Hiring Foreign Workers in Government Contracts: Compliance, Fraud Risk, and Defense Strategies

Government contractors operating in the United States can lawfully employ foreign nationals in some circumstances, but the legal risk rises sharply when immigration compliance, labor practices, security restrictions, set-aside rules, billing representations, and procurement certifications do not line up. For executives facing a subpoena, CID, suspension threat, indictment, or federal charges, the issue is not abstract immigration policy.

It is whether the government will characterize the company’s staffing decisions as a compliance problem, a False Claims Act case, a procurement fraud matter, or a criminal conspiracy. That is why search terms such as hiring foreign workers in government contracts, government contracts foreign worker attorney, and False Claims Act defense for government contractors signal a very specific kind of concern: the company needs legal control before the government defines the story first.

The law in this area is complex because there is no single “foreign worker rule” for all federal contracts. Instead, contractors must navigate overlapping sources of law and contract obligations. Depending on the contract, that can include the FAR, E-Verify obligations for certain covered federal contracts, the Immigration Reform and Control Act, anti-discrimination rules enforced by DOJ, security and citizenship restrictions, visa rules, subcontract requirements, and SBIR or STTR disclosure rules involving foreign affiliations or relationships. If the government believes the company knowingly misrepresented compliance while billing the United States, the matter can move quickly into procurement fraud territory.

Why Federal Investigators Focus on Foreign Labor in Government Contracts

Federal agencies and DOJ do not look at foreign labor questions only through an immigration lens. They often ask broader procurement questions: Did the contractor make staffing promises in the proposal that were not true in practice? Did the contractor use foreign workers in roles restricted by the solicitation, security rules, export controls, or contract clauses? Did the contractor replace U.S. workers in a way that conflicted with labor certifications or other federal requirements? Did the contractor submit invoices while noncompliance was ongoing? Those are the kinds of facts that can turn an employment issue into a federal fraud investigation.

The 2020 executive order titled Aligning Federal Contracting and Hiring Practices With the Interests of American Workers directed agencies to review whether contractors and subcontractors used temporary foreign labor on contracts performed in the United States and whether that use affected opportunities for U.S. workers. Although executive-order implementation has shifted over time, the policy signal remains important: foreign labor on U.S.-performed federal contracts is a recurring enforcement and oversight concern, especially when agencies believe American workers were displaced or when contractors allegedly concealed how work was staffed.

DOJ has also emphasized protections for U.S. workers. In June 2025, DOJ announced a settlement with Epik Solutions, a technology recruiting company, to resolve allegations that it preferred to recruit H-1B visa holders over U.S. workers in violation of the Immigration and Nationality Act’s anti-discrimination provision. That case was not a procurement fraud prosecution, but it is a useful warning for federal contractors: hiring practices that appear to favor visa holders over available U.S. workers can become a federal enforcement issue even before a contracting officer or fraud prosecutor enters the picture.

Can Government Contractors Use Foreign Workers on U.S. Projects?

Sometimes yes, but only if the contractor satisfies the contract’s staffing rules, immigration law, work-authorization requirements, any applicable security or citizenship restrictions, and any program-specific disclosure obligations. That answer is deliberately narrow because many executives ask the wrong question first.

The issue is rarely whether a company can ever employ a foreign national. The issue is whether the company can lawfully use that worker on this contract, in this role, at this location, under these solicitation and reporting conditions.

For example, some federal contracts require U.S. citizenship or a clearance for all or some personnel. Others may allow noncitizen workers if they are lawfully authorized to work and otherwise meet contract requirements. Some projects involve sensitive facilities, export-controlled data, military bases, or agency-specific personnel restrictions that make the use of foreign workers far more difficult.

If the company promised one staffing model in the proposal and used another after award, the resulting misalignment can become the core of the case.

The Core Compliance Framework

Immigration work authorization and I-9 obligations

Every employer in the United States must verify employment eligibility through Form I-9, and knowingly hiring unauthorized workers can create civil and criminal exposure. In the federal-contracting context, that baseline obligation often becomes more sensitive because the workers may also be tied to security requirements, labor-category qualifications, and billing certifications.

