Bloomberg News

Infosys’ Record Fine Targets Outsourcing Abuses: Corporate India

October 30, 2013

Infosys Campus

An man walks past the Infosys Ltd. campus in Electronics City in Bangalore. Photographer: Sanjit Das/Bloomberg

A record fine against Infosys Ltd. (INFY:US) targets outsourcing companies and their alleged abuse of existing immigration laws to feed the insatiable desire for highly skilled engineers in the U.S.

Infosys has been sending employees to the U.S. with B-1 visitor visas, letting it sidestep caps on H1-Bs -- the permits designed for high-tech workers. To settle the case, the company agreed to pay a $34 million penalty to Homeland Security Investigations, the U.S. State Department and the U.S. Attorney’s Office for the Eastern District of Texas, according to a filing today in federal court in Texas. The fine is the largest ever for the outsourcing industry, which manages tasks for customers using a mix of on- and offshore labor.

The move might also inject the use of visitor visas into the highly charged congressional debate over immigration reform.

“This is one small indication of the vast extent to which firms are exploiting loopholes in the visa programs,” said Ron Hira, a professor at Rochester Institute of Technology. “Most of the exploitation is perfectly legal, which is a problem. Now the question is: Will Congress and the Obama administration do anything about it?”

While technology companies ranging from International Business Machines Corp. (IBM:US) to Microsoft Corp. (MSFT:US) to Facebook Inc. rely on temporary H-1B work visas to hire thousands of employees, outsourcing companies use a variety of tactics to bring staff into the U.S. on work permits -- whether for training, consulting projects or longer-range jobs.

Foreign Talent

By finding loopholes surrounding different visas, the companies can employ more foreign workers in the U.S., helping them boost revenue and avoid hiring higher-priced local labor, said Rajiv Khanna, a Virginia-based immigration lawyer.

Infosys said it agreed to today’s settlement to “remove the uncertainty of prolonged litigation.” There were no criminal charges against the company, and it won’t be limited in applying for federal contracts or visa programs.

“Infosys denies and disputes any claims of systemic visa fraud, misuse of visas for competitive advantage, or immigration abuse,” the company said today in a statement.

The Bangalore-based company’s shares fell 0.4 percent to 3,323.90 rupees in Mumbai. They have risen 43 percent this year. The benchmark S&P BSE Sensex index has advanced 8.3 percent in the period.

Graduate Shortage

Demand for foreign talent in the U.S. is only expected to grow. By 2020, the country will only have enough computer-science graduates to fill about 40 percent of jobs, according to a report by Silicon Valley venture firm Kleiner Perkins Caufield & Byers, which cited Microsoft analysis.

Outsourcing firms, including Infosys, Cognizant Technology Solutions Corp., Wipro Ltd. and Tata Consultancy Services Ltd., are the biggest users of H1-B visas, and that doesn’t sit well with some U.S. lawmakers. An immigration bill considered by Congress this year included fees and rules that would make it harder for outsourcing companies to depend on temporary visas to bring workers into the country.

If passed, the legislation could increase the cost of applying for temporary work visas, especially if more than half of a company’s U.S. employees use them. It also stipulated that no company with more than 15 percent of its U.S. staff on work visas can put those employees at client sites -- something specifically targeted at outsourcers.

Less Competitive?

The proposed measures will “undermine the competitiveness of Indian information-technology business in the U.S.,” India’s Trade Minister Anand Sharma told Steve Van Andel, chairman of the U.S. Chamber of Commerce, according to an e-mail statement from the minister. “Our IT companies have contributed enormously to the U.S. economy.”

The lawmakers would rather see technology companies hire H-1B employees to help staff internal projects, rather than have the visas go to consultants. Still, the push to pass immigration legislation has stalled in the House, hampered by Republican opposition to providing a pathway to citizenship for undocumented workers.

India is the biggest source of guest workers hired through H-1Bs, a nonimmigrant specialist visa that lasts three to six years. Indians received more than half of the 106,445 first-time H-1Bs in the year ending September 2011, according to the U.S. Department of Homeland Security.

H-1B visas were created in 1990 to let technology companies bring in skilled employees from overseas, ostensibly to make up for a shortage of local talent. Unlike companies such as Google Inc. and Facebook, which rely on the program to recruit a relatively small number of skilled people, outsourcers use H-1B visas for hundreds or thousands of workers a year.

Largest Recipient

Cognizant is currently the largest recipient of H-1B visas. The company’s president, Gordon Coburn, has said he uses the program to find the skills necessary for outsourcing tasks, not to replace U.S. workers.

“We pay our people prevailing wage,” he said in an interview in May. “They’re not cheap once I include relocation costs and visa costs.”

In the Infosys case, the U.S. Attorney’s Office investigated whether the company had used temporary business permits, or B-1 visas, to circumvent immigration law, according to an Oct. 11 regulatory filing.

That would let it increase its U.S. workforce while keeping outsourcing costs low. Such moves have helped Infosys maintain its profit margins of about 26 percent, said Khanna, the immigration lawyer. B-1 visas typically only let visitors stay in the U.S. for a year. While they do apply to consultants and business travelers, they aren’t intended for people with more permanent jobs in the U.S.

Visa Preference

The investigation isn’t the first to delve into the gray area of work visas. The Justice Department investigated IBM for violating antidiscrimination rules by stating visa preferences in job ads. In a settlement announced in September, Armonk, New York-based IBM agreed to pay $44,400 and will remain subject to reporting requirements for two years.

As the investigations mount, U.S. immigration policy has remained the same, said Anurag Rana, an analyst at Bloomberg Industries.

“This is just the cost of doing business in the U.S. for these companies,” he said in an interview from New York. “It happens to every company, and that won’t change without significant overhaul to policy. The primary focus should be on the immigration bill when Congress revisits the bill.”

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Nick Turner at nturner7@bloomberg.net; Michael Hytha at mhytha@bloomberg.net;


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Companies Mentioned

  • INFY
    (Infosys Ltd)
    • $59.22 USD
    • -0.50
    • -0.84%
  • IBM
    (International Business Machines Corp)
    • $192.8 USD
    • -0.16
    • -0.08%
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