Thursday, October 31, 2013

Infosys "Visa Fraud" Settlement

The U.S. Department of Justice has just announced a civil settlement in which Infosys, an Indian firm involved in consulting, technology and outsourcing, will pay the U.S. government a record $34 million dollars for “systemic visa fraud and abuse.”  Although Infosys denies all the allegations, reportedly, it has agreed to this settlement and to enhanced compliance measures to resolve claims made by the U.S. DOJ.  This settlement, the largest fine ever levied in an immigration case, serves notice on buyers and sellers of international business services.

So, what happened?  Was it more than garden variety fraud?   In short, it appears that Infosys used [less expensive] B-1 visa holders to perform jobs for clients that involved skilled or unskilled labor that would otherwise been required to be performed by United States citizens or required legitimate [more expensive and limited number of] H-1B visa holders.   The U.S. DOJ claims that Infosys basically went out of its way to conceal the true purpose of a B-1 visa holder’s travel in the U.S. in order to secure entry of the visa holder to perform these type of jobs.  Infosys also failed to maintain required records of its foreign nationals employed in the U.S.  See 

Breach of contract?  No. Terminable by the customer?  Probably not. Damage Control?  Yes, for Infosys.  Under standard outsourcing and supply chain contracts, the supplier must agree to honor the enterprise customer’s “code of conduct.”  Since Infosys denied liability but paid the fine, it probably does not face a breach of contract claims by its U.S. customers for failure to honor the contractual obligation to respect the law.  But this episode invites a new “governmental settlement” event for termination by the enterprise customer. Or at least it warrants some possible contractual consequences short of a termination by the customer.

Contract drafting tips?   Yes.  Customers should require not only compliance with laws, but consequences for non-compliance.  Customers might include a new clause on “Visa Compliance” that warrants compliance and allows the customer to inspect the work permits of onsite service personnel.

Can U.S. customers ignore a service provider’s settlement of a civil suit by the government?   Can foreign outsourcers ignore the lessons?  That might not be a good idea.  To avoid collateral damage by being associated with a settler of a governmental fraud claim, business executives have a duty to follow the same rules that they set for themselves and others.  If a customer does nothing, it risks shareholder claims for breach of fiduciary duty, backlash from employees, vulnerability to attacks by U.S. unions and governmental officials for being bad corporate citizens, and possible loss of valuable recruitment opportunities for any prospective employees who believe in corporate social responsibility.

The lessons are simple.  Moving foreign technical staff to onside locations needs to be balanced and in compliance.  As a model for scalable global sourcing, mobile labor arbitrage is dead.  Don’t engage in schemes for illegal wage arbitrage.  Find Americans or lawful permanent residents to fill the needs . Don’t harass whistleblowers.  Train everyone on your commitment to compliance with all applicable laws and have a compliance officer.

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