E-Verify obligations for covered federal contractors

Certain federal contracts trigger E-Verify obligations under the federal contractor rule. Guidance summarized by immigration practitioners explains that prime contracts of at least $100,000 with a performance period of 120 days or more, as well as certain qualifying subcontracts for services or construction over $3,000 and at least 120 days, generally require contractors to enroll in E-Verify, verify new hires, and verify employees assigned to the contract who perform substantial duties, subject to exemptions. That matters because a company can create risk not only by hiring an unauthorized worker, but also by failing to use E-Verify correctly when the clause applies.

The same guidance also notes important limits: the rule does not require reverification of workers already verified in limited circumstances, and support personnel performing indirect or overhead functions may be treated differently from employees doing substantial contract work.These distinctions matter in investigations because sloppy internal assumptions about who must be run through E-Verify often produce inconsistent records.

What GAO said about E-Verify monitoring

The GAO report the user referenced concluded that agencies can better monitor whether contractors comply with the E-Verify clause, and secondary reporting on the report noted inconsistent agency policies for enforcing contractor E-Verify compliance and problems tracking terminated contractor accounts. The January 2025 OFPP-USCIS guidance for agencies specifically cited GAO-24-106219 and directed agencies to ask contracting officers and contract specialists to verify inclusion of the E-Verify clause in covered contracts and to improve monitoring practices. For executives, the takeaway is clear: E-Verify compliance is no longer a back-office box to check. Agencies are being pushed to monitor it more closely.

Anti-discrimination rules protecting U.S. workers

Contractors also need to understand that immigration compliance does not authorize discrimination against U.S. workers. DOJ’s 2025 Epik Solutions matter alleged that the company preferred H-1B visa holders over U.S. workers, and EEOC guidance likewise states that preferring foreign workers, including workers with a particular visa status, over American workers can constitute unlawful national origin discrimination.A company that structures recruiting, advertising, or subcontractor staffing around a visa preference can therefore create a second layer of exposure that has nothing to do with whether a worker had valid authorization.

When the Facts Become Procurement Fraud

Foreign-worker issues become procurement fraud when the government believes the staffing model used in performance was materially different from the one represented to the agency, or that the contractor knowingly hid noncompliance tied to payment. Common examples include:

• Proposal promises that key work would be performed by U.S.-based cleared personnel, followed by performance using noncleared or nonqualified workers.
• Billing for labor categories that required citizenship, licensing, clearance, or domestic presence, which the assigned workers did not satisfy.
• Failing to disclose subcontracted or offshored work after representing that the prime would perform the work in the United States.
• Using foreign workers in violation of a contract clause, security restriction, or visa-related certification while continuing to submit invoices.
• Misstating compliance with E-Verify, work-authorization, or labor requirements in a certification or claim for payment.

In those scenarios, the fraud theory is not merely “you hired a foreign worker.” It is “you made a material representation to get or keep federal money, and the representation was false when made or false when invoiced.” That distinction is exactly why these cases often evolve into False Claims Act investigations.

False Claims Act Risk for Government Contractors Using Foreign Workers

The False Claims Act allows the government to pursue treble damages and per-claim penalties when a contractor knowingly submits, or causes the submission of, false claims for payment.In a foreign-worker case, the government may try to build FCA liability around express certifications, implied certifications, billing for noncompliant labor, or misrepresentations in proposals and post-award communications.

A few recurring FCA theories include:

• The contractor certified compliance with contract terms requiring U.S. workers, cleared workers, or specific labor qualifications, but staffed the project differently.
• The contractor represented compliance with E-Verify or employment-eligibility obligations when internal records showed the process was not followed for covered employees.
• The contractor used foreign nationals on an SBIR or STTR effort without properly disclosing foreign affiliations or relationships where disclosure rules applied.
• The contractor represented that work would be performed domestically or by particular personnel while substantial performance was shifted elsewhere.

