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  - Dec. 19, 2012 -  

Supply Chain News: Trouble in Bentonville, as Walmart Bribery Scandal Resurfaces in Big Way

New York Times Details Bribery Strategy in Mexico, as Walmart Said to be Finding Problems Across the Globe

  by SCDigest Editorial Staff  

In April of this year, Walmart became embroiled in a mini-scandal after an heavily researched article in the New York Times not only alleged the company had used bribes for many years to fuel its highly successful penetration into the Mexican market, but that senior company executives may have been involved in cover-up activities. (See Walmart Suddenly Embroiled in Scandal over Alleged Bribery in Mexico – and more Importantly the Cover-Up.)

SCDigest Says:
The story is important not only due to the legal aspects of it, but because the illegal activity may have played a key role in Walmart de Mexico's rapid growth and success there, giving it an unfair advantage over rivals.

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But the story didn't seem to stick for more than a few days – and at the time SCDigest argued that the once hated Walmart had earned itself a bit of a pass from many in the government due to its very active efforts in terms of sustainability. That said, there are on-going investigations now by the SEC and the Justice departments that could lead to stuff penalties and possible lrgal problems for current or past Walmart executives.

There are official investigations occurring in Mexico as well. But Walmart's troubles appear far from isolated to Mexico alone.

Now the New York Times is back, publishing another article this week on the subject after months of research by reporters David Barstow and Alejandra Xanic von Bertrab that lays bare the bribing activities in significant detail.

For example, in 2004 a choice location for a Walmart store near the ancient pyramids in San Juan Teotihuacan was about to be blocked by zoning changes that would prevent development in the area. But a bribe of $52,000 by Walmart de Mexico soon change that (just one of four payments related to the project that totaled to more than $200,000).

"The plan was simple. The zoning map would not become law until it was published in a government newspaper," the Times reports. "So Walmart de Mexico arranged to bribe an official to change the map before it was sent to the newspaper, records and interviews show. Sure enough, when the map was published, the zoning for [the field] field was redrawn to allow Walmart's store."

When Walmart started to build its store at the site, it was met by fierce opposition from those opposed to a store so close to a cultural treasure, amid other concerns. Yet even as the protests went on for months, somehow the story of the altered zoning map went unmentioned.

A former lawyer for Walmart de Mexico told the Times that "by outmuscling protesters and building in the shadow of a revered national treasure, they would send a message to the entire country: If we can build here, we can build anywhere."

The thrust of the story in April, repeated in the this latest article, is that as an internal company investigation began to turn up details of the broad bribery activity, Walmart's then CEO Lee Scott shut it down in 2006.

The story is important not only due to the legal aspects of it, but because the illegal activity may have played a key role in Walmart de Mexico's rapid growth and success there, giving it an unfair advantage over rivals that changed the Mexican retail landscape. It is now Walmart's largest international division. In 2011,the division had profits of about $6.58 billion.

The Times says its current article picks up basically where the internal investigation stopped in 2006. In doing that, it lays down some serious charges:

"Walmart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance - public votes, open debates, transparent procedures," the article says. "It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals."

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The research found 19 store sites that seem to be the result of bribes to Mexican officials, with these payments closely tied to dates when special permits were issued. "Again and again, the strictly forbidden became miraculously attainable," the article says.



The money involved wasn't trivial. For example, the Times says a total of $765,000 in bribes across nine payments were used to enable Wamart to build a large refrigerated distribution center in an environmentally fragile flood basin north of Mexico City," in an area where electricity was so scarce that many smaller developers were turned away."

Walmart relaunched its own investigation after the Times first article in April. The article this week now says that the world's largest retailer has spent an incredible $100 million on that new internal probe so far this year – and what the company is finding out isn't good.

"Walmart has hired hundreds of lawyers, investigators and forensic accountants who are examining all 27 of its foreign markets," the Times article says. "It has already found potentially serious wrongdoing, including indications of bribery in China, Brazil and India. Several top executives in Mexico and India have been suspended or forced to resign in recent months."

What happens from here? That is hard to say. Reports are that among the issues the Justice Dept. is investigating is whether Walmart violated the Foreign Corrupt Practices Act (FCPA), a federal law that makes it a crime for American corporations or their subsidiaries to bribe foreign officials. Such violations can have serious consequences in terms of fines and other penalties, a company's reputation, and personal legal jeopardy.

The charges there could be very serious, because the Times story in effect says these weren't sort of run of the mill, somewhat casual use of bribes.

"Wal-Mart de Mexico didn't stumble into a bit of bribery. If the allegations are correct, it used systematic bribery as part of its business strategy as a way to grow," Richard Cassin, an FCPA expert and author of a popular FCPA blog, told Reuters this week.

The SEC is said to be looking at in part whether Walmart had the legal duty to reveal details about its bribery investigation to shareholders back in the 2005 timeframe.

At the very least, this clearly has some senior Walmart executives tied up with the investigation and potential legal woes, and less time on strategy and execution.


This story is not only of general interest, but has a supply chain impact as well, as given Walmart's size and the percent of their sales many consumer goods companies have to Walmart, anything that impacts that dynamic would have supply chain implications as well.

Any reaction to this Walmart scandal. Do you believe it will have any real impact in the end? Let us know your thoughts at the Feedback section (email) or button below.

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