TeleSíntese on Cisco and the Fisco

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The switch-rich black-box jocks find that their diffuse network of “small pieces, loosely joined” has had its ups and downs lately.

A good moment, this, to rethink the idea of requiring that companies installed in Brazil — at the very least those that are publicly traded, but not exclusively — render accounts about their local operations. Even if 1% of $34.5 billion is next to nothing, as the corporate parent insists, its Brazilian subsidiary and other domestic and American firms have been bombarded with information and counterinformation whose sources and backing have yet to be presented adequately to the public.

Writing in TeleSíntese (Brazil), Lia Ribeiro (with reporting by Anamárcia Vainsencher) learns the lessons of Cisco’s troubles with the fisco. Lucidly, as always.

See also

For my money, Ms. Ribeiro, in her weekly column, regularly defies the common wisdom that the business press here “does not get the new paradigms.”

No ano passado, na comemoração dos resultados do exercício, na sede da Cisco Systems, em São Francisco (EUA), um quadro luminoso classificava o desempenho das subsidiárias da corporação. O Brasil estava no topo em matéria de expansão, ainda que respondendo apenas por 1% das vendas globais da companhia, cujo faturamento líquido foi de US$ 34,9 bilhões. Contudo, tanto a subsidiária brasileira da Cisco, como as de algumas dezenas de outras grandes corporações que atuam no país não divulgam os resultados de suas operações locais. Elas são, na esmagadora maioria, empresas de capital aberto, com papéis negociados em bolsas de valores, em seus países de origem.

Last year, in a celebration of its annual results at its headquarters in San Francisco, Cisco Systems shone the spotlight on the performance of its subsidiaries. Brazil was at the top of the list in terms of expansion, even though it still only accounted for 1% of Cisco’s global sales, with liquid revenues of US$34.9 billion. And yet Cisco’s Brazilian subsidiary, like those of dozens of other large corporations operating in Brazil, does not make public the results of its local operations. And the vast majority of these are publicly traded companies in their countries of origin.

Porém, aqui, a maioria dessas subsidiárias funciona como sociedade limitada, não anônima e, assim, não precisam divulgar seus balanços. Uma situação incômoda porque a falta de resultados auditados não só compromete a veracidade das informações prestadas, como a própria transparência da atuação das companhias em questão. Sem esquecer que as brasileiras que abrem seus dados reclamam do tratamento desigual.

Here, however, they function as limited partnerships, not corporations, and therefore are not required to publish their financials. It makes for an awkward situation, because the lack of audited results undermines not only the credibility of the information provided, but also the transparency of operations at the companies in question. Not to mention the fact that Brazilian companies that publish their data complain of unequal treatment.

A quibble: I think Cisco Systems HQ is in Mountain View, right? They just rent out San Francisco for parties, like the ballroom at the Masonic lodge. We were just there last month. Sad to see a great city — I used to live in the Richmond District (Fogland, near the buffalo paddock) degenerating into a back-lot movie replica of itself, but that is kind of what it feels like.

No Brasil, houve tempo em que se falava na possibilidade de a Comissão de Valores Mobiliários (CVM) passar a exigir – pelo menos das mega-empresas – a divulgação de seus resultados no mercado local. Não deu em nada, para desespero de analistas e mídia especializada que, até hoje, lida com informações virtuais: “crescemos 100, 200, 300%”, percentuais que acabam por ser aplicados a valores “estimados pelo mercado”. E fica por isso mesmo. A prática é a mesma de companhias estrangeiras, com ou sem produção local.

There was a time when people talked about the [Brazilian SEC, the CVM] starting to require — at least from the megacorporations — the publication of local results. It came to nothing, to the despair of analysts and specialist publications who to this day have to be satisfied with “virtual numbers”: “We grew 100%, 200%, 300% — percentages that wind up being applied to numbers representing “market estimates.” And that is all you get. The practice is the same at foreign firms, whether they produce locally or not.

Nesta semana, veio a público a operação Persona, encetada por Polícia e Receita Federal, que flagrou sonegação fiscal de R$ 1,5 bilhão perpetrada por empresas daqui e do exterior, envolvendo, segundo a Polícia Federal, uma distribuidora de produtos Cisco e a própria multinacional, que nega qualquer participação em irregularidade . Um bom momento, este, para avaliar, de novo, a possibilidade de exigir das empresas aqui instaladas – pelo menos daquelas de capital aberto, mas não exclusivamente – que prestem conta das suas operações locais. Mesmo que só 1% de um faturamento de US$ 34,5 bilhões seja quase nada, como disse a matriz da Cisco, quando se abateu sobre a sua subsidiária brasileira e outras tantas empresas locais e americanas um dilúvio de informações e contra-informações cujas provas ainda não foram devidamente apresentadas ao distinto público.

