Cisco sees no benefit in entering into a public debate with Mr. Carlos Carnevali, Sr., whose employment with Cisco was terminated due to a violation of Cisco's Code of Business Conduct. Based on our ongoing internal investigation, albeit not completed, we had sufficient reason to believe that he had an ownership interest in Mude, which violates Cisco's Code of Business Conduct. We understand that in itself this is not a crime in Brazil. However Cisco's Code of Business Conduct requires employees not to assume positions that could cause such a conflict of interests. We therefore terminated his employment.
Cisco will continue to work in cooperation with the authorities and through our internal review to better understand the full facts of the situation in Brazil, and will take whatever measures are deemed necessary to ensure full compliance with Brazilian law and to protect its brand and reputation.
Previous Statements
Updated Cisco Statement on Brazil (12/05/07)
Given recent media reports referencing Cisco, the company appreciates the opportunity to provide continued clarity around our business model and operations in Brazil:
1. Ethics, integrity and observance of the law are essential parts of Cisco's corporate DNA. The company strives to uphold these values in Brazil and all over the world. All Cisco employees are required to read, agree to and abide by a strict Code of Business Conduct based on ethics, transparency and honesty.
2. Cisco has not authorized any improper donation to political parties, even indirectly or through third parties. All of Cisco's partners and contracted companies are well educated on the company's strict guidelines, which expressly forbid any illegal benefit in exchange for payment or the promise of future benefits.
3. Cisco does not permit the pursuit of any benefits or favorable treatment in efforts to gain government clients; additionally, Cisco does not directly participate in public bids in Brazil and, therefore, doesn't sell directly to government entities.
4. Like many companies in the IT industry, Cisco has opted for an indirect sales model worldwide. Cisco's presence both in Brazil and throughout the world is based on a sales channel composed of independently-owned distributors and resellers who are directly responsible for the importation and commercialization of the sold products.
5. Cisco hires highly qualified auditing companies for the purpose of auditing its distributors. Companies utilizing indirect sales models rely on these third party audits to help monitor the actions of their distributors and resellers within these channels.
6. Discounts placed on the sale of export products constitute a standard market practice and are consistent with Cisco's global sales strategy.
7. Cisco will continue to cooperate with the authorities while maintaining its insistence that the company does not condone any type of illegal conduct . Its policy is to strictly abide by Brazilian laws and deeply respects the country's institutions. Cisco will continue to work in cooperation with the authorities and through our internal review to better understand the full facts of the situation in Brazil, and will take whatever measures are deemed necessary to ensure full compliance with Brazilian law and to protect its brand and reputation.
Updated Cisco Statement on Brazil (11/29/07)
There have been recent reports in the Brazilian media concerning the involvement of two Brazilian companies – Nacional Distribuidora de Eletrônicos Ltda and ABC Industrial Da Bahia Ltda. – as possible front firms to funnel political donations to the Partido dos Trabalhadores to help win government IT contracts. Many of these reports have pointed to Cisco as the source of those donations. We take these allegations very seriously. We have conducted a detailed internal investigation in an effort to better understand the facts. Based on the results of this investigation, we clarify the following:
- Neither firm has any direct ties to Cisco.
- We are aware of the allegations against two Cisco Brazil employees and their alleged role in this matter. However, at this time we are not aware of any information or fact that would suggest that Cisco, as a company, was involved in any misconduct.
We will continue to conduct the investigation into this issue and take the necessary measures to protect Cisco's brand and reputation. Our company respects the laws and regulations of every country in which we do business. Our company's business practices and the employees implementing them anywhere in the world must meet these high standards and follow our strict Code of Business Conduct.
Updated Cisco Statement on Brazil (11/22/07)
Carlos Carnevali, Sr.'s employment with Cisco has been terminated due to the nature of the criminal charges against him as well as the company's internal review, which found a failure to comply with Cisco's Code of Business Conduct.
Cisco continues to work diligently in cooperation with the authorities and through our internal review to better understand the full facts of the situation in Brazil. Our preliminary review as well as information brought to our attention by authorities strongly suggest that at least this one Cisco Brazil employee was pursuing a personal agenda for his own benefit. This activity was entirely detached from Cisco's interests, standard business practices, ethical principles and training and has brought significant harm to the company.
Cisco will continue to review the facts in Brazil and take appropriate disciplinary and remedial actions. Should it be found that additional employees violated Brazilian law or Cisco's Code of Business Conduct, those violations will be dealt with severely. Our company's culture and integrity demand this.
Updated Cisco Statement on Brazil (11/15/07)
We have been made aware of charges made against Carlos Carnevali, Sr. and we will be closely studying the "denuncias" in order to better understand these allegations. Cisco will continue to cooperate with the authorities and complete its internal investigation to ensure the corporation fully understands what happened in Brazil and takes the appropriate measures as it relates to his continued employment status. Cisco greatly respects the ongoing work of the Brazilian authorities to determine the facts pertaining to this situation.
