Contract Cancellations Add to Infosys' U.S. Problems

Don Tennant

Union Bank of California's cancellation last week of a high-profile, multi-million-dollar contract with Infosys begs the question of the extent to which civil allegations of visa and tax fraud, and the U.S. government's subsequent criminal investigation of Infosys, may have been factors in the cancellation.

 

It's especially interesting that it was a client in the financial services sector that dropped last week's bombshell. It was another client in that sector that canceled a contract with Infosys not long after Infosys employee and whistleblower Jay Palmer filed his now-famous lawsuit against the company in late February. That client was Axis Capital in Alpharetta, Ga., and that's where Palmer was working when he blew the whistle and went public by filing the lawsuit.

 

According to Kenny Mendelsohn, Palmer's attorney, when Palmer went into work on April 4, an Axis executive told him that the contract had been canceled, and directed him to inform Infosys and his staff accordingly. Mendelsohn made it clear that there is no way to prove that Palmer's allegations were the cause of the cancellation. What we do know, according to Mendelsohn, is that after Palmer filed the lawsuit against Infosys alleging visa and tax fraud, Axis' CEO and CIO contacted Infosys for an explanation. The cancellation came shortly after that, and is estimated to have cost Infosys $2.5 million. According to a knowledgeable source who spoke on condition of anonymity, Axis remains a customer of Infosys, and is using Infosys Business Process Outsourcing (BPO) services, having replaced some American Axis employees with workers on H-1B visas.

 

The Union Bank of California (UBC) cancellation was apparently much costlier for Infosys, at least in dollar terms. According to a report in India's Financial Express, it was a $20 million contract to implement Infosys' Finacle banking platform, which would have made it Infosys' first Finacle customer in the United States. The cancellation has been reported extensively in the Indian press, and all the reports I've seen refer to Infosys and UBC statements that the cancellation was due to UBC's "changed business priorities." That appears to be the language that the two parties agreed upon. Whether one of those changed priorities was to avoid betting its banking technology infrastructure on a company that's under criminal investigation by the U.S government is a matter of conjecture. But it would be awfully difficult to argue that it's not a legitimate question to raise. In any case, here's an excerpt from the Financial Express article:

Infosys said that the bank's priorities had changed. "We were in the first stage of implementation. The value of the contract was close to $20 million and could have become bigger. The bank was Finacle's first client in the U.S. And to that extent, it is a loss," CFO of the firm V. Balakrishnan told FE. Finacle is one of the rare success stories in Indian software products globally. The product runs 47,000 branches worldwide and raked in $295 million in FY11, growing 42% over the previous year. While the product has been widely deployed in India and the Middle East, the firm had started to market it in the U.S. About 30 banks run on Finacle in India.


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Jul 25, 2011 1:02 AM Chamat Chamat  says: in response to Don Tennant

That is alright, I hope next time you would be first to report such things. I think this time weekend came at the wrong time.

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Jul 25, 2011 1:03 AM Don Tennant Don Tennant  says: in response to who knows

I have had no experience with Infosys -- good, bad or otherwise. I write  about topics where I believe I can add value. In this case I have sources that enable me to do that, plus I have in-depth knowledge of the Infosys case. Readers here have posted links to stories on the Cognizant case and other matters, and I appreciate that. I have broken a lot of news on the Infosys case, and I will continue to do so. I'm not concerned about what kind of "signal" anyone might want to construe from that. This case is the game changer. Everything else that's happening is a sideshow.

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Jul 25, 2011 1:09 AM SealTeam6 SealTeam6  says: in response to who knows

What's the wrong signal ?  Infosys is the leader of the outsourcing business in the US. The rest of the industry watches and reacts to what happens to Infosys in one way or another. If Infosys is taken down, the rest will pay attention. Focusing on a smaller company will not be effective and will largely be ignored.

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Jul 25, 2011 1:15 AM who knows who knows  says: in response to Don Tennant

Don, thanks for your response and I appreciate it.

