In a mandated annual filing to the U.S. Securities and Exchange Commission, Infosys Technologies has affirmed its recognition that the ramifications of the visa and tax fraud lawsuit filed in February by Infosys employee and whistleblower Jay Palmer could adversely affect its business.
In its May 6 filing of SEC Form 20-F, an annual report that must be filed by any foreign company that sells shares in the United States, Infosys referred to the Palmer case in the section, "Risks Related to Our Company and Our Industry." It should be understood that listing potential business risks in an SEC filing is a routine butt-covering exercise that all public companies have to perform, so in that sense the filing is business as usual. That said, it's interesting that Infosys singled out the Palmer case for particular mention in its annual report:
Recently, one of our employees filed a lawsuit against us which alleged, among other things, that we were improperly utilizing the U.S. B-1 business visitor visa program. Following the filing of such lawsuit, a United States senator submitted a letter to U.S. Secretary of State and Secretary of Homeland Security, requesting that their respective departments review the B-1 business visa program and investigate the manner in which it is being utilized by companies, including Infosys. In the event that the U.S. government undertakes any actions which limit the B-1 business visa program or other visa program that we utilize, this could materially and adversely affect our business and results of operations.
In the same section of the filing, Infosys made a broader statement about risks associated with pending and future litigation:
We are, and may in the future be, subject to claims arising in the normal course of business. An unfavorable outcome on any litigation matter could require that we pay substantial damages, or, in connection with any intellectual property infringement claims, could require that we pay ongoing royalty payments or could prevent us from selling certain of our products. In addition, we may decide to settle any litigation, which could cause us to incur significant costs. A settlement or an unfavorable outcome on any litigation matter could have a material adverse effect on our business, operating results, financial position or cash flows.
But elsewhere in the filing, the company indicated that it doesn't expect the litigation (as opposed to government action triggered by litigation) to have a major impact on its business:
We are subject to legal proceedings and claims, which have arisen in the ordinary course of our business. Our management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on our results of operations or financial condition.
Another risk Infosys listed in the report had to do with legislation in certain countries, including the United States, that could restrict clients from outsourcing work to Infosys, or limit the company's ability to send its employees to client sites:
Recently, some countries and organizations have expressed concerns about a perceived association between offshore outsourcing and the loss of jobs. With the growth of offshore outsourcing receiving increasing political and media attention, especially in the United States, which is our largest market, and particularly given the prevailing economic environment, it is possible that there could be a change in the existing laws or the enactment of new legislation restricting offshore outsourcing or imposing restrictions on the deployment of, and regulating the wages of, work visa holders at client locations, which may adversely impact our ability to do business in the jurisdictions in which we operate, especially with governmental entities. For instance, the Governor of the State of Ohio recently issued an executive order that prohibits governmental entities of the State of Ohio from expending public funds for services that are provided offshore. It is also possible that private sector companies working with these governmental entities may be restricted from outsourcing projects related to government contracts or may face disincentives if they outsource certain operations.