The government’s leverage in FCA cases comes from volume. If each invoice is a separate claim, the damages model can expand rapidly. That is why executives under investigation need early False Claims Act defense analysis, not just immigration advice.

Criminal Charges That Can Be Brought

Where DOJ believes the conduct was deliberate, criminal charges can be layered on top of civil fraud theories. The exact charge depends on the facts, but prosecutors in foreign-labor and procurement cases may look at:

• False statements under 18 U.S.C. § 1001, where inaccurate information was submitted to an agency or investigators.
• Wire fraud or mail fraud, where interstate communications furthered a scheme to obtain money or property by false pretenses.
• Conspiracy, where multiple actors allegedly coordinated the scheme.
• Visa fraud under 18 U.S.C. § 1546, where immigration documents or visa-related submissions were false.
• Knowingly hiring unauthorized workers under 8 U.S.C. § 1324a and related immigration offenses.
• Fraud in foreign labor contracting under 18 U.S.C. § 1351, which criminalizes recruiting, soliciting, or hiring a person outside the United States through materially false or fraudulent pretenses, representations, or promises regarding employment in the United States, including work for the U.S. government or on U.S. military bases.
• That last statute is often overlooked by executives. It matters because a contractor can face exposure not only for using foreign workers after they arrive, but also for how it or its agents recruited those workers abroad if the recruiting representations were materially false.[web:290]

FAR and Contract Clauses That Drive the Case

No single FAR clause answers every foreign-worker question, which is why many companies misread the risk. The key is to identify the clauses actually incorporated into the contract. Depending on the procurement, relevant issues may include:

• Staffing and key personnel representations in the proposal and contract.
• Labor category qualifications incorporated into the statement of work or task order.
• Security, citizenship, base access, and facility restrictions.
• Subcontracting limits and consent requirements.
• Mandatory flowdowns to subcontractors.
• Domestic performance requirements or restrictions on where services may be performed.
• E-Verify and employment-eligibility obligations where the federal contractor clause applies.

The fraud question is usually not whether a regulation existed in the abstract. It is whether the contractor made the regulation material by incorporating it into a promise, certification, invoice, or proposal representation.

SBIR and STTR Projects: Foreign Disclosure Rules Matter

SBIR and STTR awards are a separate danger zone. The SBIR and STTR Extension Act of 2022 required small businesses applying for SBIR or STTR awards to disclose information about investment and foreign ties, and SBA amended the policy directive to create a common disclosure template.The current SBIR disclosure page states that applicants must disclose information about foreign affiliations or relationships, and it identifies foreign countries of concern, including China, North Korea, Russia, and Iran.

For executives managing innovative technology businesses, this matters even if the immediate problem looks like a staffing issue rather than an ownership issue. If foreign workers on a U.S.-performed project are connected to undisclosed foreign affiliations, talent recruitment programs, related foreign entities, or foreign countries of concern, the government may evaluate the matter not only as a contract-performance problem but also as a disclosure problem on the award side.

That is why a strong defense in SBIR or STTR investigations must examine more than hiring paperwork. It must review proposal disclosures, ownership and affiliation records, talent relationships, subcontracting structures, and any foreign-country-of-concern disclosures made or omitted at award.

Can U.S. Companies Hire Remote Foreign Workers?

Yes, U.S. companies can hire remote foreign workers in many business settings, but that does not answer the question federal contractors actually need answered. The real issue is whether a federal contract allows work to be performed outside the United States, by whom, under what security rules, with what export-control implications, and with what disclosure to the agency. A company may lawfully employ a remote worker abroad for one line of business and still create major procurement exposure if it uses that worker on a U.S.-performed federal contract without contractual authority or required disclosure.

Because this article is focused on contractors performing in the United States, the safer executive rule is simple: do not assume that general employment flexibility translates into federal-contract staffing flexibility. Remote foreign labor can raise separate questions involving place of performance, access to controlled information, data security, export controls, and invoicing accuracy.

