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Risks rise for IT: BankAm, Amex sued for outsourcing [DNA : Daily News & Analysis (India)]
[August 10, 2011]

Risks rise for IT: BankAm, Amex sued for outsourcing [DNA : Daily News & Analysis (India)]

(DNA : Daily News & Analysis (India) Via Acquire Media NewsEdge) Class-action suits have been filed against Bank of America Corporation and American Express in United States courts, portending more trouble for Indian information technology outsourcing firms that are already under the shadow of a potential global economic slowdown.

The cases pertaining to routing customer calls abroad, including to India, have been filed in the last week of July and first week of August in US Superior Court for the State of District of Columbia, US District Court for the State of Columbia and the US Superior Court of California in Alameda County.

Maryland-based law firms Beins, Goldberg & Hennessey and Toomey McKenna Law Group as well as California-based Weems Law Offices, which have filed the cases on behalf of the customers of the financial institutions, contend that by routing customer calls, both BoA and American Express violated Right to Financial Privacy Act and Consumer Protection Act.

Joseph Hennessey, partner at Beins, Goldberg & Hennessey said that he "anticipates the class to be in the millions." Regarding damages sought, he said, "without the punitive damages, negligence, or consumer protection claims we're looking at nine-figure number." That could be anywhere from $100 million to $999 million.

The class-action suits come at a time when there is rising public sentiment both large US corporations are exacerbating unemployment problem by "sending jobs abroad." Unemployment rate in the US, which has seen an anaemic growth after the financial meltdown that started with the fall of Lehman Brothers in September 2008, hovers at a little over 9% - highest in nearly three decades.

At over 50% of revenue contribution, US represents the single largest geography for Indian IT firms, which earned around $60 billion in IT exports in the year to March 31, 2011.

In the process of sending customer calls abroad, the financial institutions also need to send relevant customer financial data to the foreign nationals attending to the call. Such electronic data transmission is prone to being intercepted by either US government or other foreign governments, thus resulting in a breach of privacy for the customers, with regard to their financial data, the complainants argue.

Through the case, complaints are seeking an injunction on transfering electronic data overseas until BoA and American Express receive signed authorisations as required under the Right to Financial Privacy Act and until they make the disclosures necessary to comply with the Consumer Protection Act.

Major IT services exporters such as Tata Consultancy Services, Infosys, HCL Technologies as well as BPO firms like Genpact did not respond to emailed questions sent on Saturday from DNA Money regarding potential fall out of such legal actions against sending work abroad.

Less than a year ago, US administration significantly raised fees for work visa such as H and L in an apparent bid to make Indian companies pay for US government's fencing and surveillance programme along its border with Mexico from where there is a high degree of illegal migration of low-skilled workers.

Further, Indian technology firms have also been reporting a significant rise in visa rejection recently.

Creating hurdles such as seeking customer's explicit permission before routing calls abroad, may force some corporations to re-locate their call centres to the US for compliance purposes.

Bloomberg reported on Monday that American corporations General Electric, which has been at the forefront of the first wave of outsourcing, now wants to bring more technology related work in-house. It's chief executive Jeffrey Immelt was quoted on his plans to create about 15,000 jobs in the US in IT sector over the next three years.


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