Based on the findings of our ongoing internal investigation to date, Cisco has placed employees Carlos Carnevali, Jr. and Sandra Tumelero on paid administrative leave. These employees will remain on paid administrative leave throughout the remainder of our internal investigation.
Updated Cisco Statement on Brazil (10/29/07)
Over the past week, media reports in Brazil have continued to raise a number of questions about Cisco's business in Brazil. The company appreciates the opportunity to provide clarity around three of the most immediate questions that have been raised, which include: 1) Cisco's commitment to doing business in Brazil; 2) the company's business model globally and in Brazil; and 3) an update on when Cisco should be in a position to will provide more detailed information about the allegations that have been raised against the company to date.
Cisco's Commitment to Brazil
Cisco's commitment to Brazil spans over a decade, when the company first established a presence in the country in 1994. Since then, Cisco has maintained offices in Sao Paulo, Rio de Janeiro and Brasilia, and it currently employs more than 250 employees in the country, whose work ensures that Cisco's products support critical internet networks in Brazil and regionally.
Cisco intends to continue to grow its commitment and business in Brazil, and remains fully committed to doing business in Brazil, as well as to its employees, customers, partners, shareholders and operations in the country. Brazil is a vibrant and important market for Cisco and will continue to play an important role in our regional plans.
The company remains equally steadfast in its commitment to giving back in Brazil through continued work to bridge the digital divide, including in rural areas. Cisco has already established close to 140 Networking Academies throughout the country, in which more than 11,000 students have participated and learned invaluable ICT skills. In addition, Cisco is one of the main sponsors of the "IT Access for Everyone" Initiative (ITAFE), an umbrella for unilateral and multilateral digital inclusion initiatives involving the World Economic Forum and its partners.
Consistent with its position as the world leader in internet networking, Cisco looks forward not only to continuing, but expanding its business operations and corporate social responsibility efforts in Brazil for many years to come.
Cisco's Business Model
Cisco organizes its business into five geographies: US and Canada, European Markets, Emerging Markets, Asia Pacific and Japan. Latin America is part of the Emerging Market geography, which contributes to approximately 10% of Cisco's overall business. Brazil represents approximately 1% of Cisco's global market.
Cisco has a team of employees based in Brazil to serve its customers and partners there. While many of these employees work directly with customers, Cisco works with more than 55 certified channel partners to sell products and services in Brazil. More than 90% of Cisco's business in Brazil flows through channel partners. This is not uncommon; more than 80% of Cisco's business globally flows through channel partners, who own the importation process.
Manufacturers of all types of equipment - from auto makers to personal computers to handsets and other ICT equipment - utilize an indirect sales model in order to scale business and grow in new and emerging regions. An indirect sales model allows local distributors and value-added resellers (VARs) to distribute products and, often, to locally customize those products as well as add their own tailored products or services for end users. This important channel of distribution allows for a regional economy to exist beyond the home office of a manufacturer and creates regionalized offerings to customers.
Of the over 80% of Cisco's global product and services revenue that comes from channel partners serving our mutual customers, some channel partners purchase products directly from Cisco, while others procure product through an authorized Cisco distributor. Distribution partners are authorized to resell Cisco products to VARs and systems integrators to help ensure Cisco best meets end user needs for Cisco products through partners.
As is common in the technology space, Cisco has employed a channel model globally for many years, relying on local business expertise to accelerate the adoption of Cisco technology and services to allow Cisco to reach more customers. This is the same proven model we use in Brazil and elsewhere. This widely-used model in and of itself is not inappropriate. Manufacturers typically provide discounts to their resellers, and offer extra discounts to help compete in especially competitive situations. The discounts provided to our resellers in Brazil are completely consistent with those we provide worldwide, and have nothing to do with Brazilian import duties.
Like all global businesses, Cisco engages in appropriate fiscal planning, including adherence to tax laws and import practices. Resellers and distributors are required to do the same. If fiscal fraud occurred in the companies that distribute or resell Cisco products, Cisco is not necessarily responsible for these misdeeds. 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.
Cisco's ethics, integrity and compliance with the law are core to who Cisco is as a company. We stand by these values in Brazil, as we do everywhere. We have a strict Code of Business Conduct in place that employees sign each year and is strictly enforced. The Global Code of Business Conduct prohibits Cisco's employees from entering into relationships that give rise to a real or perceived conflict of interest, and we take this requirement very seriously.
Next Steps
As we have stated, Cisco's focus at the moment is on working diligently to better understand the details and facts of the situation in Brazil. While the company has not had full access to the Federal Police's investigation, Cisco is doing all that it can to assess the situation and fully cooperate with the authorities in Brazil. Cisco is also conducting its own internal inquiry to help understand events and to provide the most complete information possible. Until the complete body of facts is known, however, it would be inappropriate and unfair for the company to prematurely comment on details of the situation.
For more information, please contact:
ciscopr_inquiries@external.cisco.com
