A Visa Loophole as Big as a Mainframe

More companies are using L-1 visas to bring in low-wage foreign IT workers--and replace Americans

Senior systems analyst Patricia Fluno was shocked when she found out last summer that she and 11 colleagues in the Lake Mary (Fla.) offices of Siemens (SI ) were being replaced by techies brought in by Tata Consultancy Services, India's largest information-technology (IT) consulting firm. Fluno, 53, couldn't understand how Tata and Siemens could bring Indian workers into the U.S.

After all, in 2001, Congress had specifically banned the displacement of U.S. employees by foreigners brought in under the controversial H-1B visa program, which many employers had tapped to fill vacant jobs in the booming 1990s. Congress also had demanded rules requiring employers to pay H-1B workers prevailing U.S. wages--and Siemens made no bones about the cost-cutting nature of the layoffs. When Fluno asked one of the replacements about his visa during the two months that she trained him to take her job, Fluno says a Siemens manager told her not to ask such "personal" questions.

Fluno was onto something. In fact, Muralidhar Naidu Kollu, the Tata IT analyst who now sits at Fluno's desk and does her job, didn't have an H-1B at all. Instead, Fluno learned, Tata used a more obscure visa called the L-1, which is designed for intracompany transfers by multinational corporations.

Even though Tata's primary business is supplying off-shore IT expertise to U.S. companies, it used the loosely regulated L-1 program to place Kollu and 11 other Indians in Siemens' Florida offices. Reached at Fluno's old phone number, Kollu, who speaks halting English, says he specializes in SAP software, just like Fluno. He declined to discuss his salary, but Fluno says her Siemens supervisors told her he earns just one-third of her $98,000 a year.

"Is my government telling me that if an H-1B visa holder replaces me it's illegal, but if an L-1 replaces me, it's O.K.?" demands Fluno, who has been looking for a permanent job ever since. "If this is a loophole, it needs to be stopped." Tata officials say the company fully complies with the L-1 law and pays the prevailing industry wage to all its U.S.-based employees, although they declined to provide specifics about Kollu or other employees at Siemens. Siemens spokeswoman Paula Davis says her company isn't responsible for Tata's employment practices. "They don't work for us; they work for Tata," she says.

Fluno's experience is just one example of an explosion in the use--and in some cases, the abuse--of L-1 visas. With the travails of the high-tech industry and the jump in IT unemployment, fewer U.S. companies can tap the H-1B program these days by saying qualified Americans aren't available. At the same time, many employers looking to slash costs have discovered that they can use firms that hire L-1s to dump high-paid Americans in favor of cheaper workers from abroad.

As a result, many companies are subcontracting thousands of jobs to outsourcing companies such as Tata, Infosys Technologies (INFY ), and Wipro Technologies (WIT )--the three largest Indian software servicing companies, which all are using more L-1s. Among those using such IT contractors are Bank of America (BAC ), Dell Computer (DELL ), General Electric (GE ), Merrill Lynch (MER ), and Siemens (SI ).

Bombay-based Tata now uses L-1s to bring in half of the 5,000 IT workers it has placed at companies in the U.S., says CEO S. Ramadorai. Nearly one-third of Infosys' 3,000 U.S.-based workers hold L-1s, the company says, as do 32% of Wipro's 1,500. Like Tata, Bangalore-based Infosys and Wipro say they follow the letter of the L-1 law.

But they may be violating the spirit of the law. "Is it O.K. to use L-1s for outsourcing to other firms? The answer is no," says State Dept. spokesman Stuart Patt. Tata's outside public-relations firm says that Tata "is in complete compliance with all laws and regulations with respect to H and L visas."

Legal or not, the growing use of L-1s has sparked a backlash. The program has been plagued by accusations that individuals use it to gain illicit entry into the U.S. Complaints from the Siemens workers have led the Justice Dept. to launch investigations. Fluno's case was dismissed on Feb. 11; three others continue. At the same time, the Immigration and Naturalization Service is reviewing the L-1 visa program "to assess whether companies are using the L-1 to circumvent the H-1B program," says an INS official. And Representative John L. Mica (R-Fla.) vows he'll try to amend the L-1 statute if Justice doesn't prosecute in the Siemens case. "It's a back door to cheap labor," he says.

While many L-1s ease the intracompany transfers they're meant for, outsourcing has triggered a surge in their numbers. New L-1s jumped by 50% between 1998 and 2002, to 58,000, and climbed an additional 10% in the first five months of fiscal 2003, according to State Dept. data. Meanwhile, new H-1B visas plunged by 27% through 2002 and fell 17% so far in fiscal 2003. What's more, L-1s allow employees to remain in the U.S. for up to seven years and can include multiple workers; H-1Bs are issued to individuals, who are limited to six-year stays. There were 384,000 people working in the U.S. on H-1Bs in 2001, the last year available, and at 329,000, nearly as many on L-1s.

Companies like Tata have grabbed U.S. market share in IT consulting in part by exploiting the L-1's loopholes. The private company, which supplies outsourced IT services to client companies from 48 offices in the U.S., saw its business from U.S. companies grow 29%, to more than $500 million, in its latest fiscal year, which ended March, 2002.

Tata says nearly three-quarters of its sales come from supplying IT expertise to an impressive list of blue-chip U.S. clients such as Apple Computer, Bank One, Boeing, and Eli Lilly. But with half its U.S. labor here on L-1s, Tata's growth might well be smaller if it relied solely on H-1Bs. "Demand is so great that people will massage any visa category," says Jessica Vaughn, senior policy analyst at the Center for Immigration Studies in Washington.

Fluno and colleagues, meanwhile, are still looking for IT work (Siemens says it helped five of them find comparable jobs). They hope to start a campaign against L-1 abuse. But with so many major companies already using them, their campaign may be all uphill.

By Brian Grow in Orlando, Fla., with Manjeet Kripalani in Bombay From BusinessWeek March 10, 2003

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