Great report on Cisco’s sanction-breaking & deals with the KGB in Russia. This is engagement in action.
The intent was to dodge sanctions and provide equipment to Vladimir Putin’s military and security services, a source says. Cisco strongly denies it violated sanctions or attempted to do so. A BuzzFeed News investigation.
After Western sanctions began shutting down sales of high-tech internet equipment to Russia’s military and security forces, employees at technology giant Cisco Systems Inc. altered sales records and booked deals under a false customer name, according to internal company documents. The intent, according to a confidential source with deep knowledge of Cisco’s Moscow operations, was to dodge the sanctions by masking the true customers behind more innocuous-sounding straw buyers.
In at least one case, the source said, Cisco employees succeeded in actually providing equipment — including sophisticated internet switches — to the feared FSB, the successor to the Soviet-era KGB.
Top officials at Cisco, one of America’s most prestigious and innovative companies, valued at more than $151 billion, vehemently denied the allegations. Cisco did not violate sanctions or attempt to do so, they said.
Cisco officials didn’t dispute the authenticity of the internal emails and spreadsheets obtained by BuzzFeed News. Instead, speaking on condition of anonymity in lengthy phone briefings, the Cisco officials acknowledged that the buyer name on some accounts was incorrect but said those were innocent and harmless errors. When records were changed, they said, the intent was only to be more accurate, not to conceal the real buyer.
In the case of the alleged FSB deal, officials said the equipment had not gone to the security service but to a civilian ministry. Cisco is “in complete compliance with the US and EU sanctions on Russia,” spokesperson Nigel Glennie said in a brief written statement.
Still, once sanctions were imposed, top Cisco management tried hard, internal emails show, to find a legal way to keep some products flowing to Russia — even though doing so posed a “risk to our brand and reputation,” as a Cisco vice president put it.
Russia and the West are locked in their most hostile standoff since the Cold War. And Cisco’s Moscow office is reeling from an investigation by the U.S. Department of Justice and the Securities and Exchange Commission into allegations of a massive kickback scheme first revealed by BuzzFeed News last year.
According to the new allegations, which also concern the same Moscow office, employees tried a number of tactics to escape the sanctions, imposed by the United States and the European Union last year after Russia annexed Crimea and fomented conflict in eastern Ukraine. The sanctions prohibit Western companies from selling “dual-use technology” — civilian technology that could also have military applications — to “military end-users.” Much of Cisco’s equipment is deemed dual use, and in early October the company canceled deals worth $1.7 million.
In one case, the source said, Cisco canceled a deal to sell an internet network to the FSB. Employees then replaced it, he said, with two similar deals to the Chamber of Commerce and Industry of the Russian Federation — but the true end user remained the security service.
The source said that the Chamber of Commerce was sometimes used as a ghost buyer to facilitate other sales to agencies that could not buy Cisco equipment legally. Internal company records indicate that Cisco booked at least seven deals over six months to sell a total of more than $500,000 worth of equipment such as routers, switches, and servers to the chamber.
“This is strange,” Olga Litvinenko, the chamber’s spokesperson, wrote in an email to BuzzFeed News. The chamber, she said, made no major purchases of technology from Cisco — nor did it make purchases on behalf of other companies or agencies. “We are not a commercial organization which purchases big things, we do not purchase anything besides office supplies,” she wrote.
Cisco officials said that because of an issue with its sales-tracking software, some deals recorded as being for Chamber of Commerce were, in fact, for the Russian government’sMinistry of Industry and Trade. But, Cisco officials said, the chamber deals did not send equipment to the FSB or other banned agencies.
In other cases, employees changed the name of the customer from the Ministry of Defense or the Russian space agency to a company. The purpose, according to the source, was to hide the true buyer. (Because of its close connection to the Russian military, some sales to the space agency were barred under the sanctions.)
Cisco officials said the changes simply made the records more precise. They also said one of those deals did not go through, proving the system worked, and the other was approved as legal.
In the company’s Moscow office, according to the source and two former Cisco executives, some employees engaged in various deceptive practices. One reason, they said, is that Cisco puts tremendous pressure on sales officials in Russia to conclude deals. “Cisco is a tough company,” the source said. “If you don’t sell, get out.”
For years, Cisco’s Moscow office deployed kickbacks to win business, according to the two former executives. In 2013, a whistleblower approached the Securities and Exchange Commission, according to a source close to the investigation, alleging a violation of the Foreign Corrupt Practices Act and prompting an investigation by U.S. authorities. Cisco disclosed in federal filings that it had been asked by the SEC and Justice Department to investigate the allegations itself. But BuzzFeed News was the first to publicly detail how the alleged kickback scheme worked. BuzzFeed News has since learned that federal agents are interviewing high-level current and former Cisco officials. The Justice Department and the SEC declined to comment.
Even before the current sanctions, according to one of the former Cisco executives, employees in the Moscow office sometimes concealed sensitive buyers behind innocent-sounding straw purchasers. Some sales to the Russian military required special permission from the U.S. State Department. So, he said, the sales team would relabel the end user as a “military hospital,” which would draw less scrutiny. “We used this account for accounts that would need State Department certificates,” he said.
A corporate official in San Jose, California, said he was unfamiliar with this alleged practice: “We don’t have any information, zero, about the types of allegations that you’re bringing.”
After the sanctions were imposed, salespeople came under pressure not only because they needed to make money, according to the source, but also because their Russian government customers insisted on obtaining Cisco’s computer equipment. “The ministries,” he said, “they can’t understand how they cannot get this equipment. ‘Find a way we can get this shipment. We need this.’ So the sales guy needs a scheme to sell there.”