IstoÉ Dinheiro on the Risco Cisco: Apocalyptic Scenarios And Anonymous Buzz


“Nahas takes on the market
.” This quacking biz weekly’s prognostications tend not to come true. See also Brazil: Attuch’s Book of Revelations and Brazil: Reviewing IstoÉ’s “The Spy Who Bugged Me”

When Ripper was arrested, one of his rivals, 3Com, sent an opportunistic message to its distributors, signed by country manager Antônio Gaudêncio. “Based on recent events in the market, we place ourselves at your service to help you conclude your projects,” it read.

Our policy on anonymous sources is a good one, and bears repeating. It begins: “We resist granting anonymity except as a last resort to obtain information that we believe to be newsworthy and reliable.” The information should be of compelling interest, and unobtainable by other means. We resist granting anonymity for opinion, speculation or personal attacks. –Bill Keller, New York Times, “Assuring Our Credibility”

The Ministry of Planning clips coverage of the Cisco affair from IstoÉ Dinheiro, that colorful and creative little glossy business weekly with the full-time state “business astrologer.”

The teaser on the article appears to state nonexistent facts, first of all. True to form.

Acusada de sonegar R$ 1,5 bilhão, a empresa perde clientes, fica impedida de participar de licitações e uma auditoria interna decidirá o futuro da filial brasileira

Accused of avoiding R$1.5 billion [in taxes and penalties], the company is losing clients, is prevented from participating in competitive contract bids, and an internal audit will decide the future of the Brazilian subsidiary.

(By the way, I think it is inaccurate to say that the company “evaded” that amount in fiscal renderings unto Caesar. The estimate, if Cisco is found liable for evasion of a certain amount, is that the amount owed, plus applicable penalties, if any, could reach that neighborhood.

It cannot have “evaded” the penalty portion of that lump sum if the penalties have not yet been assessed, after due process of law.)

The body of the article reports, however, that the head of the CGU — the federal controller, I guess you could call it, a GAO-like audit office attached to the executive branch of government — has “promised to study the case and take action, if appropriate, up to and including barring the firm from competing government contracts.”

Actually, the CGU sources cited say only that they will “pay close attention to” the case. The dire consequences are an imaginative add-on, unsourced.

The risk that it may be so prevented is a completely different proposition than that the firm fica impedida — “is being prevented” — from competitive bidding. The latter statement materially misrepresents the facts as reported.

I translate some excerpts.

As always with this publication, boil before consuming.

The article basically lays out a series of worst-case scenarios without providing a shred of solid information that would be useful in evaluating the actual extent of the risco Cisco.

Count for yourself the number of anonymously sourced instances of opinion and speculation here.

Because I happen to agree firmly with Bill Keller on this point: The more there are, the less credible the reporting is likely to be.

The little we do learn here, about steps being taken by corporate HQ to exert message control and clean house, are interesting enough, but are sketchy. I could have learned more just subscribing to the press release wire. I would pay a good magazine to inform me more fully on that subject.

As always with IED — as I like to call it — we begin with the narrative lede.

Anonymously sourced, of course.

“It was a dark and stormy night …”

A meia-noite do domingo 21, o executivo Pedro Ripper, presidente da Cisco no Brasil, deixou a cela da Polinter, no Rio de Janeiro, e entrou num Corolla prata de vidros escuros. Depois de passar cinco dias preso, Ripper pretendia falar. Estava indignado e pronto para fazer um desabafo. Aos amigos mais próximos, ele foi enfático. “Estou sendo apedrejado por coisas que não fiz e nem sabia que existiam”, disse a um deles. Ripper, que se considera injustiçado, também queria retomar a rotina normal de trabalho na Cisco, em São Paulo.

At midnight on Sunday, October 21, Pedro Ripper, president of Cisco in Brasil …

The company, incorporated in Brazil, is Cisco do Brasil, Ltda. “Cisco in Brazil” is a very loose way of describing it. Strunk & White: “Prefer the concrete over the abstract.”