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Jul 25, 2011 1:29 AM Indian_tatti Indian_tatti  says: in response to jobs4us

The best way to Bring down Infosys would be to highlight the visa frauds by Infosys with its Premier customers like -- CITI, BOEING etc..

Once you can confirm that Infosys have low talent employees at client site they will be forced to take the projects back.

The resume which Infosys submits to client is not the actual one.

You ask for any skill, Infosys have it ready all time

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Jul 25, 2011 5:58 AM EngiNERD EngiNERD  says: in response to who knows

Dear    SaraR

Great  comment  about all the fuss over Infosys.

I've  followed the H-1b  issues,   Engineering  Shortage  Propaganda (ESP)  for more then twenty years!  There is nothing  out of the ordinary  about INFOSYS.  Other companies are  doing the same.

And what of all the recent fines,  abuses  with  PINOY  teachers?

I  could  go on and on and on with  fines,  abuses and some real distressing  stories going unreported.

GOOGLE:   Kevin Flanagan     Bank  of America

and back  years years...

The scandal you are not hearing about:

www.etherzone.com/2002/jack102102.shtml ;   removed  but posted at

www.americanreformation.org/Articles/GlennJackson/EnronandH1BVisas.htm

Is Anybody out there?

Is Anybody listening?

www.rense.com/general35/wakeupNHwakeup.htm

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Jul 25, 2011 8:59 AM IT_Blogger IT_Blogger  says:

Interesting slide show on Times of India:

timesofindia.indiatimes.com/tech/itslideshow/8178468.cms

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Jul 25, 2011 9:57 AM Sanjay Prabhu Sanjay Prabhu  says:

Dont trust Infosys. I was working for Private Bank in India and i used the whistle against the Auditor of the Bank, where in Auditor was fraudlently claiming the huge amount as reimbusement in to his Salary Saving A/c. After 3 months the Bank in order to protect that Auditor, has removed all those reimbursement entries from finacle with the help of Infosys team. You should not trust such companies which goes against the investors interest. India has many such names and one among them is Satyam

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Jul 25, 2011 10:08 AM SealTeam6 SealTeam6  says: in response to IT_Blogger

"Willful Violator". Sounds like a company T shirt tag line for these companies' employees. Perfect for casual fridays.

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Jul 25, 2011 10:24 AM SealTeam6 SealTeam6  says: in response to Sanjay Prabhu

If such information can provided by employees to the authorities atleast here in the US, there is better chance of building a case of criminal conspiracy to commit fraud by Infosys. I think it is important to reveal that what Infosys and other such companies are doing is not the work of just a few bad employees, but a lack of business ethics from the top down.

Infosys employees should realize that their upper management will throw them under the bus in court to save their own rear ends when the case goes to court. They would be well served to protect themselves.

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Jul 25, 2011 10:49 AM hireamerican hireamerican  says: in response to EngiNERD

Thanks god I never had to bank with the likes of BOA....

Below is Wikipedia entry for Kevin Flangan...

Kevin Flanagan was a computer programmer who worked for The Bank of America in Concord, California, USA.

Flanagan shot himself to death in the parking lot of Bank of America's Concord Technology Center after he and colleagues were laid off in April 2003.[citation needed] The lay-offs were due to the company replacing many computer-related citizen-employees with less expensive non-immigrant-alien guest-workers having temporary work visas. This change included informing the laid-off citizen-employees that the remainder of their tenure was to be spent training their non-immigrant replacements. The laid-off employees were also informed that failure to comply with the requirement to train their replacements and also keep quiet about the transition would result in immediate dismissal, loss of severance pay, and other sanctions.

Many opponents of heavy free trade view this incident as a key event marking the transition of blue-collar globalization-related job loss to white-collar losses. The Concord bank office has been the site of multiple protests.

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Jul 25, 2011 11:24 AM jobs4us jobs4us  says: in response to SealTeam6

I believe knowledge of fraud in the US, and not reporting it, is fraud. 

It is my understanding that employees, partners, etc. of companies in the US with knowledge of fraud must report them to law enforcement.

