The U.S. H-1B visa mechanism is designed to attract skilled foreign workers to fill high-demand roles in industries like technology or research. However, as Bloomberg discovered during a recent investigation, this non-immigrant facility has been extensively abused and manipulated.

Originally created to provide a fair and efficient way to address domestic talent shortages, the system has evolved into a battleground for corporations, staffing firms, and middlemen exploiting loopholes to gain an unfair advantage.

The H-1B visa program was introduced in November 1990 as part of the 1990 Immigration Act signed into law by President George H.W. Bush, with the purpose to enable U.S. employers to hire foreign talent in specialized fields. To prevent abuse, the program included safeguards such as a cap on annual visas (65,000, later increased to 85,000) and salary floors to avoid undercutting domestic wages.

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However, as demand outstripped supply, the first-come, first-served system gave way to a random lottery in 2007. This shift inadvertently created opportunities for exploitation, especially by staffing and outsourcing firms, a Bloomberg investigation says.

Exploitation by staffing and outsourcing Firms

Outsourcing giants like Cognizant Technology Solutions, a New Jersey-based multinational information technology services and consulting company, and other similar companies quickly identified how to game the lottery. These firms, which already employed large IT workforces in countries like India, began flooding the system with an outsized number of applications.

Unlike traditional companies seeking specific skilled workers, outsourcing firms played a numbers game. By submitting thousands of applications, often far exceeding their actual hiring needs, they dramatically increased their chances of securing visas.

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For instance, Cognizant and its peers would apply for visas at disproportionately high rates compared to their U.S. workforce size. This practice allowed them to maintain steady access to H-1B workers, even as their domestic hiring decreased.

The 2020 introduction of a streamlined online lottery system - where employers could submit short applications for a $10 fee - unintentionally supercharged fraudulent activities. Companies discovered that submitting the same worker’s name multiple times through various shell entities significantly boosted their chances of selection.

One of the most egregious examples involves Kandi Srinivasa Reddy, founder of Cloud Big Data Technologies. Reddy’s companies allegedly submitted thousands of duplicate lottery entries by using interconnected firms with similar names and addresses. Over four years, this scheme enabled Reddy's firms to win about 300 H-1B visas, far more than legitimate companies following the rules.

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The data tells a stark story: companies that followed these manipulative tactics consistently outperformed rule-abiding firms in securing visas. In many cases, the actual job offers for selected workers were either nonexistent or fabricated, as evidenced by the low follow-through rate on full visa applications among staffing firms.

Consequences for the U.S. economy and workers

This manipulation has led to significant consequences:

1. Displacement of Skilled Workers: Genuine talent has been left without opportunities. Despite creating a successful business in the U.S., talented applicants were unable to secure an H-1B visa due to the lottery’s inequities.

2. Lower Wages: The median salary for H-1B workers hired by staffing firms is significantly lower ($90,000/year) than those hired directly by tech giants like Google or Amazon ($125,000/year). This undermines the program’s goal of attracting top-tier talent.

3. Increased Fraud: Staffing firms often charge workers illegal fees, submit false documentation, and violate labor laws. Workers, dependent on their visas, rarely report abuses.

During the first Trump administration, efforts to curb abuse included raising scrutiny on outsourcing firms and proposing changes to the lottery. However, many of these reforms were overturned or stalled by legal challenges.

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In 2023, the United States Citizenship and Immigration Services introduced a new rule to address duplicate entries by prioritizing unique individuals rather than multiple employer submissions. While this led to a decline in duplicate applications, the system remains vulnerable. Many staffing firms still submit names without real job offers, completing applications for only a fraction of their selected candidates.

As a result, the H-1B lottery system has shifted from a merit-based program to a loophole-driven lottery that benefits outsourcing firms and staffing middlemen. These entities prioritize profits over the program’s intended purpose, sidelining talented workers and distorting the U.S. labor market, the investigation found.

Despite recent reforms, deeper systemic changes are necessary to restore fairness and integrity. Without them, the H-1B program risks continuing to serve as a gateway for exploitation rather than innovation.

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