The outcry over Standard Chartered Bank’s US violations because of outsourcing of operations to its India arm is misplaced and the captive units of financial giants such as JP Morgan and Goldman Sachs will remain vibrant though with tighter controls, said experts.
Charges that the British bank’s back office unit in Chennai that employs about 8,500 people did not filter trades relating to parties in Iran could not be maintained since the onus of compliance rests at New York and London.
The New York State Department of Financial Services says, the ‘entire Office of Foreign Assets Control 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.’
This is nothing to do with BPO, but about the quality definitions within organisations and their enforcement,” said Jaithirth Rao, former banker at Citigroup and founder of IT and BPO firm, Mphasis. Whether it is done in Timbuktu or Bangalore is immaterial. Wherever the process is being done, the rules have to be followed.
The broader issue is that law enforcement agencies put the onus on banks when they are unable to do their job. Some of these due diligence requirements have come up only in the last 10-15 years, and the onus for the checks have been put on banks.”
There are about 750 captive units employing over 200,000 people in India operating across industries such healthcare, retail, manufacturing and banking and insurance. Standard Chartered was among the early banks to set up back office operations in India in 2001. It services almost all the 75 countries, where the bank has operations, according to its website.
The investigators have found people were not trained and were not aware of the process they have to follow,” says Som Mittal, Nasscom president. It is not an India related issue. Lack of training and related process failure could have happened anywhere — in US, UK, or Phillippines. This is also not an issue of outsourcing as it reportedly happened in company’s own centre.
In today’s world, you cannot do away with global supply chain and have to ensure appropriate processes. The problem is not outsourcing or offshoring-specfic and the solution has to be same as if it had happened in US or anywhere else. Same is true for manufacturing for example 90% of Apple products are made in China.”