WASHINGTON - April 15 - An estimated 200,000 of the U.S. federal and state tax returns filed today have been prepared by offshore workers contracted by U.S. accounting and tax firms to which U.S. consumers have entrusted their most sensitive personal banking, medical, pension and other information protected by privacy laws. Yet this information will have been transmitted overseas to locales where U.S. consumer privacy protections do not apply. This yawning regulatory gap is among those addressed by a report released today by Public Citizen, the national consumer organization.
"Much of the private service sector offshoring of accounting, medical diagnostic and banking jobs is profitable and indeed possible only because of the huge gaps in regulation regarding basic privacy protections, professional qualifications and national security safeguards," said Lori Wallach, director of Public Citizens Global Trade Watch.
The new Public Citizen report, Addressing the Regulatory Vacuum: Policy Considerations Regarding Public and Private Sector Service Job Offshoring proposes an array of policies that Congress and state legislatures can adopt to ensure that identity theft, financial fraud, irreversible exposure of sensitive personal medical and financial information, and domestic infrastructure sabotage threats do not increase with the move to shift professional and other service sector work overseas to lower-wage countries.
Many of the service sectors in which offshoring is most prevalent are strictly regulated in the United States on the federal or state levels. Public Citizens report aims to focus the growing public anxiety and policymaker concern about the shift of professional service sector work abroad on policies needed to ensure basic consumer privacy and quality of service guarantees and to ensure that the security of sensitive domestic infrastructure assets, such as the electricity grids and water systems, is not compromised.
To date, Congress and 30 states are considering new policies regarding offshoring, with most focused on stopping service work paid for with state and federal tax dollars from being moved to workers overseas. The report also reviews the state of government sector offshoring and presents policy options to address it. The federal government and states maintain the ability to set such policies consistent with trade obligations except regarding companies domiciled in a list of 28 countries to which the United States has agreed in several trade agreements to constrain procurement policies. The report also exposes a push by the Bush administration to obtain approval by state governors to extend these prohibitions to 38 additional countries.
The offshoring of jobs by the private sector and the offshoring of jobs via government contracts are related phenomena but require different policy initiatives. Public Citizen recommends Congress and state legislatures consider the following options to address private sector offshoring:
PRIVACY: Forbid sending financial, medical and other sensitive personal information covered by domestic privacy protections to offshore entities operating in countries that do not provide similar privacy protections. This is the model that was adopted and currently is operating in the European Union.
PRIVACY/CONSUMER RIGHT TO KNOW: Establish consumer right-to-know guarantees by requiring semi-annual public reporting by private sector companies that offshore work that involves access to information protected by U.S. privacy safeguards. Companies would be obligated to track and report all sub-contracting that occurs.
PRIVACY: Create incentives in the law for U.S.-based companies to take measures to guarantee that U.S. privacy protections are not violated regardless of where work is performed. Establish government fines for U.S.-based companies if basic consumer safeguards, including privacy laws, are violated by offshore entities to which a U.S.-based company has transferred work and/or by establishing legal recourse through a private cause of action for individual consumers or classes of consumers for damages set by statute for each such violation.
PROFESSIONAL QUALIFICATIONS/CONSUMER RIGHT TO KNOW: Require disclosure to consumers by private sector entities offshoring professional service work that is subject to domestic licensing and regulation so consumers can make informed choices. As well, create powerful incentives for U.S.-based companies to ensure that offshore professional workers meet all U.S. licensing, liability and quality standards by establishing substantial government fines for U.S.-based professional service entities that offshore such work to entities that do not meet these requirements. These fines could be backed up by a cause of action that would allow individual consumers and classes of consumers doing business with U.S.-based providers whose offshore contractors do not possess the required qualifications to sue for damages set by statute for each such violation.
PROFESSIONAL QUALIFICATIONS/ CONSUMER RIGHT TO KNOW: Require advance consumer consent for professional service work to be done by offshore workers.
SECURITY: Establish new national security and infrastructure protections that include banning offshoring of certain categories of private service sector work that could create vulnerabilities in electricity grids, water systems, power plants, and airliner repair and servicing.
Public Citizen also proposes policy remedies to address the offshoring of government work, including:
TAXPAYER RIGHT TO KNOW: Amend procurement statutes to require annual public reporting of any subcontracting on government contracts and the location where subcontractors employees are performing the work.
SECURITY: Add provisions to federal and state procurement policies that require service sector work that affects sensitive public infrastructure, to be performed only by workers operating in the United States.
PRIVACY: Forbid the offshoring of federal and state work that involves sensitive personal information subject to U.S. privacy protections, including personal financial and medical information.
RECYCLING TAX DOLLARS TO CREATE U.S. JOBS: Require that services being outsourced by governments be provided by a worker operating in the United States by changing the technical specifications of procurement statutes.
RECYCLING TAX DOLLARS TO CREATE U.S. JOBS: Require that to qualify to bid on a government contract, a company must certify that it has the ability to and will perform the government contract only with U.S.-domiciled employees with penalties for non-compliance.
RECYCLING TAX DOLLARS TO CREATE U.S. JOBS: To create a broader incentive for companies to hire U.S. workers, forbid companies that offshore work to be eligible for federal contracts.
"It is a legitimate expectation of citizens of any country that their tax payments be used in their interest," said Public Citizen President Joan Claybrook. "This includes governments use of tax revenues to provide the security, infrastructure and basic services upon which residents rely. But it also includes ensuring that when governments operate directly in the market as consumers, that they do so in a manner that promotes the public interest."
While the full range of proposed tax incentives to encourage U.S. businesses to keep and hire additional workers here instead of overseas are beyond the scope of this report, Public Citizen encourages legislators to fully investigate the changes needed to U.S. tax policy to eliminate incentives to relocate jobs overseas.
To read Public Citizens report, click here.