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Who’s Responsible for the Walmart Mexico Scandal?

Ben W. Heineman, Jr.

After a close evaluation of the company’s new compliance report, we still don’t know.

The Walmart bribery scandal is one of the most closely-watched cases of alleged malfeasance by a global company. It broke into the open in April, 2012, when the New York Times published a lengthy investigative piece alleging Walmart bribery in a Mexican subsidiary and a cover-up in its Bentonville, Arkansas, global headquarters. The piece, which won a Pulitzer Prize for reporter David Barstow , raised a host of personal accountability and corporate governance issues for the company.

Ben W. Heineman, Jr. is former GE General Counsel and is a senior fellow at Harvard University’s schools of law and government. He is author of the new book, The Inside Counsel Revolution: Resolving the Partner-Guardian Tension , as well as High Performance With High Integrity .

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Wal-Mart Bribery Case Raises Fundamental Governance Issues

Wal-Mart appeared to commit virtually every governance sin in its handling of the Mexican bribery case, if the long, carefully reported New York Times story is true. The current Wal-Mart board of directors must get to the bottom of the bribery scheme in Mexico and the possible suppression by senior Wal-Mart leaders in Bentonville, Arkansas (the company’s global headquarters) of a full investigation.

In addition, the board must also review – and fix as necessary – the numerous company internal governing systems, processes and procedures that appear to have been non-existent or to have failed. And, most importantly, it must define the CEO’s core role as one which truly fuses high performance with high integrity, and does not exalt performance at the expense of integrity – and possibly discipline or remove the past CEO (still on the board) or the current CEO.

The essential allegations in the Times story are as follows:

For a substantial period before 2005, the CEO of Wal-Mart in Mexico and his chief lieutenants, including the Mexican general counsel and chief auditor, knowingly orchestrated bribes of Mexican officials to obtain building permits, zoning variances and environmental clearances, and also falsified records to hide these payments. When the lawyer in Mexico directly responsible for bribery payments had a change of heart and reported the scheme to Wal-Mart lawyers in the United States, those lawyers hired an independent firm which, after an initial look, recommended a major inquiry.

This was rejected by senior Wal-Mart management, which instead told an internal Wal-Mart investigative unit to look into it. That unit, too, said, in early 2006, that a substantial inquiry was warranted. But top Wal-Mart leaders in the U.S., including the company’s general counsel, referred the matter back to the Wal-Mart general counsel in Mexico – the very lawyer who was allegedly at the center of the bribery scheme. Unsurprisingly, the Mexican general counsel promptly closed the matter, finding no problems and suggesting no disciplinary measures for senior Wal-Mart leaders in Mexico. He remained in his position until relieved of his duties last week, just before the Times story appeared.

Below are some of the most concerning governance issues – using governance to refer not just to relations between board and management but, importantly, to how the CEO governs the company from top to bottom. I will not use the word “alleged” in every sentence, but one should assume that I do because none of these facts have been established by law enforcement authorities and are, at this point, allegations contained in a piece of investigative journalism.

Culture of Silence. Most corporate scandals are perpetuated by a culture of silence. Here there appears to have been no integrity hotline or whistleblower system that worked, because the alleged bribery scheme went on for years without anyone reporting it to an independent company ombudsperson (and some employees were clearly aware of it). Moreover, the Mexican business leaders hid the bribery scheme from the global Wal-Mart leadership in the U.S. And, as far as one can tell based on the allegations so far, the Wal-Mart leaders in the U.S., when they learned of the allegations in some detail, hid the matter from the Wal-Mart board of directors. Wal-Mart appears to have operated like a compartmentalized criminal enterprise rather than a lawful global company.

But, in addition to dealing with the dangerous legal issues facing Wal-Mart, the current board must ask and answer a number of hard questions about how the company was governed and managed. What was the failure of the then board in not overseeing whether the company had adequate compliance systems and processes in such a fundamental area as compliance with the Foreign Corrupt Practices Act? Did the board know anything about the matter then – and did it fail to act properly (as note above, there is no information yet that the board was informed)? What were the fundamental system and process failures, have they been fixed, and what needs to be done to fix them in the future? What kind of discipline and cancellation of benefits is appropriate for those who were involved at the time and still remain at the company – a list which includes the then CEO of Mexico (now a Wal-Mart “consultant” until July), the current and immediate past CEOs of the company, and senior legal and finance staff? And for those Wal-Mart officers or employees implicated in the matter but no longer with the company, what kinds of legal actions by the company are appropriate if they were involved in violations of law, company codes or general fiduciary duties?

Most of the public will be watching to see whether Wal-Mart is legally liable and pays significant damages. But, for those deeply concerned about corporations’ ability to govern themselves, and about the fusion of high performance with high integrity as the core mission of capitalism, the future details on problems and remedies relating to Wal-Mart’s governance, leadership and management hold equal fascination.

