Brazil, After Cisco: “E-Commerce Targeted by Taxman”

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The
camelódromo on the Calçadão de Mascates, Recife, Pernambuco, Brazil. Can street vendors survive selling only legitimate goods? Can enough real jobs and small-business opportunities be created to absorb a shrinking of the mobbed-up Sino-Paraguayan gizmo and infotainment sector? These are burning questions of the hour. I confess that I tend to hope so.

“We are not going to become a Grand Caymans on the banks of the Hudson” — Manhattan D.A. Morgenthau on the indictment of Paulo Salim Maluf. See Rohter on Maluf: The Blind Eye Misreading the Blind Eye

Don’t ask me what I want it for (ah-ah, Mister Wilson)
If you don’t want to pay some more (ah-ah, Mister Heath)
‘Cause I’m the taxman,
Yeah, I’m the taxman.

–The Beatles, “Taxman”

In the worst news for [extreme-right] tax protesters, the Bush administration announced in early 2003 that its proposed IRS budget would include significant increases in several different areas of tax law enforcement, including the prosecution of “tax denial” schemes and the misuse of trusts and offshore accounts. While, adjusting for inflation, the IRS budget would still be lower than it was five years ago, it would nevertheless give the IRS an additional ability to investigate and prosecute tax protesters who committed illegal acts. … In April 2003, a north Idaho businessman, David Roland Hinkson, was arrested for trying to hire an assassin to kill a federal judge, a prosecutor, and an IRS agent. Hinkson had been facing federal charges related to an alleged $938,000 in unpaid federal income taxes.

Comércio via web é novo alvo da Receita: The Folha de S. Paulo (Brazil) conveys a fair warning today from the Tupi federal taxman.

Among the operations more or less coinciding with the case of Cisco resellers accused of using shell corporations, set up by the Panamanian lawfirm that (unwittingly, it says) that set up offshore trusts, to break Brazilian tax and foreign trade laws was, in fact, a crackdown on e-commerce schemes like one that I actually used to use back in New York.

Until they outlawed it, that is. Which I  grudgingly agree that they (freaking Mayor Bloomberg and his famous “Bloomberg bucket”) had to do.

I would order my cigarettes — these freaking things are going to kill me someday if I cannot find a way to get the monkey off my back — from a semi-sovereign Indian reservation, over the Internet. The transnational Mohawks, I believe it was. They would ship them to me by FedEx.

As a result, I would pay $1 per pack rather than the $6.50 you now pay in New York City.

Similar scheme here. Federal agents are reportedly busy seizing goods — mostly electronic gizmos — of Sino-Paraguayan provenience that are being shipped to e-commerce customers on domestic flights.

As operações para combater a importação ilegal serão cada vez mais freqüentes no país, segundo Edmundo Rondinelli Spolzino, superintendente da Receita Federal em São Paulo. Investigações como a que resultou na Operação Persona, que envolve a americana Cisco Systems, estão em andamento.

Operations to combat illegal importation are more and more frequent here in Brazil, according to Mr. Spolzino, superintendent of the federal tax authority in São Paulo. Other investigations like the one that led to the arrests in Operation Persona, which involves the U.S. firm Cisco Systems, are in progress.

Nesta semana, o comércio pela internet de importados de forma irregular deve ser alvo de nova ação da Receita e da Polícia Federal.

This week, e-commerce in irregularly imported goods is due to be targeted by a new action by the tax authority and the federal police.

“Essas ações serão cada vez mais comuns, pois estamos expandindo nossa capacidade para acabar com esquemas de importação fraudulenta. Estamos atuando em várias linhas de ação, com o pessoal da inteligência, da fiscalização, dos locais de despacho das mercadorias e cruzando informações com a polícia e com a Fazenda. Temos cada vez mais instrumentos e informações para obter dados dos contribuintes.”

“These actions will be more and more common, because we are expanding our capacity to put an end to fraudulent importations. We are acting on various fronts, together with our intelligence people, our inspection people, our people at the distribution centers, and sharing information with the police and the Treasury. We have more and more tools and information for getting information from taxpayers.”