… left his cell at the Polinter prison in Rio and got into a silver-colored Toyota Corolla with darkened window glass. After spending five days in prison, Ripper was ready to speak out. He was indignant and ready to get some things off his chest. To close personal friends*, he was emphatic. “I am being flagellated over things I did not do and never knew existed,” he told one of them*. Ripper, who considers himself to have suffered an injustice, also wanted to resume his normal work routine at Cisco in São Paulo.

Ele, porém, foi surpreendido pelas decisões da matriz. Contra a sua vontade, ficou impedido de conceder qualquer entrevista e surpreso com as notícias de que a Cisco americana mandou instaurar uma auditoria interna na filial brasileira. Além disso, a empresa enviou um interventor de fora. Era o brasileiro Rodrigo Abreu, que morava nos Estados Unidos e atuava como diretor da multinacional na América Latina, em Miami. Abreu chegou a ser treinado para atuar como porta-voz e assumir a gestão da crise, mas sua estréia foi adiada. Aparentemente desnorteada com a Operação Persona, da Polícia Federal, que a acusou de sonegar até R$ 1,5 bilhão, a Cisco comunicou-se apenas por meio de notas oficiais. Numa delas, a empresa informou que Ripper reassumiria o trabalho. No entanto, o executivo, que passou pela Promon e vinha tendo uma carreira brilhante, passou a última semana em casa. Abatido, chegou a emagrecer três quilos e, a pessoas próximas, teria dito que a filial brasileira foi “abandonada”

He was surprised, however, [WS?] to learn of decisions taken by the parent corporation. Against his will, he was prevented from giving any interviews, and was surprised by the news that Cisco in the U.S. had ordered an internal audit of its Brazilian affiliate [WS?]. What’s more, the firm sent in an outside overseer — the Brazilian Rodrigo Abreu, who was living in the U.S., working as Cisco’s top executive for Latin America out of Miami.

No sourcing statement for any of this.

Abreu even got training to serve as a spokesman and take over the crisis management [WS?], but his debut was delayed [WS?]. Apparently disoriented [SPEC] by the federal police operation known as Persona, which accused it of owing the federal treasury R$1.5 billion, Cisco communicated only through press releases. Even so, the executive [Ripper?], who had worked for Promon and had been having a brilliant career, spent the last week at home. Downcast [SPEC], he lost 3 kg and reportedly told persons close to him* the Brazilian affiliate had been “abandoned.”

That the corporate parent would exercise some adult supervision — and some message control — over a far-flung outpost could actually be a good thing.

Now we hear from the first on-the-record sources, whose contribution is a contrary to fact conditional about what might happen.

Hoje, a Cisco brasileira, que cresceu como um foguete no Brasil nos últimos anos, é uma empresa perdida e sem comando. Essa apatia pode agravar sua situação. Em Brasília, cidade responsável por 40% das encomendas do mercado brasileiro de tecnologia, que movimenta US$ 20 bilhões ao ano, surgem novos focos de pressão a cada dia. À DINHEIRO, o procurador Lucas Furtado, do Tribunal de Contas da União, antecipou que poderá mover uma ação de inidoneidade contra a empresa e seus diretores. “Tudo está muito fresco ainda, mas, pelo que se viu, cabe sim uma representação contra a Cisco”, disse o procurador.

Today, the Brazilian Cisco, which grew like a rocket in Brazil in recent years, is a company that is lost and rudderless. This apathy could worsen its situation.

I thought Abreu was in command?

In Brasilia, a city that is the source of some 40% of orders for the $20-billion-a-year Brazilian tech market, new sources of pressure emerge every day. Prosecutor Furtado of the TCU told this magazine that he may file suit against the company and its officers, seeking to have them declared ineligible. “Everything is still very fresh, but from what we have seen, a complaint against the company would be appropriate,” said the prosecutor.

When complete information is available, we will know how much trouble the firm might be in.

