Senior executives of Cisco were reportedly arrested in Brazil this week in a tax fraud investigation of the company.
Citing information from police and tax authorities, Reuters reported that Cisco's Brazilian unit had imported US$500 million worth of telecommunications and network equipment over the last five years without properly paying import duties. In all, the company owes an estimated US$826.4 million in taxes, fines and interest, Reuters reported.
Senior company executives in Brazil were among those arrested, according to the Reuters report, citing information from local law enforcement agents. Brazilian authorities also asked US police to issue arrest warrants for five more suspects in the United States, according to the report.
Cisco was not immediately available to comment.
AP reported that Cisco was cooperating with the investigation. Brazilian authorities staged raids around the country in an effort to break up the tax evasion ring, according to the AP.
In raids that began Tuesday, 650 police and tax agents executed 93 search warrants and arrested 40 people involved in the alleged scheme set up by Brazilian businessmen to benefit the US company, the AP reported, citing a statement from Brazil's federal police.
Goods were shipped from tax havens like Panama, the Bahamas and the British Virgin islands to Brazilian clients to avoid local taxes, and the value of the products was underestimated, the AP report said.
The investigation by Brazilian authorities began two years ago, according to the AP report.
Analysts said this could be Cisco's first blemish on an otherwise flawless record of establishing operations in countries the company identifies as high-growth emerging markets.
"Cisco has a rather solid record in terms of its successful emerging market growth being achieved without any material fraud, bribery, tax evasion issues, etc.," states UBS Warburg analyst Nikos Theodosopoulos in a bulletin to investors on the Brazilian raids. "This potential investigation may be the first blemish for Cisco in this regard, but we believe it's premature to reach any conclusions at this early stage of the investigation."
Cisco started operations in Brazil in 1994 and has sites in Sao Paulo, Rio de Janeiro and Brasilia.