Cisco Case: “Media Gives Evil Multinational Kid Gloves Treatment!”

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The Port of Ilhéus in (unbelievably beautiful) Bahia. Importers allegedly siphoned off product destined for the tax-break tech zone there and sold them direct to the consumer. This, by the way, is also how components destined for industrial or retail markets wind up in electronic gambling machines, one reads.

Writing in the Observatório da Imprensa, Alberto Dines opines that the Cisco story has been toned down to a “suspicious” degree by the Brazilian press.

It’s a story no one down here seems to think was covered properly, or given the correct priority.

A lot of commentators on Luis Nassif’s Web log, for examle, think that the discussion role of the U.S. parent has been dumbed down unpardonably in the interests of “the folklore of the evil multinational,”while on the other hand you have a parade of anonymous-coward tech sector executives being trotted out to opine that the case “could be worse than Enron.”

“Of course Cisco knew! How could they not?” Because they just make the stuff, load it on trucks, and ship it off to a distribution network they decided it would be more efficient to maintain few controls over? The old “small pieces, loosely joined” “agile value chain” concept that the Harvard Busines School used to be so keen on?

Os jornalões de ontem não estavam a fim de destacar a Operação Persona, da Policia Federal, que desbaratou o esquema de fraudes fiscais da multinacional Cisco, um dos maiores fabricantes mundiais de equipamentos para a Internet.

The big metro dailies were not eager to give a lot of play to Operation Persona, which uncovered a fraud scheme of the multinational Cisco, one of the biggest manufacturers of Internet equipment in the world.

Ao contrário do que acontece quando os denunciados são empreiteiras, autoridades e políticos brasileiros, a mídia impressa foi extremamente cuidadosa nesta nova incursão da PF.

Unlike what happens when the accused are Brazilian public contractors, officials or politicians, the press was extremely cautious over this new raid by the PF.

I think if I were covering the story for a local paper, my coverage would have probably focused in on the federal tax auditors accused of aiding and abetting the scheme in return for the proverbial valuable consideration. After all, these are the people whose salaries your readers are paying.

Follow-up: Just how corruptible are Revenue and Customs? What problems does this cause? And what is being done about it?

A Folha sequer mencionou o assunto na primeira página, nem na capa do seu caderno de negócios. O Estadão, ao invés de esconder as fraudes da Cisco, deu um destaque na sua primeira página, pasmem, em benefício da multinacional: “Caso da Cisco é comum no Brasil”. Alega a fonte americana ouvida pelo Estadão que a culpa é dos altos impostos e da burocracia brasileira.

The Folha did not even give the story front-page coverage, or the cover of its business section. The Estado, rather than covering up Cisco’s fraud, gave prominent play on its front page, just look, to an apology for the multinational: “Cisco case is common in Brazil.” The Estadão‘s American source says the blame goes to high taxes and Brazilian bureaucracy.

See

I just do not see that the Estadão‘s reporting what Smith said constitutes an attempt to “benefit” Cisco. In response, Cisco spokespersons waved their hands furiously and screamed, “This guy does no speak for us!”

Given the proximity of a new Doha round, words of worldly wisdom that sort from persons of that sort are unquestionably newsworthy. The Estado is a paper with a bent toward national coverage, and a national news agency to go with it. If they used the quote to make us gringos look bad — and I have not read any coverage defending the guy — well, what can you do as a gringo in the tropics but cringe and think, “God, we must have smarter people than that to represent our trade interests.”

And I actually thought the Estado‘s coverage of the charges and the fallout, in a multi-article spread on page B6 (the business section) today, was far more thorough and down to earth than the norm.

Apenas O Globo noticiou o fato na sua primeira página e sem qualquer atenuante deu nome aos bois, mencionou os empresários indiciados e presos.

Only O Globo reported the case on its front page and named names, mentioning the businessmen arrested and indicted.

The Estadão did a much better job, though.

Também os portais de notícias adotaram uma suspeitíssima prudência com relação ao escândalo produzido pelo maior fabricante de equipamentos pesados para a web.

The news portal also adopted a suspicious prudence in relation to the scandal produced by the world’s largest manufacture of industrial-strength networking equipment.