Otherwise, these people can be convicted of committing fraud and face all sorts of penalties including jail, fines, and deportation. 

Any legal expert readers, if so can you please verify?

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Jul 25, 2011 11:36 AM R. Lawson R. Lawson  says:

If I were an investor, I would be praying for Infosys to setting this thing and get this story out of the news cycle.  They will lose far more money by letting this drag on. 

Every day a news search on "H-1b visa" or "B-1 visa" returns Infosys and Fraud is a good day for me.  It really highlights what these companies are using these programs for. 

Maybe a few token companies can make a claim that they use foreign labor programs to attract skills they can't get here, but the offshoring firms certainly can't make that claim.  They are the poster child for what is wrong with these programs.

Personally I think Infosys should collaborate with people like myself and start being proactive about cleaning up their image and doing things that are in their corporate interest. 

Abusing visa programs and discriminating against American workers in their own country is penny wise, pound foolish.  Americans are often slow to respond but when we do respond it could break your business in this country.  If you don't want to be good corporate citizens because it is the right thing to do, at least do it so you don't lose your investor's money.

This is really a corporate culture issue.  Infosys can write memo after memo and guideline after guideline and the problem still will not be resolved.  The problem boils down to a corporate culture that allows and encourages laws to be broken.  That is what needs to be fixed.  We shouldn't need complex laws and a plethora of corporate policy to force people to do what is right. 

American people are losing trust in Indian companies and business people.  At the end of the day you can have the lowest rates and the sweetest deals.  If we don't trust you, we won't be doing business with you.

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Jul 25, 2011 11:38 AM Chamant Chamant  says:

Don you owe Dolores for this. She posted the news about this last week

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Jul 25, 2011 11:57 AM X X  says: in response to R. Lawson

Touche...I have been at the forefront of factions inside different companies, we pushed the case for local hiring for years...one cannot be a true MNC till one has local employees..it is being heard off late...the only problem was many did not want to join because of the "Indian" tag. It has been changing since the last two years..our efforts have been bearing fruition because of visa difficulties, mindset change of mgmt and the difficult economy. There have been cases where people joining us have said "Thank god this company is still hiring", dont know how far this will go but the intent and effort is there now at least at our levels...with these cases, that process will only accelerate..i personally work with many whites, blacks and others (I am not in US) and have enjoyed it. Also makes me proud that these people work for an Indian company - wouldnt have imagined this 20 years back when I was in college.

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Jul 25, 2011 12:08 PM xyz xyz  says: in response to Chamant

anyway it is not a big deal.

Anyone can keep on searching "Infosys" first thing in the morning.

I do also sometimes

What I saw was few news of Infosys getting new deals also through out few weeks before last Friday in healthcare etc (don't remember exact details) and then saw this news last Friday.

The moment I saw I was sure a blog coming on Monday on this

I think if people here are concerned about American jobs may be more concern is required on those news for Infosys winning business and deals.

Just hiding away from those facts might give some pleasure to readers but not going to do any good.

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Jul 25, 2011 12:53 PM who knows who knows  says:

Don, is there any specific reason you are haunting Infosys alone and not ready to look at other companies or you are planning to take one by one.

Correct me if I am wrong...to me it looks like you had really bad experience (past work experience) with Infosys which triggers multiple article only on Infosys. It is nothing wrong to expose a company of wrong doing but too many article on one single company where there are others companies of similar practice gives some kind of wrong signal.

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Jul 25, 2011 12:55 PM Don Tennant Don Tennant  says: in response to Chamant

Not to take anything away from Dolores, but I actually owe Google Alerts for the UBC thing -- I would imagine a lot of us saw the Indian press coverage at the same point last week with the alert. I do appreciate Dolores posting it and getting the word out, though.

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Jul 26, 2011 1:09 AM Jobs4US Jobs4US  says: in response to Indian_tatti

Thank you for sharing this valuable information.

