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The Background-Check Challenge

Outsourcers protect themselves from identity theft by finding out all they can about employees, but gathering information can be challenging When the British tabloid the Sun blared the headline “Your Life For Sale” a couple of weeks ago, the most shocking detail likely was a photo of a reporter and an alleged Indian fence purporting to depict the exchange of $5,000 for stolen credit-card data. This was yet another blow to the offshoring community. It follows closely on the heels of perhaps the most infamous identity-theft case in India, one that resulted in nearly $500,000 in bank losses and a whopping 17 arrests. While the world waits to see how the Indian police and courts handle these landmark investigations, both outsourcing customers and providers are examining what changes, if any, should be made to hiring practices in global delivery centers.

In April, call-center workers at a Pune, India, subsidiary of Mphasis, an IT services and business-process outsourcing firm, talked four Citibank customers into revealing their personal identification numbers, and then the call-center workers transferred nearly $500,000 into their personal accounts. Police arrested six Mphasis workers, plus 11 outside accomplices, and recently said the investigation is continuing, with even more arrests possible. Citibank replenished the customers’ accounts, but Mphasis has yet to erase the concern that the problem won’t be repeated here or overseas.

The industry itself is reacting, too. “The Indian BPO industry is in its infancy, and when one tends to hire 400 to 500 people every month, we often fail to scrutinize the employees closely,” conceded Mphasis chairman Jerry Rao at a National Association of Software and Service Companies summit in June. Rao endorses s proposal by Nasscom, a trade group representing the IT software and services industry in India, for a national employment registry where potential employees’ backgrounds are registered and updated.

The goal is to develop a system in which employees voluntarily allow information about their educational backgrounds and employment histories to be entered into a database, Nasscom VP Sunil Mehta says. When employees are considering changing jobs, they can simply authorize the registry to release the information to a potential employer.

In addition to speeding up the process of background checks, Mehta says the new system, which an impartial third party will administer, would make background checks easier to accomplish, less expensive, and more accurate. Although largely believed to be a positive step toward averting a repeat of the Mphasis case, some think it simply won’t be enough.

“Extensive reference checking is employed throughout the world, as well as motor-vehicle abstracts, media searches, and in-depth interviewing, but much more is needed,” says Bill Greenblatt, president of Sterling Testing Systems Inc., a provider of outsourced pre-employment background screening and checking.

Very large IT services and business-process-outsourcing companies have become more rigorous in their background-checking procedures. Tata Consultancy Services Ltd., a large Indian IT-services company, is one of them. To mitigate rising concerns, TCS recently began insisting that every new associate supply a passport when applying for a job.

“So to increase customer confidence in our verification process, we insist that they produce a passport, which involves precertification by the local police and a criminal records check,” says R.K. Raghavan, TCS’s consulting adviser for security. The new procedures are especially important in India, which lacks a national identification card or a driver’s license, Raghavan says.

In many cases, simple reference checks aren’t enough. Hiring offshore workers in today’s world means researching their backgrounds as thoroughly as possible, and that takes an understanding of the laws, customs, and language of the country, as well as knowledge of how to obtain verification and validation of certifications and information.

Because of these difficulties, many business-process outsourcers and other types of companies hire a company that specializes in background checks. They have the knowledge and expertise in various countries and tend to know human-resources departments, large employers, and their processes. The sophisticated methods they employ make background checks a reasonable hedge against problems of all sorts.

In general, a reputable background-checking company will do everything Greenblatt mentions. Depending on the country, other types of background checking may include criminal conviction information, civil claims and suits, credit history, work history, educational background, and driving records.

In many cases, the type of work the employee will be doing will dictate how thorough the background check should be. Management consultant Hill & Associates, for example, offers three levels of service. Tier 1 might be administrative or support staff who won’t have access to sensitive information. These employees are screened at the most basic level, which generally consists of criminal record, education, and previous employment. For middle managers, the company might add bankruptcy and conflicts of interest. For senior managers and executives, the company also might want information on past business conflicts, credit checks, and other information.
“For Tier 3 employees, we’ll do a little industry intelligence by talking to people within that person’s industry and circles to find out if there are any skeletons in the closet,” says Charles Champagne, director of marketing and strategic development at Hill & Associates.

Depending on the difficulty of obtaining information in a particular country and the degree of thoroughness an employer requests, background checks can cost between $30 and $1,000 per employee. That compares with $100 or less for similar background check in the United States, largely because of the difficulty in obtaining information in many countries.

“Information is much more difficult to obtain offshore,” Champagne says. “You can’t just tap into databases for every kind of check; you have to have somebody go to the courthouse or university or police station.”

The amount of time a background check takes grows exponentially when done outside the United States. While a background check within the United States takes three to five business days, it’s not uncommon for one in other countries to take about 10 days. In addition to the difficulty of obtaining information, the time lag also may be attributed to the location of records, different holiday schedules, and weather closures.

The lack of a standard identifier like the U.S. Social Security number also complicates matters overseas. India has a PAN number–basically a tax identification number–but only issues such a number to workers, making them useless for checking recent graduates or people with spotty work records. China has an identifier of sorts, “but it doesn’t get you much,” Champagne says. Hong Kong has ID card numbers, but they’re held in strict confidence. And some countries dictate to an employer how long they can store an employee’s background check, how it is transferred to the United States, and how it’s used.

And because background checking is more of an art than a science, no company can guarantee that results will be 100% accurate. The reputable ones have instituted extensive quality-insurance programs to provide the most thorough and accurate information possible.

“We can’t guarantee that there isn’t a skeleton in the closet, but we document very clearly where we found the information and the source,” Champagne says. “We’ve mitigated the risk, not eliminated it.”

The laws governing privacy and information access vary from country to country. India makes it relatively easy to obtain information, while Japan has strict privacy regulations. Hong Kong has a fairly strict information-protection act, and European countries adhere to Safe Harbor regulations, which prohibit the transfer of personal data to non-European Union nations that don’t meet the European standard for privacy protection.

Employment law also varies among countries and can impact background checks. China has strict laws pertaining to background checks, hiring, firing, and competition, while in Europe, almost everyone is unionized, making firing very difficult without cause. Because of this, “you had better not make a mistake,” Greenblatt says. And some countries have work councils that decide the level of background checking that can be performed, how that information is viewed, and what weight can be applied to it in making a hiring decision.

Because of the significant legal differences among countries, whoever is performing the background checks for a specific country should have expertise in that country’s laws, Greenblatt says. “It’s very important for any multinational to know exactly what to do from a legal perspective,” he says. “The last thing you want to do is violate local ordinances, which can result in a line manager or executive being arrested.”