Infosys' US visa row settled for $34 mn but more scrutiny feared on IT firms

Firm was accused of Infosys using inexpensive and easy-to-get B-1 visa holders to do jobs that required legitimate H-1B visa holders

India’s second-largest information technology (IT) firm, Infosys, on Wednesday said it had reached a settlement with the US authorities on the matter related to misuse of business visas. Under the settlement, it would pay $34 million to resolve all allegations against it.

The settlement might have come as a relief for the company and could put the matter behind it but industry experts say this there is bound to be some overhang. Since Infosys has, in some way, taken the onus of wrongdoing, there could be implications for the rest of the industry and more IT companies might come under the scrutiny of the US authorities, they say.

The US authorities had alleged Infosys had “unlawfully” used inexpensive and easy-to-get B-1 visa-holders to perform jobs that required legitimate H-1B visa-holders or US citizens “for the purposes of increasing profits, minimising costs of securing visas, increasing flexibility of employee movement, obtaining an unfair advantage over competitors, and avoiding tax liabilities”.

HEFTY PRICE

• Tighter scrutiny: Big relief for Infosys but experts say it could tighten scrutiny on the entire industry
• Net widens: More companies could be investigated, as they also send a large number of employees on B-1 visas
• Vigilance: Companies’ visa practices have significantly improved lately but more vigilance is required
• 66%: The US accounts for two-thirds of the revenues of the Indian software export industry
• 65,000 a year: India takes lion’s share of the US’ H-1B visas
• 72%: Around 10,800 of Infosys’ 15,000 employees in the US are on H-1B visas (1,600 are on L-1 visas)

The company also breached the US law in failing to maintain accurate I-9 records — a type of employee documentation — for many of the foreign nationals employed by it in 2010 and 2011, the US authorities alleged.

Infosys, however, claimed there was no wrongdoing. “Infosys denies and disputes any claim of systemic visa fraud, misuse of visas for competitive advantage, or immigration abuse. Those claims are untrue and are assertions that remain unproven,” the Bangalore-based company said in a statement on Wednesday.

“There were no criminal charges or court rulings against the company,” it added. It also said only 0.02 per cent of the days that Infosys employees worked on the US projects in 2012 were performed by B-1 Visa holders. It said the settlement was focused on “historical” paperwork errors from 2010 and 2011; the company had started correcting this before the investigation began.

According to a Reuters report, of the 15,000 people Infosys employs in the US, about 10,800 are on H-1B visas, which allow an employee to stay and work in that country for up to six years, while 1,600 are on temporary L-1 visas.

It claimed the settlement would not have any impact on its eligibility for getting federal contracts or for accessing US visa programmes.

“It means the immigration issue is now behind the company,” said Peter Bender-Samuel, chief executive of Everest Group, a research & consultancy firm. He added the firm would be seen by its US customers and the public as having accepted some responsibility for its wrongdoing and moved on. “In agreeing to a settlement by paying $34 million, Infosys appears to be accepting civil responsibility for the charges and denying a criminal one.” Had it been held criminally liable, it was almost certain some of its customers would have moved away, he added.

The company had earlier this month made a provision of $34 million for settlement of the case, which dates back to May 2011, when the company had been issued a sub-poena by the US authorities, asking it to furnish details of its business visa use.

Poorvi Chothani, immigration attorney and managing partner of LawQuest, a Mumbai-based immigration law firm, said Infosys might have avoided a protracted, time-consuming, unpredictable and expensive legal battle. “But this also indicates the company admits to having violated some rules, perhaps not to the extent it was claimed.”

Industry impact
According to experts like Chothani and Samuel, by “going after” Infosys, one of the largest software services companies, US authorities might be sending a clear message to the rest of the industry. “This puts them (the industry) on notice as US has sent out a loud signal that it continues to monitor them,” said Samuel.

