Google Inc., the owner of Brazil's most-used online community site, may face a criminal probe for distribution of child pornography and racist materials by its users, lawyers for the attorney general said. [...]
The service, Orkut, is being used to violate Brazilian law, said prosecutors Sergio Suiama and Karen Kahn.
"Orkut has become a paradise for pedophiles, who solicit sex with childen and distribute pornographic material," Kahn said at a news conference in Sao Paulo.
From what I am reading, Google is hesitant about complying with international laws where it has no "physical presence" (in other words, servers within a nation's borders).
Although I understand their fear of being controlled by foreign governments who lack jurisdiction in the US, it would be wise for Google to comply with the Brazilian government.
Child exploitation is a global issue, and if Google is seen as hampering efforts to catch these low life's, then you will see a backlash not only in cyberspace but also in the market (as they will be labeled as a "public evil").