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 As more companies are expanding their operations and staking claim in the Latin American business market, the corporate climate in Brazil has transformed accordingly. The awareness of an increased corporate presence is apparent and local business executives and federal authorities in Brazil have been forced to respond to these changes.
Within the last four months, the Brazilian federal police have exposed two instances of fraud that have had substantial ramifications on the multi-national corporations involved. In October 2007, the Brazilian authorities arrested 40 people involved in an alleged tax fraud scheme relating to under-pricing imports of Cisco items. The people arrested included some top officers within the Cisco company.
Tax fraud, currency fraud and money laundering have been prevalent problems in Brazil. Other variants of fraud, such as ATM fraud and bank robberies, have dissipated slightly. According to a survey from Unisys in 2005, and reported in IT Digest and other publications, Brazil was ranked third in the number of banking identity theft frauds.
The study sampled bank fraud in Mexico, Australia, USA, France, England, Hong Kong, Germany and Brazil. This dilemma has received enough attention that Brazilian banks have begun to implement stricter security policies in response to previous problems.
The tax and currency fraud issues stem from discrepancies in how products/goods are imported into, or out of, the country. Companies that engage in these fraudulent activities seek to skirt paying Brazilian taxes on these items by falsely lowering the cost of the product on documents provided to the government thus allowing them to pay fewer monies to the authorities than they would otherwise be required.
Such was the case with Cisco. These tax and currency fraud issues also occur when money is spent offshore. Companies have been known to smuggle merchandise into Brazil so as not to pay proper duties.
In a similar incident, just a month after the Cisco scandal, in November 2007, Brazilian federal police arrested 19 people for allegedly partaking in a tax fraud scheme that allowed multinational corporations with offices in Brazil to evade government taxes. According to news reports, these companies would launder the money through Swiss and US banks, such as UBS, AIG and Credit Suisse.
Money laundering is a severe problem in Brazil. Multinational banks, like the ones reportedly involved in the situation described above, have been known to set up tax havens so the Brazilian government cannot access the actual transactions that occur. Increasingly, the Brazilian federal police have been focusing on these multinational companies in an effort to deter these instances of tax fraud and money laundering.
Based on the knowledge that such activities are still common in the Brazilian business community, it is prudent to protect your interests in Brazil to ensure you are neither the victim of, nor perpetrator in, these scandals.
There are companies that promise to ensure that financial transactions are performed in accordance with appropriate Brazilian law. They are also equipped with the necessary knowledge to safeguard merchandise from smugglers when a company brings merchandise in or out of the Brazilian borders.
The key to a successful importing relationship in Brazil is to simply follow Brazilian customs requirements on the import. Those willing to invest in the country should conduct appropriate research on Brazilian companies with which they intend to do business.
This not only provides information on the customer or vendor but also helps to prevent somebody from engaging in a relationship with companies that have a history of tax/currency fraud or other adverse business transactions.
As with any country that is undergoing developmental and economic growth, there are risks associated with conducting business in Brazil. However, as noted above, there are intelligent strategies available to avoid any reputational or monetary losses.
Kenneth Springer is a former FBI agent and Certified Fraud Examiner. Ken founded Corporate Resolutions Inc. in 1991. Corporate Resolutions is a business intelligence firm based in New York, with additional offices in Boston, Miami and London. The firm conducts background checks and corporate investigations throughout Europe, Asia and the Americas.
Keith Prager heads up the Miami Office of Corporate Resolutions. Keith retired from the U.S. Customs Service as the Assistant Special Agent-in-Charge. After retiring, Mr. Prager was Managing Director for an international security consulting firm, responsible for business development and operations in Latin America, Central America, the Caribbean and Florida.
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Corporate Resolutions - www.corporateresolutions.com.
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BTW, a well written article and I would like to congratulate the authors.