Cisco Executives in Brazil Jailed: Cause Could be Brazil Corruption not Cisco Wrongdoing

Rob Enderle

Cisco was just caught in a tax sting and a large number of executives, with little or no warning, were tossed in jail.


( Bloomberg reports the federal police Web site alleges the U.S. company and its Brazilian partners used offshore companies to evade import duties on networking hardware, evading roughly $824 million in taxes over five years.)


This may not be because Cisco did anything wrong but because the company didn't give in to extortion, and we need to wait until all the facts are in. This serves as a reminder that having relatively uncorrupt law enforcement is one of the benefits of living in the United States that we probably take way too much for granted.


South America is known for having a heavy bribery and corruption problem, and even there Brazil stands out. I was an internal auditor for IBM when we had a problem there where an executive -- and IBM had hard rules against this -- was caught in a bribery scandal. It was clear at the time the executive was put in an unwinnable position and made a bad decision largely because he wasn't given a good choice.


As a result, when I see something like the Cisco problem, I want to understand both sides of the story before I form an opinion. In areas where there is lots of corruption, not going to jail may have more to do with whom you bribe than anything you did or didn't do. So we need to take a breath and hold for the facts.


U.S. Companies At Disadvantage


The problem is, U.S. companies are between a rock and a hard place in countries where bribery is common. If they don't bribe, they get nailed to the wall by the local government, and if they do bribe, they get nailed to the wall by our government, making doing business in these countries incredibly risky.


For Cisco, even telling the whole story could be difficult because, in doing business in South America, it may have done some things unacceptable to U.S. law enforcement, making it incredibly hard to defend itself now.


Personally, I think it is probably better not to do business in countries that have this problem, or to work through independent third parties and not establish a presence there, rather than take this risk. In the end, this may be a cautionary tale for any company doing business in South America: The risks may exceed the benefits.


So to understand this, watch what happens next. If Cisco pays a large sum of money, then exits this market without criminal charges, chances are this was a failed attempt at extortion with a rather solid "or else." If people go to jail and the U.S. Justice Department takes action, then Cisco has a more serious problem.


Wrapping Up


In the end though, I still believe we need a better way to deal with foreign corruption. Either we accept it as a price of doing business, which it is, or we don't allow U.S. companies to enter these regions without much more U.S. protection.


Upsetting a U.S. multi-national during an election year could be a mistake for Brazil as well and give the Republicans a way to divert at least some attention from Iraq and Iran and onto something else, such as Cisco's defense. Cisco is one of the most powerful companies in what is still a Super Power and if this doesn't piss off the Cisco CEO, I'm not sure what will.


This isn't to say Cisco didn't do something wrong, but it is are entitled to the benefit of the doubt. And given it is Brazil, I have a lot of doubt.


Cisco has a reputation for being an honest company and this one event, given where it is, shouldn't tarnish that before the facts are in. Let's watch this one closely but not jump to conclusions before it is clear, if it ever is clear, who is truly in the wrong here.

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Add Comment      Leave a comment on this blog post
Oct 18, 2007 9:10 AM Francesco Cardi Francesco Cardi  says:
Dear Rob,Your post on Cisco Brazil is a incredible sum of commonplaces and prejudices on Brazil. There is no one single evidence or fact in your post, neither in favor nor against. You definitely seems someone whos light years from current reality here in Sao Paulo.You dont even bore you to make reference to sources. Here in Brazil, differently from China, there is a free press and a strong debate going on on this case. Please have a read to trustable sources before writing something. I dont have the time to refer you to trustable sources in English or Portugues, but I will do it this night.Francesco Cardi Reply
Oct 18, 2007 11:33 AM Wikings Wikings  says:
Dear Rob,how about Enron or WorldCom? American firms, in American territory? What the Brazilian executives did, was just the same. They tried to impress the shareholders and raise value by not paying taxes; in summary: they tried to keep competitive, behaving as utilitarists. No corruption with governmental involvement took place and also no blackmail! Regard,Wikings Machado Reply
Oct 19, 2007 3:32 PM Pedro Soto Pedro Soto  says:
The Real Truth?Mr Rob EnderleIn "Cisco Executives in Brazil Jailed: Cause Could be Brazil Corruption not Cisco Wrongdoing" you mentioned that you have a similar experience as IBM's auditor. Could you please give details about it?In this prove are involved The Brazilian Federal Police, The Brazilian General Attorney and The Brazilian Internal Revenue Service. They raided Cisco's offices with a Judicial Order. Are you insinuating that all of them and of course the Brazilian Government are extorting or retaliating Cisco?The police found US$ 250.000,00 and R$ 240.000,00(more than US$ 120.000,00) in cash. What all this huge amount was doing there?Do you remenber ENRON? And the Independent Auditors? And Tayco?I believe that U.S. Justice Department must take action.RegardsPedro Soto Reply
Oct 24, 2007 12:32 PM juliet juliet  says:
Dearest One, My name is juliet mbaye ,i saw your profile today and became intrested in you,i will also like to know you the more,and i want you to send an email to my email address so i can give you my picture for you to know whom i am.Here is my email address (juliet_4life7@hotmail.com ) i believe we can move from here.I am waiting for your mail to my email address above.Miss juliet Remeber the distance or colour does not matter but love matters alot in life.Yours Love Miss juliet Reply
Oct 25, 2007 9:03 AM adriano Cardoso adriano Cardoso  says:
Dear Rob,You seem to have an ordinary american way of life. You really don't know anything beyond you block. You're talking about what you saw in a newspaper or Internet. Please, wake up to the world beyond US. Reply
Oct 25, 2007 10:13 AM Ciro Ciro  says:
Unfortunately, a lot of north americans are instructed to think like Rob, where US are the good guys and have no problems neither corruptions... and the rest of the world needs to be fixed because they are corrupt and don't follow the north american standards. They are closed in their world...... But, it is easier to point the other's problems than think through, look at the mirror and check what are the problems with the country I live, isn't it?This is sad. Reply
Oct 25, 2007 3:07 PM Arthur Arthur  says:
Fantastic article. I can imagine your thoughts: "Sometime I will visit Brazil ... like Buenos Aires for example". Reply
Oct 26, 2007 2:03 PM Fabio Fabio  says:
Yes, unfortunately Rob is right.Brazil has a very serious problem with bribing and I have to recognize it.I work on a big multinational company and we are paining to gain market share and fight against SMALL companies that use bribe as a competition advantage. That is leading our companys headquarter in Brazil to be more creative (by the way thats why we are creative people and doing good around the world) and strive to be even more lucrative via LEGAL attitudes.So, yes, Rob, big and serious companies with a social responsibility are put down by such corruptive companies that prefer to do business and win money via bribing than being creative and work hard.By the way, Rob, have you ever traveled abroad? Do you know any culture outside the perfect and only correct United States of America?Best regards, Reply
Nov 18, 2007 9:57 AM Marcelo Marcelo  says:
UNBELIAVABLE. Your comments do reflect the american mindset that 'we are the best' othe countries have other standards and we do not need to follwo them.Look at Enron and Worldcom. I rest my case.In several countries around the world there are cases of bribery. There will alwasy be. The difference is how companies act, and what are their true values. It's always easy to close the eyes and put the blame in someone else. But most of the time CEO wants to see results and they do not care how this is done. Now, what would happen if a Brazilina, Chinese or Indian company have bribed an official in the US...? Reply

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