He added $34 million might a small amount for Infosys when compared with its earnings, but it was not such a good thing for the industry. The US had already tightened its scrutiny by making visas hard to get and the Infosys episode might intensify the scrutiny further. “Other firms may also face similar investigations, as it’s generally believed that Infosys was not the only firm making an extensive use of B-1 visas.”

Chothani added, though companies had significantly improved their visa practices in the past few years, this was a clear lesson that they needed to sensitise employees about the rules. “Under pressure from clients and to retain client accounts, business units often take risks. Sending employees on wrong visas is one such risk,” she said.

The authorities had also alleged Infosys had sent invitation letters that contained “materially false” representation of the purpose of visit and provided instructions to B-1 visa-holders on how to deceive US consular officials. The company also wrote and revised contracts with clients to conceal it was providing B-1 visa-holders to perform jobs that involved skilled or unskilled labour, the agreement said.

Of the $34 million, Infosys will pay $5 million to Homeland Security Investigations for civil or administrative forfeiture, $5 million to the Department of State for civil or administrative forfeiture, and $24 million to the United States Attorney’s Office for the Eastern District of Texas. The payment shall be made within thirty days of the execution of the agreement.

“There is no evidence that the I-9 paperwork violations allowed any Infosys employee to work beyond visa authorisation,” Infosys said in the statement. In an I-9 form, employers verify the identity and employment authorisation of each new employee. The company has also agreed to hire an independent auditor to review its compliance in maintaining employee records who will file regular reports to the US attorney.

The $34 million fine, one of the largest imposed in any immigration-related matter, has come at a time when the new US immigration Bill seems to be back on the agenda of the government. The Bill will significantly increase the cost and effort for IT companies to send local workers to the US on work visas and is expected to have material impact on their business.

Samuel said after several employee suits filed in recent past against major IT companies, and after the US authorities started investigating Infosys, companies have significantly become careful about their use of visas. “The industry is hoping the issue to die down but it is not passing away yet.” And, it is unfortunate the impact will be not just on the Indian heritage firms but also on everyone using india as a destination —multinationals or captives.

Ron Hira, associate professor at the Rochester Institute of Technology, said there was no data to show companies had become more vigilant in the recent past, but they had ramped up their H-1B use dramatically over the past two years. “I suspect this is primarily due to the fact that the L-1 visas haven’t been as easy to get approved.” Hira suspects most of the misuse of visas is perfectly legal. “This is why Congress and the Obama administration need to change the laws and regulations to close the loopholes.”

HARD SETTLEMENT FOR SOFTWARE FIRM

The deal

• Infosys to pay a total of $34 million fine: $5 million to Homeland Security Investigations, $5 million to the US State Department and $24 million to the US Attorney’s Office in Texas
• Infosys agreed to retain an independent auditor to review its compliance in maintaining employee records. The auditor will file reports to the US attorney.
• Each B-1 visa applicant must provide a detailed description of the activities that will be performed by that applicant at the time of each entry into the United States. Infosys will retain a copy of this description for a period of three years and provide it to the United States upon its request.
• IT will also provide a report to the Texas court within 60 days on its visa use practices.

What US authorities say

• Materially false representation in invitation letters
• Purpose of the trip was to engage in activities not authorised under a B-1 visa, including coding and programming
• Purpose of the trip was to engage in activities not authorised under a B-1 visa, including coding and programming
• The memorandum said “do not mention activities which sound like work”
• This was done to secure entry of the visa holder into the US without submission of additional Labour Condition Application and to avoid additional scrutiny
• In 2009, in a series of emails, Infosys directed employees to convert a “time and material contract” to a “fixed price contract”

What Infosys says

• Invitation letters were accurate and their level of detail was appropriate
• In 2008 and 2009, called employees on B-1 visa for “customer discussions”
• In 2010 and 2011, called employees on B-1 visa for “meetings and business discussions”
• Provided a “Do's and Don'ts” memorandum to employees entering the US
• Did not direct employees to mislead or deceive US officials
• Changes to contracts were made to comply with internal guidelines and rules regarding billing practices