Wake me then.

Se isso vier a ocorrer, as conseqüências seriam devastadoras. Considerada inidônea, a Cisco, que domina as vendas de roteadores, equipamentos usados para garantir a conexão dos computadores à internet, perderia seus contratos com o governo federal e com as estatais, como o Serpro e a Caixa Econômica Federal. Além disso, por não estar mais em dia com a Receita, ela já não pode participar de licitações públicas. Para piorar, técnicos da Controladoria Geral da União também disseram à DINHEIRO que irão se debruçar sobre o caso. Além disso, os clientes privados também têm se retraído. “Ninguém quer ficar associado a um escândalo”, disse o diretor de uma grande empresa de telefonia.

If that were to happen, the consequences could be devastating.

If that were not to happen, the consequences could be less than devastating.

How likely is to happen?

Take a look at the Bush State Department’s Global Forum on Fighting Corruption, for example. Note how active it has been in recent years.

If deemed ineligible, Cisco, which dominates the sales of routers [… explains, badly, for dummies, what a router is …] could lose its contracts with the federal government and the state-owned forms, such as Serpro and the CEF. Furthermore, being not up to date with the tax authority, it might be barred from taking part in public contract competitions. To make things worse, CGU technicians* also told this magazine that they are going to study the case. Furthermore, private clients have shied away*. “No one wants to be associated with a scandal,” said the chief executive of a big telephone company*.

What executive? What phone company? Is that company a Cisco customer?

Only one person has spoken on the record in this story so far.

Nesse ambiente, os concorrentes também estão colocando as mangas de fora. Quando Ripper ainda estava preso, uma de suas rivais, a 3Com, enviou uma mensagem oportunista para seus distribuidores, assinada pelo country manager Antônio Gaudêncio. “Com base nos últimos acontecimentos de mercado, colocamo-nos à disposição para ajudá-los a concluir seus projetos”, dizia o texto. Além da 3Com, empresas como Nortel, Siemens, Alcatel e Huawei também se posicionam rapidamente para ocupar o território da empresa dirigida por Ripper. “O mercado brasileiro é muito competitivo, os concorrentes tentarão tirar vantagem desse episódio e a Cisco deveria enviar um sinal claro, e com urgência, de que está disposta a se penitenciar, caso tenha cometido algum pecado no Brasil”, avalia o consultor Virgílio Freire, que foi presidente da Lucent no Brasil.

In this environment, its competitors are also jumping at the chance. When Ripper was arrested, one of his rivals, 3Com, sent an opportunistic message to its distributors, signed by country manager Antônio Gaudêncio. “Based on recent events in the market, we place ourselves at your service to help you conclude your projects,” it read. Besides 3Com, companies like Nortel, Siemens, Alcatel and Huawei also positioning themselves rapidly to take advantage of the episode. “The Brazilian market is very competitive, competitors will try to take advantage, and Cisco urgently needs to send a clear signal that it is repentant, if it has indeed committed some sin here,” says Virgílio Freire, ex-president of Lucent in Brasil.

Also ex-president of Vésper, a fixed line telephony company bought out by Embratel a while back. And apparently Intelig as well. And whom does he consult for, anyway? A capsule bio from some conference:

Consultor. Foi presidente da Vésper Telecomunicações e da Lucent Technologies; diretor de sistemas celulares da Bell South International (em Israel e Estados Unidos), quando participou da elaboração técnica da proposta da Bell South para disputar o leilão da banda B no Brasil. Participou ainda dos quadros da Nortel Nertwork, da TVA e da Telebrás. Pós-graduação em sistemas de telecomunicações e bacharel em engenharia eletrônica pela PUC-RJ.

Consultant. Former president of Vésper and Lucent; director, cellular systems, Bell South International (U.S. and Israel), in which capacity he headed technical efforts benhind Bell South’s bid for Band B in Brazil. Also worked for Nortel, TVA (Grupo Abril) and Telebrás. …

I suppose, then, that the man’s credibility as a source of punditry derives from his track record of working for highly, highly successful ventures like Lucent?

