Offshoring of back-office work to India, a trend among banks and
accounting firms, came under new scrutiny with allegations that Standard
Chartered Plc moved compliance oversight work dealing with Iranian
banking transactions to India to avoid US regulators.
Cost
savings, not escaping regulatory oversight, are generally assumed to be
the primary goal of sending back-office work to India, where employees
are paid far less than in the United States and much of Europe.
New
York State's bank regulator accused Standard Chartered on Monday of
setting up an offshore regulatory compliance system dealing with Iranian
banking transactions that was "a sham" meant to escape US Treasury
Department oversight.
Regulator Benjamin Lawsky, head of
the New York Department of Financial Services, issued an order accusing
Standard Chartered of hiding 60,000 transactions tied to Iran worth $250
billion over a decade, resulting in substantial fees.
Standard
Chartered Plc has said it "does not believe the order issued by the
Department of Financial Services presents a full and accurate picture of
the facts."
US and European companies will move 750,000
jobs in information technology, finance and other business services to
India and other low-cost nations by 2016, according to the Hackett Group
Inc, a US consultancy.
India, because of its
English-speaking population and low wages, is an especially attractive
offshoring destination, receiving 58 percent of global outsourcing
contracts last year, according to industry estimates.
Offshoring
to India has been a political issue in the United States, with the
focus usually being on the jobs it takes away from Americans, suffering
from a stubbornly high unemployment rate.
The issue will
give more ammunition to groups that oppose outsourcing because of fears
of job losses, said Sudin Apte, chief executive of independent advisory
and research firm Offshore Insights. But he did not see a long-term
effect.
"Some more rigor in compliance, some more rigor in
scrutiny and process adherence ... but I think I would welcome that
because that makes the system perfect or near perfect," he said.
IRAN TRANSACTIONS EYED
Global
banks and financial services companies are among the biggest
outsourcers to Indian companies, including Infosys Ltd and Tata
Consultancy Services Ltd, which provide services ranging from payroll
management to maintaining IT networks.
Indian outsourcing
firms such as Wipro and Tata already are marketing compliance services
for the 2010 Dodd-Frank Wall Street reform act, which will require US
banks to provide massive amounts of data on their risk exposure.
Many
banks, including HSBC Plc, JPMorgan Chase & Co and Royal Bank of
Scotland Group Plc, also have their own facilities in low-cost India
with thousands of employees.
The Big Four accounting and
consulting firms, Deloitte, Ernst & Young, KPMG and PwC, also are
offshoring some audit work for US companies to India, where salaries for
accountants are a fraction of those in the United States.
In
the case of Standard Chartered, compliance work was being done in India
on financial transactions, including those tied to Iran. The United
States imposed economic sanctions on Iran in 1979.
Lawsky
has alleged that Standard Chartered's staff in India was not trained to
determine whether the transactions were valid under US rules on Iranian
trade.
Those rules are overseen by Treasury's Office of Foreign Assets Control (OFAC), the state regulator said.
The
New York regulator said the bank's failures included "outsourcing of
the entire OFAC compliance process for the New York branch to Chennai,
India, with no evidence of any oversight or communication between the
Chennai and the New York offices."
Scope International,
Standard Chartered's wholly owned back office outsourcing centre, is
based in the south Indian city of Chennai and employs more than 8,500
people.
A spokeswoman for the bank in Mumbai declined to comment.
The
bank has put the value of Iran-related transactions that did not comply
with regulations at less than $14 million, much less than Lawsky's
multibillion-dollar estimate.