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Jul 26, 2011 6:39 AM Patricia Patricia  says:

Wow...read this immediately..Jack's Palmar's testimony to the Senate Judiciary committee slated for later this morning !

xrecruiters.blogspot.com/2011/07/first-on-internet-jacks-palmars.html

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Jul 26, 2011 8:01 AM who knows who knows  says: in response to Patricia

I am not sure if that blog is correct...here is the senate website which doesn't has Palmar in the list

judiciary.senate.gov/hearings/hearing.cfm?id=3d9031b47812de2592c3baeba62beeb0

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Jul 26, 2011 8:16 AM SealTeam6 SealTeam6  says: in response to Patricia

Wow ! that was an extraordinarily detailed description of the situation.And the shadow of any doubt shows how clearly this fraud was a company policy and not any random act by a few. What is more depressing is what Palmer detailed can be taken as a template  and just by changing the name of the outsourcing company and the clients is the playbook every outsourcing company out there is doing. May all of them burn. "Stupid Americans" .. yeah let's see out that.

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Jul 26, 2011 8:23 AM SealTeam6 SealTeam6  says: in response to Patricia

I see Ron Hira is going be at the meeting. Watch the company shills start the spin now. As a start the Federal Govt can pull all contracts from companies under criminal investigation.

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Jul 26, 2011 9:31 AM IBS Intelligence IBS Intelligence  says: in response to Don Tennant

Hello,

This story was actually broken by IBS Intelligence. We are not Indian; we are in the UK, and we broke this story by speaking to the bank. The Indian newspapers picked it up from our website without attributing where it came from. The statement you refer to was given to IBS by Infosys.

The original story is here;

www.ibsintelligence.com/index.php?option=com_content&;view=article&id=15992:finacle-core-banking-implementation-halted-at-union-bank-in-california&catid=2:news&Itemid=12

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Jul 26, 2011 11:03 AM Don Tennant Don Tennant  says: in response to Patricia

I'm going to have to ask you to stop trying to advertise your blog on my blog, otherwise I'm going to have to block you. And it's kind of disgusting that you chose to break the embargo on this. All that does is let people know that you can't be trusted.

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Jul 26, 2011 11:34 AM Chamat Chamat  says: in response to IBS Intelligence

Ohh so there is something else being cooked in the name of journalism? Is this also a business with no rules and people are copy pasting information without giving proper credit?

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Jul 26, 2011 11:37 AM Don Tennant Don Tennant  says: in response to IBS Intelligence

Thanks for that clarification, I appreciate it. Congratulations on breaking the Union Bank of California story.

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Jul 26, 2011 11:43 AM Chamat Chamat  says: in response to Don Tennant

So now you know who you actually owe for this More than google alert its IBS intelligence. keep up the good work guys.

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Jul 26, 2011 12:54 PM Patricia Patricia  says: in response to Patricia

Jack has provided a written statement for the Senate hearings.He

is not personally present.Senator Grassley has ensured that his written testimony will be included in the records .

This is extremely damaging to Infosys.Matter of time before we know whether Infosys is indicted on criminal charges. Probably full suspension for all kinds of visa applications ( L1,H1-B etc ) Clients probably start dropping off like flies.

If you read carefully his testimony on the xrecruiters site, he mentionsn Goldman Sachs,American Express.These blue chip companies probably asking Infosys to get out of their premises asap

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Jul 26, 2011 12:58 PM Patricia Patricia  says: in response to SealTeam6

Again..read the full testimony carefully.He mentions that his attorney has a lot of other information of the other Indian companies gaming the system.

Like Don says...Infosys is the main show..everything else is a sideshow for now.Once they get indicted, its likely more whistle blowers may appear.

Watched Hira during the testimony ...he was the most impressive.Confidant, articulate and was even able to rebut the Microsoft attorney.

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Jul 27, 2011 10:38 AM Wakjob Wakjob  says:

No American client wants to go near Infy since if Infy places a fraud worker at a client, the client might be found to be an accomplice. So, American companies have been dropping them lie flies. Bye bye India! Game over! The jig is up!