That TCU report cited by Josias de Souza the other day to suggest that Cisco was in deep Crisco actually blasted, not Cisco itself, but a systems integrator that was reselling Cisco boxes: precisely Alcatel.

And one of the contracts questioned in that report involved, not CISCO boxes, as Nassif suggested, but SUNW enterprise servers. Another involved systems maintenance on legacy OS/390 (IBM) and Windows NT boxes.

Cisco was not a direct party to any of the contracts questioned.

See

I am going to bet you that Cisco is not going to be the only firm with executives dragged in for questioning before all this is over. I am wrong, I owe you a beer.

O risco maior que a Cisco corre, segundo especialistas ouvidos pela DINHEIRO, é o de simplesmente sumir do mapa no Brasil e, ao que tudo indica, a grande preocupação da multinacional é a repercussão que o caso poderá ter nos Estados Unidos. Afinal, todas as filiais de empresas norteamericanas estão sujeitas a uma lei chamada Foreign Corruption Practice Act, de 1977. Ela torna as matrizes co-responsáveis pelos crimes e atos de corrupção cometidos por suas subsidiárias. Nessa hipótese, o próprio CEO da companhia, John Chambers, poderia ficar sujeito a ações criminais. Chambers é tido como um dos gurus da tecnologia nos Estados Unidos e foi o primeiro patrocinador da Clinton Global Initiative, o movimento filantrópico lançado pelo ex-presidente americano Bill Clinton. Um escândalo, portanto, não combinaria com a sua imagem pública. Além disso, o Brasil não é um mercado relevante para a Cisco. Representa apenas 5% das vendas globais de US$ 38 bilhões. E, se a auditoria interna apontar que as fraudes foram idealizadas aqui no Brasil, a corda naturalmente irá estourar do lado mais fraco.

The greatest risk Cisco runs, according to specialists consulted by this magazine, is that it might simply vanish from the map of Brazil, and all signs are that the greatest worry of the multinational is over the repercussions back in the United States. After all, affiliates of American firms are subject to something called the Foreign Corruption Practice Act [sic], of 1977.

English as she is spoke. The reference is apparently to the Foreign Corrupt Practices Act of 1977, as amended (1998).

It may make more sense to refer to the prevailing legislation as the International Anti-Bribery Act of 1998, which amended FCPA.

Here is an illustration of how fearsome a deterrent that law has provided in recent years:

Regarding payments to foreign officials, the act draws a distinction between bribery and facilitation or “grease payments”, which may be permissible if they are not against local laws. A company’s legal department generally still has to approve such payments. The primary distinction is that grease payments are made to an official to expedite his performance of the duties he is already bound to perform.

In this hypothesis, the CEO of the parent corporation, John Chambers, could be subject to criminal liability.

This appears to be a sort of hazy, quacking conflation of Sarbanes-Oxley’s provisions on CEO liability for the accuracy of financial statements, and the FCPA, which covers individual acts of bribery of foreign officials.

I am not an expert on this subject by any means — when I read articles on the subject, I tend to expect the journalist to be able to teach me more about it, not to have to run around checking up after their hazy quacking on my own.

But the impression I have is that the tendency has been for individuals to be held criminally liable, but not the firms that may have benefited.

Especially if those firms cooperate with authorities.

Such as by conducting a thorough internal audit and opening your books to help authorities identify putrid transactions.

Such as those involving bribery of foreign officials.

IBM, for example, was recently embarrassed by bribery convictions of made by agents working on its behalf in China. And IBM execs, as I recall, wound up testifying in their trial.

And see Lucent Fires Four in China Over Bribery Accusations.

If you wanted to do an honest story about the legal risk Cisco faces, you would consider it in the context of similar cases in recent years, and their outcomes.

