Published on: December 18, 2012In a front page, 8,000-word story this morning, the New York Times details a series of bribes that Walmart's Mexico division paid to local officials, concluding that "Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart 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. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals."
The story goes on: "Through confidential Wal-Mart documents, The Times identified 19 store sites across Mexico that were the target of Wal-Mart de Mexico’s bribes. The Times then matched information about specific bribes against permit records for each site. Clear patterns emerged. Over and over, for example, the dates of bribe payments coincided with dates when critical permits were issued. Again and again, the strictly forbidden became miraculously attainable."
Indeed, the story also charges that while Walmart did open an internal investigation after top executives were told by a former Wal-Mart de Mexico lawyer about the patter of bribery, that investigation was closed down despite what is described as a "wealth of evidence."
The Times story, which is extraordinary in its detail and complexity, can be read in its entirety here, under the headline "The Bribery Aisle: How Wal-Mart Used Payoffs To Get Its Way In Mexico."
The Times writes: ""Thanks to eight bribe payments totaling $341,000, for example, Wal-Mart built a Sam’s Club in one of Mexico City’s most densely populated neighborhoods, near the Basílica de Guadalupe, without a construction license, or an environmental permit, or an urban impact assessment, or even a traffic permit. Thanks to nine bribe payments totaling $765,000, Wal-Mart built a vast 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."
Since the Times first reported several months ago on what it described as systematic and systemic bribery by Walmart of local Mexican officials, the world's largest retailer has been dealing with investigations by the US Congress, the US Justice Department and the US Securities and Exchange Commission (SEC) into the possibility that Walmart has violated the Foreign Corrupt Practices Act, which make sit illegal to bribe foreign officials. There also is an investigation taking place in Mexico, and Walmart has launched its own internal probe.
There is more at stake here that Walmart's Mexico business. By implication, the bribery charges have created awareness and suspicion about how Walmart has conducted itself in other countries, such as India, Brazil and China, which is why Walmart reportedly has spent upwards of $100 million on investigations, anti-corruption training, and the defense against shareholder lawsuits.
In a response to the Times story, Walmart spokesman David W. Tovar said that the allegations contained in the piece "surrounding events in 2003-2004" have been the subject of an internal investigation conducted by independent members of the company's board of directors for more than a year.
Tovar said that the company continues to tighten its anti-corruption procedures, is cooperating with the various government investigations, but is not commenting on the details contained in the Times story: "At this point, the investigation is still ongoing and we have not yet reached final conclusions. A thorough and independent investigation will take time to complete. We wish we could say more but we will not jeopardize the integrity of the investigation."
- KC's View:
- "Integrity" seems like a pretty funny word for Walmart to be throwing around at this point.
And the irony, as has been pointed out here before, is that this level of bribery seems to have been conducted and even condoned by a company with such strict internal rules that one cannot treat one of its buyers or other executives to a soft drink or a beer.
This is an extraordinary piece of reporting - detailed and extensive, with enormous specificity about people and places and numbers. (Can you spell "Pulitzer"?)
At this point, it seems to me, Walmart is circling the wagons. It is going to have to admit wrongdoing, but it is going to do its best to delay that moment so it can point to all its more recent anti-corruption activities and say that it has both acknowledged and fixed the problem. This will be important both for purposes of reducing its exposure to criminal prosecution, and reassuring officials in India, China and Brazil that it can live up to its commitments. And it will be interesting to see what executives are called to account for their decisions.
Sure, there will be people who will say that this is reality, this is how business gets done. But that does not change the fact that the scenario laid out by the Times is one of consistent and knowing acts of illegality.
And to be honest with you, on all sorts of levels these days, I am getting really tired of people who say that this is just how things are, as if that is some sort of excuse.
Read the Times story. It is, I think, more than worth the time and effort.