Spolzino diz que várias investigações sobre fraudes na importação do tipo e do tamanho da que supostamente envolveu a Cisco Systems estão hoje em andamento na Receita Federal. Na última terça, a Receita, a polícia e o Ministério Público Federal deflagraram a Operação Persona, que teria causado prejuízo de R$ 1,5 bilhão ao fisco, com suposta participação da empresa norte-americana.

Spolzino says a number of import-fraud investigations of the same dimensions and type as that involving Cisco are underway at the tax authority. …

“Mais cedo ou mais tarde, as fraudes serão desvendadas. As pessoas precisam ter consciência de que sonegação não é opção de mercado. É crime previsto na legislação. Se o empresário está descontente com a carga tributária, tem que se organizar em grupos para discutir o assunto com quem tem que ser discutido. Ilegalidade e sonegação não são atitudes aceitáveis, não há nada que justifique essas práticas criminosas.”

“Sooner or later, fraud will be discovered. People need to be aware that tax evasion is not a viable business strategy. It is a crime under Brazilian law. If business owners are unhappy with the tax burden, they need to organize to debate the matter with the proper authorities. Illegality and evasion are not acceptable attitudes, and there is no justification for these criminal practices.

A Receita está mais preparada para combater atos ilícitos, segundo Spolzino, para punir fraudes de pequenos, médios e grandes empresários. “Além de mais informações e computadores, temos mais funcionários atuando na fiscalização.”

The tax authority is more prepared than ever to combat illicit acts, Spolzino says, and to punish small, midsize and large business executives who commit fraud. “Besides more intelligence and computers, we have more agents assigned to oversight.”

Spolzino diz não ter se surpreendido com o caso da Cisco. “Para quem trabalha na fiscalização, nada é surpreendente. Já tínhamos visto o mesmo desenho de fraude na importação na Operação Dilúvio [realizada em agosto de 2006, após dois anos de investigações e que resultou em 118 prisões de pessoas envolvidas em importação ilegal de computadores para grandes empresas].”

Spolzino says the Cisco case did not surprise him. “For those of us who work in oversight, nothing is surprising. We have already seen the exact same import fraud scheme in “Operation Flood” [in August 2006, the result of two years of investigation, which resulted in 188 arrests of persons involved in illegal importation of computers for large corporations.]”

A fraude que teria sido praticada pela Cisco, segundo Spolzino, é clássica. “Há um ou mais fabricantes no exterior e um ou mais compradores no Brasil. Só que no meio deles há toda uma camada de laranjas, que servem para subfaturar e escapar dos tributos. Depois, esses laranjas somem. A sofisticação dessa fraude é o aumento no número de camadas de laranjas para esconder os reais beneficiados com a operação.”

The fraud allegedly practiced by Cisco, Spolzino says, is a classic. “There are one or more foreign manufacturers and one or more buyers in Brazil. In between them, however, is a layer of fronts, who underprice the goods to avoid paying duties. Afterwards, these fronts vanish. The sophistication of of this scheme consists in using more layers of fronts to hide the real beneficiaries of the scheme.”

Cisco is saying, basically, that it was hands-off with its “non-Tier One” reseller network and had no idea what these people were getting up to. Skeptics point to its Panamanian lawyers as the point where Silicon Valley may have met the camelódromo.

But it actually may not matter much, from a beancounting point of view: It may still have to pay for stuff done in its name, with or without its knowledge.

As investigações que resultaram na Operação Persona demoraram quase dois anos, segundo Spolzino, porque “havia muitas camadas de laranjas”. Sobre a participação da matriz da Cisco na fraude, ele diz:

The investigations that led to Persona lasted nearly two years, Spolzino says, “because there were many layers of front companies.” On the [possible] involvement of the Cisco corporate parent in the fraud, he says:

“As investigações não estão concluídas. Mas temos fortes indícios de que houve fraude nessa cadeia”.