DOJ and Agency Cases Show the Real Risk

The DOJ settlement with Epik Solutions shows that the Department is willing to act when it believes an employer preferred foreign visa holders over U.S. workers. The Facebook settlement in 2021 also showed DOJ and DOL willingness to pursue claims that a company reserved positions for temporary visa holders and failed to properly consider U.S. workers. Those cases were not classic procurement-fraud prosecutions, but they illustrate the enforcement backdrop facing contractors whose recruiting practices can be framed as disadvantaging U.S. workers.

On the criminal side, public defense-oriented summaries correctly note that prosecutors often stack immigration-related charges with fraud counts, including visa fraud, harboring, conspiracy, and unauthorized-worker counts.In the government-contracting context, those criminal theories become even more dangerous if they are combined with false statements to contracting officers, invoices for noncompliant labor, or security-related misrepresentations.

Strong Legal Defenses in Foreign-Worker Procurement Cases

A serious defense begins by refusing to let the government oversimplify the facts. Good defenses often include:

1. Materiality

Even if the government identifies a compliance gap, the defense should test whether the issue was actually material to payment or award. If the agency knew how staffing was being performed and continued paying, or if the requirement at issue was not central to payment, that can weaken an FCA theory.

2. Lack of knowledge or intent

Many foreign-worker issues arise from poor coordination among HR, contracts, program management, and subcontract administration. Sloppy compliance is dangerous, but it is not automatically fraud. The defense must examine what the company actually knew, who knew it, and whether the government can prove deliberate deception.

3. Contract interpretation

Some cases turn on what the contract actually required. Did the contract truly prohibit foreign nationals, or did it restrict only certain roles? Did the clause apply to subcontractors? Did it require domestic performance for all tasks or only certain tasks? A surprising number of “fraud” cases are built on aggressive agency interpretations that do not match the text of the award.

4. Government knowledge

If the agency, contracting officer, COR, or security office knew the staffing model and accepted it, that fact can be significant. Government knowledge does not automatically defeat every theory, but it can matter powerfully in both civil and criminal cases.

5. No false claim or false statement

The government still has to tie the alleged noncompliance to a false statement, false certification, or false claim for payment. A contractor can often narrow or defeat the case by forcing the government to identify the actual representation it says was false.

6. Good-faith compliance systems

Documented I-9 procedures, E-Verify compliance, subcontract controls, disclosure reviews, and internal legal guidance can support a good-faith defense. The point is not that paperwork alone wins the case. It is that a company with a real compliance system is in a much stronger position than a company that improvised and documented nothing.

What Executives Should Do After a Subpoena, CID, or Indictment

The wrong first response can make the case much worse. Contractors should immediately:

• Preserve immigration, I-9, E-Verify, proposal, staffing, billing, and subcontract records.
• Stop informal explanations by executives and project managers.
• Identify which contracts, task orders, and labor categories are implicated.
• Review whether the contract contained E-Verify, security, citizenship, or domestic performance restrictions.
• Review proposal promises about key personnel, place of performance, and subcontracting.
• Map any SBIR or STTR foreign-disclosure obligations if the work involved innovation awards.
• Coordinate criminal defense, FCA defense, and suspension/debarment strategy at the same time.

This is where a government contracts a foreign worker attorney or a procurement fraud defense lawyer to add value. The legal question is no longer just whether the company made an HR mistake. The question is how to keep an agency staffing issue from becoming a multi-front federal case..

Final Point

Using foreign workers on federal projects performed in the United States can be lawful in some settings, but it is one of the easiest areas for compliance mistakes to be reframed as fraud when contract promises, labor rules, immigration procedures, and disclosure obligations do not align. Once DOJ or an inspector general starts asking whether the company misrepresented who would perform the work, where the work would be performed, or whether American workers were displaced, the case is no longer just an employment matter. It is a procurement-risk problem with civil and criminal dimensions.

Watson & Associates represents government contractors facing procurement fraud allegations, False Claims Act investigations, subpoenas, indictments, and federal charges involving foreign worker issues on U.S.-performed contracts. Call 1.866.601.5518 to speak with Mr. Watson.