Welcome to the Surreal: Cisco Execs Arrested in Brazil for Tax Evasion

About 650 agents executed 93 search warrants, arresting 40 people allegedly involved in the ring to avoid import, sales and corporate taxes.” And the winner of this statement is allegedly Cisco Systems.

The whole story reminds me more of the drug tales from the eighties than an IT scam. The police seized “$10 million in merchandise, a commercial jet, 18 vehicles and the equivalent of nearly $400,000 in Brazilian and U.S. currency during the raids.” I suppose if anyone wondered how much the information economy matters this story is an odd but telling example. The Brazilian government conducted a two year investigation in which they tracked sales shipments from tax haven countries. In all, about $833 million in tax revenue was lost because of the scheme. Cisco’s U.S. office is cooperating with the investigation. Still, the size of the scam is impressive. Most likely Cisco will remain silent, then conduct some sort of internal investigation, and finally issue new best practices to show its dedication to fighting corruption within the company.

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3 Responses

  1. Bertil says:

    What?! You mean that when the American constitution tries to give away authority from the government to the private sectors, it does not immediately resolves all the wrong-doings?

    I mean: last time I checked a construction site, a farm or a dodgy Import/Export shop in the USA, they were all looking so genuinely likely to pay their tax, I almost asked them to help me with mine.

    I mean Brazil, and IT industry there, it is all a dangerous place: remember those WorldCom & Enron scandals that happened there? Oh, wait. . .

  2. John says:

    Here is the latest from Cisco on the situation in Brazil: http://newsroom.cisco.com/dlls/2007/corp_101607b.html

  3. Deven says:

    Bertil,

    I think there is some confusion here. I am not surprised that bad actors exist and that the systems in place may foster large scale problems. I’m impressed with the more straight forward aspect of this alleged scheme. That is why I mentioned the drug raid era. Enron and WorldCom had a corruption that was large yet in-house. Here it remains to be seen what Cisco’s direct role is. John’s press link indicates that Cisco is trying to distance the “Tier 1” sellers in Brazil from Cisco by saying they are not part of its “direct sales operation.” That move tracks my prediction above. The next stage will be to see what monitoring systems Cisco if any had and has in place for Tier 1 sellers. Cisco may want to open up and share its policies regarding its resellers with the public. My guess is that in-house counsel will resist that idea. Still, if it will come out as part of cooperating with the investigation, Cisco may have a moment here to build trust. Although one wonders whether the market really cares about these events (Cisco is trading near its 52-week high and indeed, some may like the idea of a sales structure that allows others to be shall one say aggressive but not connected to the company such that liability reaches it), sharing exactly what the Tier 1 system is and how it functions may help Cisco with other law enforcement issues and those who do care about such behaviors.

    In any event what seemed interesting to me is that IT is apparently as lucrative as other goods for smuggling. Given its high cost of course one might smuggle it. But the facts sound like more like a tale of gold, drugs, or other contraband rather than the image of some tech guys saying “Hey buddy. I can score you a deal for a steady flow of IT.” “Really?” “Yeah, hundreds of millions over the next five years. We can jets, cars, women, you name it.” “Cool.”