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Management Strategies

08:27 AM
Paul McDougall,  InformationWeek
Paul McDougall, InformationWeek
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Prove It’s Secure

Legislators want CIOs and service providers to show that customer data sent overseas is as safe as it is at home

Offshore-outsourcing opponents have, for the most part, focused their criticism on the number of U.S. jobs lost to overseas workers. Now some people are urging limits on the practice because they claim it threatens consumer privacy.

California state Sen. Liz Figueroa last week said she would propose legislation prohibiting the movement of Californians' medical and financial data overseas unless she receives assurances that strong privacy safeguards are in place. Concerns range from overseas call-center workers being able to view or manipulate personal records stored in U.S. data centers to having databases of information on U.S. citizens physically located in a foreign country and operated by a third party. "Outside the U.S., medical privacy doesn't really mean anything," Figueroa contends.

Figueroa, who chairs California's Senate Select Committee on International Trade Policy and State Legislation, says she's concerned that a growing number of U.S. medical and financial-services firms are shifting information-processing work to lower-wage countries that lack tough privacy laws, leaving consumers vulnerable to identity theft and other crimes. Figueroa, who authored California's medical-records privacy law, considered by many to be the strongest in the nation, also is sponsoring bills to require California employers to notify the state and employees if they plan to move 20 or more jobs overseas and to prohibit state contracts from being fulfilled offshore.

Figueroa's plan, and similar ones in other states, are evidence that politicians are looking closely at the growing practice of sending work offshore. Her proposal, if enacted, would be among the first to significantly affect businesses' offshore IT practices. Most other efforts to restrict offshore outsourcing seek to block federal or state contracts from going overseas. Offshore business-process-outsourcing services -- which, unlike application development, typically require the transfer of personal data -- grew 38 percent last year to just under $2 billion, according to Gartner. The research firm says most of that work was performed in India.

At the federal level, Sen. Dianne Feinstein, D-Calif., asked the U.S. Comptroller of the Currency earlier this month to investigate whether banks that process customers' financial data offshore have safeguards to protect that data from unauthorized use. In Arizona, proposed legislation would bar companies from shipping financial data outside the country without written permission from consumers. A proposal in South Carolina would prevent companies from giving "financial, credit, or identifying information" to a call-center representative abroad without the individual's written permission.

The legislative efforts worry private-sector executives who are counting on offshore operations to lower their costs. "The right balance is to let the consumer decide," says Chris Larsen, CEO of E-Loan Inc. The online lender is testing a program that lets customers choose to have their mortgage applications processed here or by a service provider in India, which cuts two days off the processing time. Since the test launched on March 1, 85% of customers who've applied have chosen the offshore option. "People understand what they're doing and the consequences in terms of jobs," Larsen says.

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