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Walmart Mexico engulfed in bribery scandal

April 29, 2012

Mega-retailer Walmart has been in hot water this week, after the New York Times published a lengthy article alleging that company executives shut down an investigation of bribery in its Mexico operations.

Shares have plummeted, costing Walmart billions of dollars, amid growing concerns that the allegations of rampant bribery and hushed investigations will hinder plans for further expansion.

The accusations date back to September 2005, when Sergio Cicero Zapata, a former executive of Walmart’s largest foreign subsidiary, Walmart de Mexico, emailed a company lawyer describing how market dominance had been attained south of the border through a campaign of bribery. Providing names, dates and figures, he claimed Walmart de Mexico had paid bribes to obtain construction permits all over the country.

According to the New York Times, Walmart sent investigators to Mexico City to look into the allegations. They soon uncovered evidence of widespread bribery, with seemingly illicit payments totaling over 24 million dollars.

“There is reasonable suspicion to believe that Mexican and USA laws have been violated,” reported the chief investigator, who recommended that Walmart expand its inquiry. Instead, the Times alleges, Walmart’s bosses shut it down.

Neither U.S. nor Mexican law enforcement officials were notified and none of the Walmart de Mexico staff were disciplined, while chief executive Eduardo Castro-Wright, identified by the whistleblower Zapata as the driving force behind years of bribery, was promoted to vice chairman of Walmart in 2008.

With 20 percent of Walmart’s stores now located in Mexico, the company’s expansion beyond the Rio Grande was considered a huge success and had been pitched to investors as a model for future growth. So, when confronted with evidence of corrupt practices in Mexico, the Times says company executives opted to focus on damage limitation instead of punishing any unlawful activity.

If the allegations are true, Walmart may have violated the U.S. Foreign Corrupt Practices Act (FCPA), which forbids bribes to foreign government officials. The U.S. Justice Department opened a FCPA investigation into Walmart late last year, while two Democratic representatives, Elijah Cummings and Henry Waxman, announced they were launching an investigation into the matter this week.

Walmart quickly issued a lengthy riposte to the Times article.

“Many of the alleged activities in The New York Times article are more than six years old. If these allegations are true, it is not a reflection of who we are or what we stand for,” said David Tovar, vice president of corporate communications, in a statement posted on YouTube.

“We take compliance with the FCPA very seriously and are committed to having a strong and effective global anti-corruption program in every country in which we operate,” Tovar said. “We will not tolerate noncompliance with FCPA anywhere or at any level of the company.”

“We are confident we are conducting a comprehensive investigation and if violations of our policies occurred here, we will take appropriate action.” He added. “We are committed to getting to the bottom of this matter.”

Walmart’s attempts at damage limitation may come too late, with the company already beginning to feel the heat from the fallout.

Wal-Mart Stores Inc. lost ten billion dollars of its market value on Monday alone, with shares falling by 4.6 percent. Another three-percent drop followed on Tuesday.

Shares of Walmart de Mexico fell even further, declining 12 percent on Monday and a futher four percent on Tuesday.

In Mexico, a spokesman for presidential frontrunner Enrique Peña Nieto said he favored a government investigation of the allegations against Walmart, while leftist candidate Andres Manuel Lopez Obrador, who has often criticized Walmart’s practises, said the case showed the government was “rotten.”

Government officials have long supported Walmart, now Mexico’s largest private employer, with more than 2,000 stores and restaurants nationwide. Ignoring labor groups’ complaints about the wages Walmart pays, President Felipe Calderon recently met with its chief executive and praised the company’s clean energy goals and its contributions to the economy, including a promised 23,000 new jobs.

Calderon said on Wednesday the scandal had made him “very indignant.” The following day, Mexico City Mayor Marcelo Ebrard said authorities in the capital were investigating the bribery allegations “store by store.”

While high-profile, the Walmart case is hardly unique in Mexico. With bribery and corruption still all too common in modern-day Mexico, the Chamber of Deputies (lower house) recently passed an anti-corruption bill that would give authorities new powers to fine companies for corruption.

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