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Jul 28, 2011 2:31 AM nik nik  says:

Don - we're all driven by our convictions, so I'm sure you sincerely, wholeheartedly believe that offshoring of services (as against offshoring of manufacturing) is the cause of all of America's ills and any company that does it has to be necessarily evil.And Infosys being the poster boy of offshoring needs to be cast the first one.By extension, a lot of readers seem to be absolutely convinced about the veracity of Palmer's statements because they WANT to believe and it aligns with the set stereotypes in their minds.

Having worked with him at fairly close quarters, I can assure you that almost everything he has said to tarnish his co-workers are complete fabrications &misrepresentations.One can say many things about folks in Infosys, but culturally Infosys (and Indians - definitely the educated ones - engg degree &above) has the upbringing and manners to respect one another.Name calling like "stupid american" or "christian" have NEVER happened and I can say with fair bit of certainty will never happen in the future as well, but such statements definitely add a bucket-load of spice to the story igniting the readers with revulsion - all hate speech everywhere works exactly like this (remeber Hitler &the Jews, remember Darfur &the Christians etc).

With 20+ official languages, 800+ unofficial languages (not dialects mind you), several races, 6 major and 15 minor religions - 4 of them having originated in India, 1000s of different festivals, dances, musical forms etc., pluralism and acceptance of the other is an existential necessity in India, firmly woven into the psyche of everyone.In the same vein, all charges of harassment and threats are utter lies, not even half-truths, thru which he hopes to increase his chances of winning apart from getting public support.If anything, what clients ask from Infosys folks is more assertiveness and push back since aggression has never been our forte.

Lets now look at the B-1 allegation.Folks on B-1 travel at Infosys for at most 4-6 weeks (most US companies employing folks in India stretch this to the full 90-day period permitted, but Infosys has always been extremely conservative).These employees may come back to US at most one or two times more in a year, again for a max of 4-6 weeks.These trips absolutely cannot be for replacing "full time employment opportunities of American citizens" since full-time opps cannot be for 4-6 weeks.

The profit motive argument is equally ridiculous as well.The B-1 perdiems are typically $150/day ($4500/month) ranging from $120-$190 depending on the city classification.Add to this expense, the India salary of such folks (min experience 4 yrs) which is $2000/month and it works out to be $6,500/month, higher than $5,000-5,500 mandate for this experience for an H-1 worker.

The 3rd line of argument of sending freshers on these visas is again false since for both H-1s and B-1s, US consulate does an excellent job (bordering on the over-cautious) in checking the entire antecedents of each individual while giving visas.

What needs investigation is whether people "worked" in those 4-6 weeks they were present in the US.Here also, there are huge gray areas that need to be cleaned up in the visa regime.When Boeing or Caterpillar sells their equipment to an Indian customer and sends their engineers to India on B-1s to do installation "work" or troubleshooting "work" or annual maintenance "work", they absolutely are not replacing "full time employment" positions in India. Reply

Jul 28, 2011 2:31 AM nik nik  says:
These are short-term temporary work related to the original contract.Ditto with non-US personnel arriving on US shores on B-1.

The reasons for this lawsuit are 100% monetary (with a dose of the classic 15-minutes of media fame since this cause will attract followers in plenty).There has been issues with his performance in almost all clients, they have all said he adds no value in actual project work, has zero subject matter expertise (beyond generics), next to nothing in terms of product or functional knowledge and the sole skill has been wining/dining with clients, getting really high on a regular basis and making self-righteous statements about his commitment &dedication after such bouts.Having seen some of his powerpoints on his achievements, I was shocked to see him shamelessly taking complete credit and then stretching the dollar values of projects for which he has had absolutely no contribution, but was part of mail chain at some point.

In closing, I'd also like to say this.America has been the leader in the world due to relentless focus on innovation and a tremendous ability of marketing those innovations.I don't think any right thinking individual would ever dispute this fact.This is the reason why more than any other country's, US MNCs are embraced in India - from McDonalds to Coke to AT&T to Microsoft to Boeing to GE, these organizations have come in with their wares and have raked in (and are raking in) billions from the massive domestic market here.This is the essence of free market economy, taught to the world by USA and it would need to be a 2-way street.

