Cisco is investigating a “self-enrichment scheme” among several former employees in China, the firm told investors earlier this week. Switchzilla said it had also tipped off the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).
Switchzilla disclosed the existence of the probe earlier this week in a 10-Q filing [PDF] made to the SEC. While it did not describe the nature of the "scheme," it notes that some of those involved are alleged not only to have lined their own pockets, but to have "made or directed payments" to individuals working for "state-owned enterprises".
Form 10-Q describes a firm’s financial performance, as well as any ongoing threats to the business. These can include market conditions (Cisco’s document, for example, discusses the ongoing challenges from the COVID-19 pandemic) as well as any legal action. The SEC requires all publicly traded companies to file a Form 10-Q report three times a year, in addition to Form 10-K, which serves as an annual report.
The US takes a dim view of bribery, even when conducted overseas. The main body of legislation that handles this is called the Foreign Corrupt Practices Act (FCPA), which prohibits publicly traded firms and their workers from gaining business advantages through surreptitious back-handers. The FCPA is enforced both by the DOJ and SEC, and comes with steep civil and criminal penalties.
Ericsson is the posterchild for this. In 2019, it paid $1bn to settle an investigation from the DoJ, which alleged it had bribed officials in Djibouti. The Swedish outfit was also accused of breaking FCPA-related accounting rules in China, Indonesia, Kuwait, and Vietnam.
That same year, Juniper Networks paid $12m to the SEC to settle allegations it had unduly influenced officials in China and Russia by paying for them to take a jolly, where little to no business was discussed. As it noted at the time, Juniper neither admits nor denies any wrongdoing.
It is not entirely clear which part of Cisco is responsible for the alleged fiscal malfeasance.
In a statement provided to The Register, it said:
In its 10-Q filing on February 16, 2021, Cisco reported an investigation of an alleged self-enrichment scheme involving now-former employees in China. Cisco takes such allegations very seriously and voluntarily disclosed this investigation to the U.S. DoJ and SEC.
At all times, we expect our employees to adhere to local and national laws and to comply with our high standards for ethical and professional behavior. Cisco cannot elaborate beyond the details of the 10-Q filing as the investigation is ongoing, though does not expect that it will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Regardless of the outcome of the investigation, this is something Cisco will have to keep a beady eye on in the future, particularly given its ongoing acquisition of Acacia Communications, which will see its exposure to the Chinese market increase, should the deal eventually close.
While Acacia (which makes optical networking kit) is based in the US, it has a significant customer base in the Middle Kingdom, which prompted it to seek the approval of Beijing's antitrust regulators for the $4.5 billion deal. That approval was granted in mid-January. ®