This week, Operation Persona hit the headlines when the federal police and tax authority uncovered R$1.5 billion in tax avoidance perpetrated by domestic and foreign companies, including a distributor of Cisco products and, police say, the multinational itself, which denies any involvement in irregular practices. A good moment, this, to rethink the idea of requiring that companies installed in Brazil — at the very least those that are publicly traded, but not exclusively — render accounts about their local operations. Even if 1% of $34.5 billion is next to nothing, as the corporate parent insists, its Brazilian subsidiary and other domestic and American firms have been bombarded with information and counterinformation whose sources and backing have yet to be presented adequately to the public.

Faça o que eu digo…

Do as I say (not as I do) …

Nos EUA, a Cisco System, como outras mega-corporações com ações negociadas em bolsas de valores, além das obrigações de transparência (tantas vezes desrespeitadas, aliás) estão enquadradas em várias leis anti-corrupção. Em tese tão estritas como a Lei Sarbanes-Oxley (SOX), criada em 2002 como resposta aos escândalos empresariais nos EUA e com objetivo explícito de dirimir fraudes e aumentar o rigor na fiscalização e controle de suas atividades e de seus funcionários. Contudo, ora a lei, como se vê!

In the USA, Cisco System [sic], like other large corporations with shares traded on the stock market, besides the transparency rules (often disrespected, it should be said) it must follow, is also subject to various anticorruption laws. In theory, these can be just as strict as Sarbanes-Oxley, created in 2002 in response to U.S. business scandals, with the explicit aim of reducing fraud and increasing company oversight and control of business activities and employees. In theory. But we are seeing now how that worked out.

Mas, se, até agora, praticamente não houve repercussão internacional do caso Cisco, o quadro certamente seria outro se a Securities and Exchange Commission (SEC), o xerife do mercado acionário americano, entrasse em cena para investigar se alguma de suas regras teria sido descumprida pela Cisco, que também está sujeita à lei Foreign Corrupt Practice Act (FCPA), mais uma destinada a acabar com práticas de corrupção.

But if there have been no international repercussions of the Cisco case yet, that would certainly change if the SEC entered the picture to see whether Cisco, which is also subject to the Foreign Corrupt Practices Act … has broken any rules.

This is what immediately occurred to me, too. What about that FCPA, anyway? On the books but rarely enforced, generally speaking — although you do read from some policy wonks that there is support for dusting the thing off.

The Manhattan DA indicted Paulo Maluf, did he not?

These days, financial institutions, for example, post 9/11, are supposed to get into big trouble for helping kleptocrat generalissimos, thoroughly tattooed Japanese gentlemen with bulges under their armpits, and beturbaned billionaire terror financiers [the latter often largely mythical, according a recent book on the “war on terrorist finance” and its folklore.]

O momento Persona também pode ser uma ótima oportunidade para avaliar os benefícios e malefícios de corredores de importação como Ilhéus, pelo visto, um propício caldo de cultura para a sonegação e a corrupção, tamanho o volume de benefícios concedidos. Sem fiscalização de contrapartidas, pelo visto. Bem ao contrário, com a ajuda e o beneplácito de fiscais da própria Receita. Igualmente merece ser olhada a legislação que passou a permitir a importação por conta e ordem de terceiros – mecanismo que, reconhecem fiscais da Receita, dificulta ainda mais o acompanhamento dos procedimentos que acobertam sub ou superfaturamento, conseqüentemente, sonegação, prejuízos nem sempre recuperáveis aos cofres públicos.

The Persona moment may also provide an excellent opportunity to rethink the costs and benefits of import zones like Ihéus, which, it seems, is a fertile [Petri dish] for evasion and corruption, given the dimensions of the benefits granted to such zones. Without independent oversight, it seems. On the contrary, with the assistance and connivance of federal tax inspectors. Also deserving a second look is the legislation permitting importation based on third-party orders — a mechanism which revenue inspectors admit makes it even more difficult to catch under- or overbilling of goods, and the resulting evasion of duties, causing harm to the public coffers that are not always recoverable.

I read an astonishing analysis in the (gabbling) local press the other day according to which Brazil “is a miserable failure” at recovering assets like those plundered by the Malufs and Pittas and Nigerian petrogeneralissismos of the world — as if lack of cooperation from authorities in the places this dirty money flies off to were the fault of President Squid!

What was I reading the other day about new initiatives to improve cooperation in this area? World Bank? The IMF? Which is increasing the representation of client nations, right? I have this vague notion that there is newsflow on this meme, but cannot put my finger on the clipping just now.

Monaco is slated to decide on the extradition of Cacciola today, one reads. Interesting little test case as a prelude to the question of how much cooperation Brazilian authorities might get on the Cisco and similar cases as the next run at Doha looms. See

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