Este súbito cuidado na cobertura das operações da Polícia Federal deveria ter acontecido antes, na Operação Navalha, quando a mídia em peso apresentou o ex-ministro Silas Rondeau como beneficiário de uma propina de R$ 100 mil oferecida pela empreiteira Gautama que, aparentemente, não se confirmou.

This sudden discretion in coverage of federal police operations should have manifested itself earlier, during Operation Straight-Razor, when the media ganged up on Minister of Mining and Energy Rondeau and accused him of taking a $100,000 bribe from Gautama — a charge that was apparently never confirmed.

A precaução e o senso de responsabilidade são bem-vindos, mas a reviravolta foi rápida demais para parecer espontânea.

It’s precautions and sense of responsibility are welcome, but the about-face seems too sudden to be spontaneous.

I cannot quite figure out whether Professor Dines is for more bloodthirsty lynch-mob coverage of this story or against it.

I often find myself unsure of what exactly Dines is insinuating these days. Why doesn’t he just come right out and say what he means?

Is he suggesting that corporate interests dictated the coverage? “Covering up” for Cisco the way the “politicized Gestapo” of the federal police did for Lula, in the (gabbling) worldview of Veja and Abril? (Did O Globo sock it to Cisco because of its parent corporation’s business relationships with Microsoft, for example?)

But there certainly was plenty of gabbling sensationalism to be found in the IT trade press, both pro and con:

There is nothing bizarre about this investigation. Someone was allegedly paying off tax inspectors to look the other way on illegal dealings. And that is just plain not very business-friendly — or any way to keep the potholes filled.

Nor is it another Enron, as far as I can see, in terms of damage to the NYSE:CSCO bottom line and share price. Revenues from Brazil, it reports, are 1% of its total business, for one thing.

I really think there are three angles to this story: the domestic public-interest angle, the diplomatic and foreign policy angle, and the pure business angle.

From the public-interest angle, maybe the most significant fact is that you had federal auditors allegedly taking bribes from Brazilian business executives.

That same old same old promiscuous relationship between the state bureaucracy, political elites and the private sector — which, to be fair, is being vigorously attacked by these Tupi feds, and not just as a show of efficiency, either. That is the angle I thought deserved more emphasis in preliminary coverage.

From the business angle, you do seem to have an fairly dramatic case of the government drawing some lines in the sand when it comes to the use of creative accounting. And drawing them pretty carefully, I thought. But I still think the deeper implication is that there is a push to clean corruption out of the import-export game.

Which actually ought to be good news in general, in the long run, if it actually gets done. For everybody. Foreign investors should be impressed by that, for example. No more skeevy business in the Customs house that you would just rather not know about, but that gets done anyway and winds up splashing mud back on you.

Note that the feds did further internal housecleaning of alleged corruption among their own agents just today:

Which is why I think that the main message the feds are sending is mainly tailored for domestic consumption. The tax man is not in mood for quebrando um galho or “innovations in postmodern beancounting.” If you want to reduce the tax burden and simplify the tax code, you first have to perp-walk some big-time cheaters to set an example for the rest.

To the extent that this is a global business story, meanwhile, maybe it is as a lesson to foreign multinationals about some of the risks and tradeoffs of outsourcing your sales operations to people on the other side of the globe — letting them wave your brand around without knowing exactly what they get up to, just as long as they produce results.

Still, I think the Estadão made a coherent decision in affording highest priority to the diplomatic angle, what with new trade talks impending.

This Smith fellow decided to make a big gabbling stink, even after the Brazilians seemed to handle the issue pretty tactfully. They seemed to carefully avoid the “folklore of the evil corporation,” for example.

The man seemed to imply that the law was being applied selectively in this case, for one thing.

But I would bet you that the entire sector gets the same scrutiny and the same treatment from here on out. The Folha reports, for example, that goverment officials gave statements to that effect today: Expect to answer questions soon about your distribution and import practices. Thank you in advance for your full and candid cooperation.

These people are not out to monger scandals or bust specific corporations, is my impression. They are out to close down the dirty-money pipelines so the economy — and democracy — can function properly. And they are not a bunch of banana-republic clowns either. No matter what Larry Rohter says.

Their crackdown on piracy, for example — which a lot of foreign investors have clamored for — shows signs of not being just a show of efficiency — “rounding up the usual suspects” — for example. More on that later.

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