreast of changes to laws and regulations and ensure that employees are trained in compliance responsibilities. In other words, banks must be constantly engaged in current and future risk management, including immigration and employment eligibility. Banks should assume that immigration and employment eligibility compliance will become a stronger factor in the future, particularly under the current administration.

Now led by Secretary of Homeland Security Janet Ann Napolitano, DHS has pledged to increase the focus on criminal punishment for employer violators and to encourage them to work with federal immigration agents to "establish sound compliance programs that prevent unlawful hiring." Secretary Napolitano has also stated that she aims to continue boosting the use of technology to ensure the law is applied.

Fortunately, E-Verify is not likely to cost more for banks to implement in terms of personnel hours because compliance officers are already in place. In fact, E-Verify helps banks establish an environment of electronic compliance for their risk management programs. E-Verify also facilitates and potentially eases the process of implementing I-9 auditing and reporting requirements.

E-Verify helps banks attract and retain talented foreign nationals graduating from U.S. universities who qualify under the STEM (science, technology, engineering, or math) program for an extension of up to 17 months of optional practical training, in addition to the initial 12 months that are originally granted. This would allow banks two opportunities to obtain H-1B visas for prized foreign workers without them having to exit the U.S. Additionally, it would certainly be an asset, at least from a governmental perspective, for banks receiving TARP funding to register for E-Verify as a signal that the participating organization can be trusted by regulators.

While the advantages of using E-Verify to verify employment in the banking industry seem clear, disadvantages still exist. The system has been criticized by immigration and civil rights attorneys as well as business, employer and labor groups. They complain that E-Verify is prone to errors that can unleash very costly governmental audits and inspections. Employers may be exposed to liability if they terminate lawful U.S. citizens by mistake. The short eight-day period for resolving discrepancies is also seen as a disadvantage to employers. Particularly concerning is the fact that E-Verify is unable to detect many forms of document alteration that could lead to fraud and even identity theft.

These weaknesses are outweighed by the compliance benefits of E-Verify and its protections from compliance liability. As immigration enforcement policies increasingly continue to target employers, E-Verify remains a viable program for verifying employment eligibility.  

This article originally appeared in the September 2009 issue of BAI's Banking Strategies Magazine.