Indian Outsourcing Firm Fined $34 million for NOT Using H-1Bs

By David North on October 31, 2013

Usually the massive Indian outsourcing firms get in trouble for using too many H-1Bs when they should be hiring American workers.

But this time Infosys, the second largest of them all, had to pay the feds a record-breaking $34 million in fines for not using H-1Bs; the firm used still-cheaper foreign workers on short-term business visas (B-1s) in order to cut costs and to boost its $2.8 billion annual profit.

In what amounted to a burlesque of a legitimate hiring policy, Infosys brought in high-tech workers from its Indian operations to work on American job sites, pretending that they came for conferences when, in fact, they did day-to-day programming for U.S.-based clients. The workers were paid in rupees at back-home rates, thus cutting the Infosys wage bill by a huge margin.

Fortunately, one gutsy American programmer, Jay Palmer, blew the whistle — and kept blowing it — until a U.S. attorney in Texas got a federal grand jury interested in the Infosys visa maneuver and launched an investigation. Meanwhile Palmer and his Alabama-based attorney, Kenny Mendelsohn, kept the pressure on Infosys by starting a separate civil suit in the U.S. courts in Alabama, one that did not, ultimately, prevail.

As near as I can tell, no one in Washington had much of anything to do with the case until its later stages, but the Departments of State (which issues visas) and Homeland Security got $5 million each as part of the settlement announced on Wednesday by the U.S. Attorney in the Eastern District of Texas, John M. Bales, whose press release says, among other things:

[The] government alleged instances of Infosys circumventing the requirements, limitations, and governmental oversight of the H-1B visa program by knowingly and unlawfully using B-1 visa holders to perform skilled labor in order to fill positions in the United States for employment that would otherwise be performed by United States citizens or require legitimate H-1B visa holders.

The government also alleges that Infosys did so in order to increase profits, minimize costs of securing visas, increase flexibility of employee movement, obtain an unfair advantage over competitors, and avoid tax liabilities. Specific allegations include the following:

Infosys used B-1 visa holders to perform jobs that involved skilled labor that were instead required to be performed by United States citizens or required legitimate H-1B visa holders.

Infosys submitted "invitation letters" to U.S. Consular Officials that contained false statements regarding the true purpose of a B-1 visa holder's travel in order to deceive U.S. Consular Officials and secure entry of the visa holder into the United States.

After State and Homeland Security got their shares, the balance of the $34 million ($24 million) was allocated to the federal attorney's office in East Texas. The suit was brought there because the Infosys branch office in charge of visas is in Plano, Texas, which is near Dallas. (Imagine using so many foreign workers that your personnel department creates a whole, free-standing office to handle the visa traffic! Think how many talented resident workers — citizens and green card holders — your corporation could recruit with those resources!)

In addition to the payment of $34 million, Infosys, as part of the settlement, promised to mend its ways and even to hire an "independent" third party to monitor its visa-seeking activities.

Observations. There are a lot of moving parts here, some more cheering than others.

First, it is highly commendable that some part of the federal government has lowered the boom on one of the H-1B-abusing outsourcing companies that have given U.S. workers such a bad time for so long. Further, the $34 million fine is comforting, and hopefully a precedent for bigger and better fines on these firms in the future.

On the other hand, let's put the $34 million in context and compare it to the $13 billion settlement that is currently being contemplated vis-a-vis JPMorgan Chase, the Wall Street giant.

Bear in mind that JPMorgan's profit, of about $21.3 billion a year, is roughly eight times that of Infosys, but the fines we are talking about are measured in billions for Morgan and only in millions for Infosys. In both cases these are record-breaking levels of federal fines, but the one on the Wall Street investor-gouging company is proportionately more than a hundred times the size of that imposed on the immigration-related, worker-gouging firm. It shows where the administration's priorities are located.

Second, there certainly is a hero in this case, and probably a happy ending for him. Picking up from the Associate Press report:

An Infosys consultant flagged what he said was an illegal practice and contacted authorities. The whistleblower, Jay Palmer of Alabama, stands to collect millions from the settlement under the False Claims Act, a federal whistleblower law, which could award him as much as 25 percent, according to U.S. Attorney John M. Bales.

Palmer apparently resisted the siren call of a direct financial settlement with Infosys, which would have presumably left him well-to-do but silenced for life. He (and his attorney) made an excellent choice.

In some prior and somewhat similar cases, Infosys settled with complaining citizens and avoided the headlines it earned in this case. May Palmer's precedent prevail with others who are suing Infosys, such as this Wisconsin case filed earlier this year.

Third, you would never know from the Infosys press release that they had been caught with both hands in the cookie jar and had received a record fine for breaking the immigration law.

According to the Associated Press, "Infosys strongly denied it had misused B-1 visas or committed any visa fraud. It did not admit any criminal liability as part of the settlement." The firm also said that the settlement would not impact the firm's ability to contract with the federal government in the future.

Let's hope — to the contrary — that some federal contracting officer, looking at two roughly comparable bids for technological assistance, will notice that one of the firms had to pay $34 million for cheating the federal government and that the rival bidder had no such record. Let's further hope that the choice of the winning bid would, at least in part, be based on that variable. If that does happen, however, we are unlikely to hear about it.

Finally, not mentioned in all this is that the H-1B program, even when operating legally, has removed hundreds of thousands of high-tech jobs from the hands of permanent residents of the United States and handed them to lower-paid, indentured alien workers. It is the basic design of the program, not the occasional instance of blatant fraud within in it, that should be our main concern.