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Alleged out of control corruption within Cisco's advanced services (AS)

Email message alleges Cisco CEO John Chambers, Cisco COO Gary Moore and Cisco Global Services Head Edzard Overbeek are ignoring out of control corruption within Cisco's advanced services (AS).

Hershey, PA:   Mon, 9/17/12 - 11:59pm    View comments

2-months ago I blogged:

Is alleged inappropriate nepotism costing Cisco millions?

Recently, I received an email message alleging that Cisco CEO John Chambers, Cisco COO Gary Moore and Cisco Global Services Head Edzard Overbeek are ignoring out of control corruption within Cisco's advanced services (AS), view the Cisco advanced services price schedule.

Cisco advanced services (AS) overview:

The email message that I received alleges:

"Cisco global services revenue is nearly 20% of total company revenue now. Inside Cisco, the services business has 2 main offerings: Technical Support Services (TS) and Advanced Services (AS). Cisco's TS offers warranty and technical support for customers facing product issues while Cisco's AS offers direct consulting services that help customers plan, design, deploy and operate their networks.

"Take Cisco China as an example, on a yearly basis, TS does $240 million USD and AS does $50 million USD. Cisco's AS has much higher year-over-year (YOY) growth and margin over Cisco's TS. Cisco's AS will sometimes outsource work to its outsource partners (called short listed subcontractors) when Cisco's short of certain technical capabilities and/or resources. The magic point is that when outsourced, Cisco's AS can be processed without visibility to Cisco's customers and Cisco's internal teams. It's a hidden business value chain handled by very few people within Cisco's services team."

The email message continued with the following allegations:

Michael LuoCisco"Michael Luo (miluo@cisco.com) is the Cisco China regional service sales manager with a service sales team in East China. He is a US citizen originally from Taiwan, his parents immigrated to the US when he was a teenager. He graduated from UCLA and worked as a TS support manager in Cisco's San Jose HQ, and moved to China as a TS manager 2007. In 2008, he found an opportunity to turn his job into a service sales manager role in charge of the services business for East China and China Cable & Video.

"There's about $10 million USD in annual Cisco AS business in Michael Luo's territories where he's finding 'creative ways' to make money secretly by outsourcing Cisco's AS. Luo's managed to manipulate his sales team and his counter part in Cisco's AS team in order to outsource certain amounts of service dollars (from $20,000 USD to $300,000 USD each deal) to 'buddy companies' (like Beijing Lepusdigital Co., Ltd., a Cisco AS subcontractor) with fake SOWs against each booked AS order from Cisco's customers, including some state-owned Chinese companies."

More allegations from the email message:

"As most of Michael Luo's Cisco AS outsourced subcontracts do not require service delivery to Cisco's customers and because Cisco will pay the outsourced $Dollars with fake delivery confirmations from Cisco's customers, the process is not visible to Cisco's customers and most Cisco employees. Because Cisco's customers and the Cisco sales team can only see the booked Cisco AS order, nobody but the Cisco AS outsource team can see the outsource requests and contracts from the Cisco AS team to Cisco's subcontractors.

"It's a creative and secret way to make money, and has accumulated over a Million USD. The Cisco customers under Michael Luo's 'outsource business' include Orient Cable Network Company (China's #1 cable network service provider) and Tencent Holdings Limited (China's #1 instant messenger service provider). Luo's buddy company, Beijing Lepusdigital, has become a top subcontractor of Cisco's AS. These fake SOWs are actually Cisco AS margin loss invisible and Cisco's internal independent investigation team has initiated a thorough investigation into Michael Luo's suspected corruption."

The conclusion of the email message alleged:

"Do not know what will be the next step after this investigation, but it could be a sign that Cisco's losing control on both the inside and outside, if people like Michael Luo can go on with his personal business in Cisco without any red light. Brad, sorry it is hard for me to directly interact with you or others, if the FBI's involved, they will have more resources to investigate, Michael Luo's income in US bank accounts, and I guess he didn't report grey income to the IRS. Secondly, Cisco's internal investigation is filing a final report and will make a decision on Michael's discipline.

"You can easily check this with your friends at Cisco, and as a pubilc company, Cisco should report this to its shareholders. It's also related to a China state-owned compay, same as a government customer, so it applies to the U.S. Foreign Corrupt Practices Act (FCPA). However, the worst thing is that Cisco continues to lay off valuable employees while not stopping internal thievery within Cisco. I wrote to John Chambers, Gary Moore, and Edzard Overbeek the new global services head, but they just ignored me. So the public and Cisco's shareholders should know about this.

"Here are 2 Cisco Purchase Orders (PO) to Cisco AS subcontractor, Beijing Lepusdigital, $58,000 USD for nothing to service, just money laundering."

Cisco PO Number T5550007090 T5550007091
Period P9-Apr-11 P9-Apr-11
Country Name Cisco International BV Cisco International BV
PL Level 5 CA Advanced Services CA Advanced Services
PL Level 6 Svc AS Delivery Greater China Svc AS Delivery Greater China
PL Level 7 AS Core Functions - GC AS Core Functions - GC
PL Level 8 Svc AS Greater China - FD Svc AS Greater China - FD
PL Level 9 AS FD - China excl HK AS FD - China excl HK
PL Level 10 AS APAC China Cisco BV Ariba AS APAC China Cisco BV Ariba
PL Level 11    
PL Level 12    
Dept Name AS APAC China Cisco BV Ariba AS APAC China Cisco BV Ariba
Dept 551091 551091
Vendor Name Beijing Lepusdigital Co., Ltd. Beijing Lepusdigital Co., Ltd.
Item Description Project ID: 725049; Project name: Network Optimization Consulting Project; PSOW Amount: 28k; Project Period: Feb 6, 2011-May 6, 2011 Payment Term: 100% by Apr. 30th, 2011 Project ID: 722664; Project name: OCN CDS expansion; PSOW Amount: 30k; Project Period: Nov 21, 2010-Apr 21, 2011 Payment Term: 100% by Apr. 20th, 2011
Creation Date 23-Feb-11 23-Feb-11
Email Address helcheng@cisco.com helcheng@cisco.com
Account 62385 62385
Project 725049 722664
Ordered Amount $28,000 $30,000
Financial Analyst Mr. Stephen Taggert Mr. Stephen Taggert

Source: Email message to Brad Reese

Related document:

Cisco's Code of Business Conduct

Related story:

Is alleged inappropriate nepotism costing Cisco millions?
 


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