Offshoring: Is the dream over?

Tas says the alleged fraud is not a sign of security problems specific to shipping call centre work overseas. "We believe this is something that can happen anywhere," he says.

But losing control of sensitive data abroad is particularly worrisome, argues Peter Gregory, chief security strategist at consulting firm VantagePoint Security.

"Outsourcing America's corporate business processes to overseas countries not only makes accountability difficult to enforce, but it puts our national sovereignty at risk," Gregory says in a statement. "In this, the Information Age, a country like India could disconnect itself from the Internet and hold America hostage — a provocative action that would be tantamount to an act of war."

In its report earlier this month, Gartner offered a much less grave assessment. The idea that offshore business process outsourcing presents special risks is a "largely incorrect perception," the firm says.

But Gartner and others seem concerned the perception alone could torpedo the industry. In a statement earlier this month, Mphasis appeared to acknowledge the fraud could have a potentially large impact on India's BPO industry.

"We have instituted our own internal inquiry and taken necessary short-term and long-term measures in consultation with Nasscom and the bank concerned, to protect our clients and their customers, and safeguard the security and integrity of the BPO business in India," an Mphasis representative says in the statement.

Some see a silver lining for offshoring in the fraud case. Tas says the response by police in India shows that the system of laws and law enforcement in India "works well, and it works swiftly".

"India is fast becoming the outsourcing capital of the world, and this kind of incident, while unfortunate in itself, when successfully dealt with, highlights and reaffirms the existence of an effective framework of laws and a commitment to enforcing them in India," Nasscom President Kiran Karnik says in a statement.

Nasscom has set up an Indo-US security forum to make its members aware of security and privacy issues when they handle sensitive information from foreign companies. Nasscom also recently launched a security initiative in Pune with local IT companies and police.

That may not be enough to satisfy the public, however. Earlier this month, Senator Dianne Feinstein, a California Democrat, introduced legislation to ensure that Americans are notified when their most sensitive personal information is part of a data breach that puts them at risk of identity theft.

Politicians in India as well would be wise to act, McCarthy argues. "To bolster its offshore credibility, India will also have to tighten its data protection and privacy laws," he wrote in his report.

He also suggests that companies sending tasks offshore take an active role in managing their remote work, even going so far as to mandate pencil-free offices: "Customers are going to have to implement their own aggressive requirements, such as eliminating writing instruments in their offshore centres."