Coming back to the case, however convoluted the long &winding road of truth's path is, I'm confident it will finally prevail.Sometimes, it may take years to emerge, but one cannot suppress it or mask it or twist it forever because truth ultimately has one quality lies do not, viz., resilience.That's my firm conviction.

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Jul 28, 2011 9:39 AM hireamerica hireamerica  says: in response to nik

Having worked with them at close quarters, I can assure you I believe what Palmer is saying 100%.

Indians are the most corrupt people I know. Indians are corrupt at all levels, to the core, regardless of education level. Indians are the most racist people, they are racist toward theur own people.

You go Jay Palmer. We are 100% behind you!!

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Jul 29, 2011 8:38 AM Dream_On Dream_On  says: in response to Wakjob

Keep dreaming ... as long as the general industry trend does not change, this will only be a drop in the bucket. See the link below to an article that describes the NASDAQ chief's views on H1B visa.

timesofindia.indiatimes.com/tech/careers/job-trends/Every-H-1B-visa-creates-5-US-jobs-Nasdaq-chief/articleshow/9406151.cms

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Jul 29, 2011 10:04 AM Su Su  says: in response to nik

"Having seen some of his powerpoints on his achievements, I was shocked to see him shamelessly taking complete credit and then stretching the dollar values of projects for which he has had absolutely no contribution, but was part of mail chain at some point. " ~

I know the type.

However it is subject to prove. We have been repeatedly seeing one version of the story, thanks for bringing this up. Doesn't matter if 90% of the readers here say that you are shill, lier etc.

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Aug 1, 2011 3:05 AM Ujwal Ujwal  says: in response to Su

I really wonder how uninformed even educated people are when it comes to general hype about your job being Bangalore-d. Let me remind you when Barack Obama visited India, there were nearly 20,000 jobs created in the US as a result of the bilateral agreements. In the retail sector, in the auto sector and in many more Indian middle class is a major market for US MNCs. Air India (National Airlines of India) ordered Boeing aircrafts instead of Airbus keeping in view US interests and friendship. Recently India bought defence transport jumbos which extended the income period for the factory and its worker beyond 2012 to 2015. Now if technology companies like Infosys depend on US market for revenues whats wrong? It is not just about US employement is it....what about employment for Indians where the living standard can hardly match up to US. More specifically on the Visa row.... even highly qualified and uniquely talented are not allowed to get into the US given the strict Visa norms. I will give you a point to consider about how B1 visas issue started. I have experience in working with clients all around the world and trust me there are no more demanding clients than US clients. Now in the middle of a implementation project the client changes its needs (which is very common) and more people are required to adhere to the schedule then companies like Infosys are in a tangle. Either they pay heavy contractually stipulated fines to their clients or let some work happen through extra man power on B1 visas for a month (H1 processing takes a minimum of 6 months in most cases). Put yourself in the shoes of the project manager and let me know what you would do!!

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Aug 19, 2011 1:11 AM jk jk  says:

what no one seems to address here is how is the B1 visa applied for by these companies. Every B1 requires an invitation letter from the client or the company that the person is visting. why does these US company even give these letters? Why do they not question this process? Its because the US companies also benefit from this process and so just keeps silent

All this is happening because of the greed of the US corporates too and its not just the Indian companies to blame

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Oct 20, 2011 12:35 PM cancellation cancellation  says:

Make us proud. I love your post. God blessed you sir.

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Dec 6, 2011 10:28 AM Kunjum Kunjum  says:

I worked for infosys until last year in USA. I resigned because of the B1 visa flood by Infosys. They came and took over our projects. They were paid only in India and we were paid salary in US$$. Infosys moved me from NJ to GA and placed me with some client and i did not like the work. I complained my account manager and he told if i dont like the job, i can resign and he had plenty of B1's at hand to replace me for free.Got disgusted and left this fraud company. I should have filed a case last year.

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