Cisco cautious on Brazil case

In a statement on a tax scandal in Brazil, Cisco said it can't vouch for every action of its distributors.

Cisco Systems appeared to further distance itself from a tax scandal in Brazil, saying it can't vouch for everything its channel partners do.

In the case, in which four Cisco employees and 44 other people reportedly have been arrested, Cisco's Brazilian unit has been accused of importing US$500 million worth of telecommunications and networking equipment without paying the necessary duties, according to a Reuters report.

The case has shed a rare negative light on Cisco's business practices. The company, which operates around the world and is experiencing strong growth in developing countries, has a reputation for conservative practices and solid accounting.

In its latest statement, the networking vendor explained its indirect sales model and said more than 90 percent of its business in Brazil goes through channel partners. That's more than the worldwide rate, which is over 80 percent, Cisco said.

"If fiscal fraud occurred in the companies that distribute or resell Cisco products, Cisco is not necessarily responsible for these misdeeds," the statement said. "While we hire highly respected audit firms to perform random audits of our distributors, no corporation engaging in an indirect sales model can directly vouch for or control every action of its distributors."

The company has used a channel model around the world for years, letting local distributors and value-added resellers customize products locally, Cisco said. The company works with more than 55 certified channel partners to sell products in Brazil. Some channel partners buy products directly from Cisco and some from authorized Cisco distributors, it said.

The company has more than 250 employees in Brazil, which represents 1 percent of the company's worldwide business, it said. Cisco said it remains fully committed to doing business in the country.

Cisco said it is cooperating with the authorities and conducting its own inquiry to understand the situation and provide as much information as possible, but said it would be wrong to comment further now. Cisco has said before that it does not believe it acted inappropriately.

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Stephen Lawson

IDG News Service

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