“The investigations are ongoing. But we have strong indications that there was fraud in this supply chain.”

Very diplomatic, that. Somewhere along the “innovation value chain,” somebody waving the Cisco brand around was pissing on the public roses.

De janeiro a agosto deste ano, a Receita fiscalizou 1.527 empresas no Estado de São Paulo. Essa fiscalização resultou em autos de infração da ordem de R$ 26 bilhões –valor 176% maior do que o de igual período do ano passado, quando foram fiscalizadas 1.320 empresas.

Between January and August of this year, the tax authority has audited 1,527 firms in São Paulo state. These audits resulted in fines on the order of $26 billion — 176% more than in the same period last year, when 1,320 firms were audited.

The question that no one here asks: What about the bribes allegedly paid to tax auditors?

Assim que as investigações do caso que envolve a Cisco forem concluídas, a Receita e a polícia vão encaminhar os relatórios para fiscais e policiais nos Estados Unidos.

As soon as investigations in the case involving Cisco are wrapped up, the tax authority and the police are going to send their reports to U.S. regulators and law enforcement.

Ao ser questionado sobre os principais motivos que levam uma grande empresa –no caso da Cisco, uma multinacional de renome- a cometer crimes tributários, Spolzino diz que a opção por prática de fraude independe se a empresa é pequena ou grande.

Asked about why a well-known multinational might resort to tax crimes, Spolzino said that it does not matter whether the company is large or small when it comes to the choice to commit fraud.

“Pessoas e empresas têm ou não comportamento criminoso, e cabe a nós puni-las. Todo criminoso mede o seu risco, apostando na impunidade. Trabalhamos para que esse risco seja cada vez maior.”

“People and firms either do or do not engage in criminal conduct. Our job is to punish them. Every criminal measures his risk, betting on going unpunished. Our job is to increase that risk as much as possible.”

O combate ao ilícito, na avaliação do superintendente da Receita, só tem sucesso se, além da repressão, a sociedade se conscientizar de que é crime sonegar imposto e também se mobilizar para encontrar alternativas para que os produtos cheguem a preços acessíveis para os consumidores.

The fight against illegal practices, in the view of the Tupi taxman, can only succeed if, along with the repression of such practices, society realizes that it is a crime to avoid taxes, and mobilizes to find alternative ways to bring products to market at affordable prices.

Questionado se a carga tributária é elevada no país e se é isso o que propicia as fraudes, Spolzino diz que esse é um tema complexo.

Asked whether he thinks the tax burden is high in Brazil, and if so, whether this is conducive to fraud, Spolzino says the issue is a complicated one. 

“A receita e a despesa precisam estar amarradas. Isso é a carga tributária. Existem alguns produtos que têm maior incidência de tributos. Nesse caso, a sonegação compensa mais, como nos setores de bebidas, cigarros e combustíveis.”

“Revenues and expenditures [both] need to be controlled. That is your tax burden. There are some products that are taxed more heavily. In that case, avoiding taxes has a bigger payoff, as in the case of booze, cigarettes and fuel.

The preferred commodities of rural loadjackers and Sino-Paraguayan smuggling mafias.

I consume a lot of the PR put out by Brazilian federal cops, and I am often impressed by the competence of it.

This is a big moment in the sun for the taxman here, for example, one that likely does not come all that often, and he manages to handle some delicate questions without inserting foot in mouth, prejudicing an ongoing case, or succumbing to the temptation to submit the defendants in the Persona case to trial by media.

Even though there is a sector of the Brazilian press that would really, really like to do so. See

It may be that the man has a natural gift for such things, but I would bet you there is a competent flack behind that performance, briefing his or her principal on how to say what they want and need to say without getting off-message.

The private sector should snap that flack up if he or she ever comes on the market. Because there is an amazing amount of gabbling incompetence in a private-sector PR industry down here, one that is in the habit of portraying itself as world-class. See, for example: 

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