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UPDATE 1-Brazil police arrest Cisco executives on tax fraud

Tue Oct 16, 2007 5:47pm EDT

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(Adds details on investigation, comment from police)

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By Isabel Versiani

BRASILIA, Oct 16 (Reuters) - Cisco Systems Inc (CSCO.O) senior executives were among at least 40 people arrested by Brazilian police on Tuesday in a massive tax fraud investigation targeting the U.S.-based technology and network company, authorities said.

Police and tax authorities said Cisco's Brazilian unit had imported $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 1.5 billion reais ($826.4 million) in taxes, fines and interest.

Senior company executives in Brazil and six government tax officials were among those arrested, police said, without providing names. Brazilian authorities also asked U.S. police to issue arrest warrants for five more suspects in the United States.

"Cisco is cooperating with the investigation that is underway," a company spokesman in Sao Paulo said.

The investigation, which has been going on for two years, alleges that Cisco's Brazilian unit used companies based in tax havens like Panama, the Bahamas and the British Virgin Islands to avoid paying import taxes in Brazil.

Authorities said Cisco also systematically understated the value of merchandise it imported to pay less taxes and frequently issued falsified receipts and other documents.

About 650 police agents and tax officials served 93 search warrants in the states of Sao Paulo, Rio de Janeiro and Bahia on Tuesday. Police also suspect that some Cisco employees in the United States were involved in the scheme.

"It's inevitable that this investigation is going to lead us to headquarters," Erika Nogueira, the federal police official in charge of the probe, said at a news conference in Brasilia.

Police said they had no evidence that Cisco's customers in Brazil were aware of the scheme but that each sales contract would be investigated on an individual basis.

(Additional reporting by Cesar Bianconi in Sao Paulo)

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