They can not know that the workers aren't legal? Are the employees paying their own taxes in the US(the employer deducts the income tax from pay here.)?

The company could be unknowingly employing illegal workers if forged documents, etc. were in play. (In those cases, they would end up having to pay taxes, and it's possible the IRS would catch the forgery, since the stolen identity might end up working in two states at once, etc.)

In this case, it sounds like they were just doing the more common "off the book" method where you pay the people in cash and keep two sets of books.

valguarnera@carrionfields.com