So from what little I know — and that is very little, because I am reading rumor-mongering from ISTOÉ DINHEIRO rather than real business reporting — I would guess that this risk is probably minimal if Cisco really does what it is setting out to do: Provide some effective adult supervision down here in Brazil.

The federal police, announcing the case, actually made a point of emphasizing that they were looking for individuals who bribed Brazilian officials, and had no plans to file criminal charges against corporations.

As I recall from the first news report I saw on the case on the boob tube. Which if true would tend to make you suspect that the Cisco case is something of a tempest in a teapot.

The target here is the agent of foreign companies who bribes local officials.

These cases principally arise, in practical terms, from investigations of Brazilian officials suspected of taking bribes.

The desired end result is for those companies to exercise some adult supervision over the Brazilian citizens that work for them or act on their behalf.

This is my impression.

O ambiente pesou ainda mais para a filial brasileira quando surgiram indícios, em grampos telefônicos, de que a empresa teria feito uma doação irregular de R$ 500 mil para o PT – fato que foi negado pelo presidente do partido, Ricardo Berzoini. A Polícia Federal sustenta que o negócio teria sido conduzido por Carlos Carnevali, executivo que foi da Telesp e trouxe a Cisco para o Brasil. Até a noite da quinta-feira 25, ele continuava preso. Para os investigadores, foi Carnevali quem idealizou o esquema de subfaturamento de importações e de simulação de industrialização de equipamentos no Pólo de Ilhéus, na Bahia, que garantia mais isenções fiscais.

[tktktktktk]

Another anonymous coward telecom executive:

“Ele é um sujeito muito esperto, que sempre oferece descontos e é capaz de vender geladeira para esquimó”, disse à DINHEIRO um alto executivo do setor de telecomunicações.

“He is a real smart guy, he always offers discounts and could sell a refrigerator to an Eskimo,” a senior telecom executive* told DINHEIRO.

O mais intrigante, na história da Cisco, é a empresa ter escolhido a tática do silêncio. Isso porque muitos analistas contestam a suposta truculência da ação conduzida pela Polícia Federal. Em crimes tributários, o procedimento normal é uma simples autuação fiscal, fato que já ocorreu até com empresas maiores do setor de tecnologia. Ao calar- se, a Cisco torna-se vulnerável aos ataques dos investigadores e ao assédio dos concorrentes. Talvez os diretores da companhia sejam até inocentes, mas o fato é que, acovardados, já se comportam como culpados.

The most intriguing thing in the Cisco affair is its adoption of the tactic of silence. This because many analysts question* whether the Federal Police operations was as truculent as claimed.* [as claimed by whom? Who claimed it was truculent?] In tax crimes, the normal procedure is to issue a citation, as other tech firms have experienced.

But his is not a case primarily about “tax crimes.” This is not about having an accountant who pushes those deductions close to the creative edge, resulting in long meetings with your friend neighborhood Tupi IRS auditor.

This is a case about the bribery of federal officials to assist in forgery of documentation.

In keeping silent, Cisco becomes vulnerable to attacks by investigators and being laid siege to by competitors. Perhaps its executives are innocent, but the fact is that, by chickening out, they are acting like they are guilty.

This is all pretty much complete horseshit, I think.

Which is why I do not buy this magazine.

The concrete task here, however, is to count the number of anonymously sourced factoids here. I will try to go back and flag them with a red *.

The technical problem: How to mark statements that should be sourced, but are not. Let us mark those with a red [WS?], for “who says?” Let’s mark speculation with [SPEC].

This would include attributing psychological traits to the subjects of the coverage without explaining that attribution. If someone says “I am surprised,” that is one thing.

You see some newpapers being more carefully about this these days. I remember reading something like the following about a court appearance by Scooter Libby, for example: “He seemed nervous: speaking more rapidly than usual, repeatedly patting his hair and stroking his noses, and lacing and unlacing his fingers rapidly.”

But obviously “apparently disoriented” is pure quacking speculation about the mental state of another, without any adequate grounds.

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