No relief for Infosys despite $34-mn US visa settlement

Despite having paid a hefty sum of $34 million to settle a US visa misuse case last year, Infosys, India’s second largest information technology services company, will have to retain an independent third-party auditor at its expense to review its visa compliance until 2015.

As part of the settlement with the US authorities, the independent auditor will be responsible for annually reviewing and reporting on Bengaluru-based company’s compliance relating to Form I-9, a type of employee documentation.

These reports would be submitted to the US attorney, Infosys said in its annual report for 2013-14.

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Earlier, the US authorities had alleged that Infosys had unlawfully used inexpensive and easy-to-get B-1 business 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’.

According to the US authorities, Infosys also breached the US law in failing to maintain accurate I-9 records, for many of the foreign nationals employed by it in 2010 and 2011. Infosys, however, had claimed there was no wrongdoing and said it ‘denies and disputes any claim of systemic visa fraud, misuse of visas for competitive advantage, or immigration abuse.

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'Those claims are untrue and are assertions that remain unproven’, the Bengaluru-based company had said in a statement last year.

Infosys had reached a settlement with the US authorities on the matter in October 2013, saying it was ready to pay $34 million to resolve all allegations against it.

The settlement had come as a relief to the company as it would put an end to the long-drawn case.

However, experts had cautioned of some overhang, not only on Infosys but on other Indian IT services companies as well.

They had also said that with Infosys in some way taking 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.

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According to the firm’s annual report, it was also asked by the US authorities to furnish a report on its compliance with its internal B-1 visa use policies, standards of conduct, internal controls and disciplinary procedures, within 60 days after the first anniversary of the settlement agreement.

Infosys had 12,769 employees in the US on H-1B visas as on March 31 and 1,322 on L-1 visa.

H-1B visas allow employees to remain in the country for up to six years during the term of the work permit and work as long as s/he remains an employee of the sponsoring firm. L-1 visas, on the other hand, allow the employee to stay in the US only temporarily.

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Finacle won’t be hived off

Infosys will retain its flagship Finacle core banking product with itself, even as it has decided to hive off all other products and platforms into a separate subsidiary, Edgeverve Systems, a source close to the development said. Finacle is the company’s most successful product, clocking $300 million in annual revenue.

While Infosys gets five per cent of its revenue from products, platforms & solutions, most of this comes from Finacle.

It is understood the company might demerge Finacle into a standalone subsidiary. Infosys’ all other products together account for two per cent of revenue.

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When it announced its 3.0 strategy, Infosys had said it would aim to raise contribution from this business to 33 per cent.

Three years later, things have not changed much.

To boost this business, it had earlier decided to demerge its PPS operations.

Infosys said in its annual report for 2013-14 it had incorporated Edgeverve Systems to ‘focus on developing and selling products and platforms’.

The company said it has invested less than $1 million in the arm, to be the company’s 39th subsidiary.

Sources said Sanjay Purohit, senior vice-president and global head, would be the arm’s chief executive.

While the board of directors has approved the business transfer agreement and related documents for the demerger, shareholders’ approval will be sought at the annual general meeting on June 14.