The allegations of the “vast bribery case hushed up by Wal*Mart” reported in detail in the New York Times of Sunday, April 22 (article), if they prove true, offer important lessons for senior leaders and directors of enterprises of all types and sizes. First, if no one is paying attention to the company’s culture, if no one is willing to act as a “steward” for that culture, it will devolve to the lowest common denominator: Do “whatever (is) necessary” to achieve the commercial objectives. Wal*Mart’s code of conduct as well as their ethics and compliance policies all prohibited bribing public officials (even if they are in Mexico); required those who know of such acts to report it; and suggested that internal investigations be headed by people not associated with the alleged offending organization. Not only were all these regulations ignored, but they were ignored by some of Wal*Mart’s most senior leaders. So much for “tone at the top”! These misjudgments are at serious variance with the ethical principles Sam Walton left behind in the company’s culture. Stewards of Sam’s culture appear to be few and far between, so the Wal*Mart culture has eroded to a “whatever it takes” mentality while no one was paying attention.

Second, if Wal*Mart, an important corporate leader worldwide, really wants to protect and promote its standing as a principled and ethical business in the face of such a significant reputational threat, their best strategy would be to aggressively and transparently address these issues head on. Rather, they took the decision to hide the allegations behind a wall of bureaucracy and denial. Wal*Mart executives allegedly watered down official reports of the misdeeds, attempted to shift the search for the offender to the whistleblower, kept the investigation inside the corporation and even put the person alleged to have been the mastermind of the program in charge of the investigation. Many of these same errors can be found in the history of the recent Penn State Athletic Department case and the Roman Catholic Church child abuse case. Wal*Mart should have recognized that these stories eventually come out and that they would then have to deal, not only with the fact of the bad behavior, but also with an attempted cover-up. History can be an excellent teacher, but only if one pays attention to it.

Third, an enterprise’s strategy, risk and ethical behavior are inextricably tied. Especially large and mature enterprises accustomed to high performance growth have a tendency to over-reach when setting their strategic and financial plans. When these plans meet the reality of the market and the risk of failure becomes apparent, executives start looking for tactics that will raise the likelihood of success – “whatever it takes”. When the business strategy is targeted at a market not known for its high ethical standards, the risk that the company will find itself in violation of its own standards as well as the laws of the home and target countries increases dramatically. Wal*Mart was surely aware of these conditions yet continued to encourage its “WalMex” team to pursue aggressive goals without understanding what was going on behind the scenes to drive such exceptional performance. Once more thr ight people were not paying attention.

So, what should happen next? First, the internal investigation that Wal*Mart has announced should be handled by independent investigators and the results delivered directly to the board of directors and the Justice Department. Second, if the investigation corroborates the allegation in the Times article, the offending executives should be fired immediately. Third, Wal*Mart must cooperate fully and openly with the consequent Justice Department investigation including delivering the accused executives to their day in court. Fourth, even if Mr. Duke is not directly implicated in the bribery allegations, he should resign since these very serious misdeeds happened on his watch (or lack thereof) and he failed to enforce a tone at the top that should have squelched the bad behavior as well as the cover-up. Finally, Mr. Rob Walton should take a serious look at his board of directors, the fiduciary stewards of the Wal*Mart culture, determine how they lost track of Mr. Sam Walton’s principles, and permanently rectify the situation, returning Wal*Mart to the culture Mr. Sam Walton intended.

Superb post. You have cut to the heart of the matter, as you did in your book. What happened here is contrary to the founding principles Sam Walton established. Hopefully, this embarrassment will prod Wal-Mart’s board to permanently address these serious lapses, emerging stronger and better.

Are you all joking? Does everyone at Harvard similarly buy this spoon fed horse-sh#t? “Failure to Fuse Performance with Integrity?” Sounds like the hallowed halls of your ivy-league corporate interest defending school have a serious reality problem. Wal-mart is a corporation. It is given all the rights of a citizen of the U.S., with little or no responsibility to its externalities, and its only goal is TO MAKE MONEY.

You guys all have your panties in a bunch because they happen to get caught! “Deeply concerned about corporations’ ability to govern themselves?” Are you kidding? Have you ever contemplated the notion of ‘conflict of interest’? Its like letting your five year old in a room all day with 10 pounds of brownies and being “seriously concerned” when he ends up sick!

“Reconcile the tension between being partners and guardians?” Do you all believe the stuff that comes out of your mouths? Or is it just a careful way to make sure the Mitt Romneys of the world can buy-gut-and-sell with impunity while you call it brilliant? How can you still pretend that there is anything but the thin veneer of hypocrisy attached to the term ‘business ethics’ after the crash of 2008, when all your ‘self governing’ titans of the financial markets grab-assed the country’s way into a $700billion tax payer bailout!

Even a cursory search reveals a long history of backdoor settlements for corporate crime including violating child-labor laws, union-breaking, and the largest gender discrimination lawsuit in history. A return to the principles that Sam Walton established? Give me a break. He had a good idea to use globalization to uproot small (higher quality) local businesses across the country and turn us into an overweight, diabetic, hoarding culture based on sweatshop-cheap goods. He was all about making money, who cares what crap product he was putting out and how it affected his employees, local communities, or even the landscape of america in the process.

He was a hollow shell, contributed nothing but cheap crap, and this story is right in line with the culture of wal-mart that has existed almost since its inception. I’m sorry you need to view corporations as some kind of benevolent, shameful, self-correcting contributors to our society because your job depends on it. But if you really look at your own apologistic stance and the fact that the only value you add is to make corporate leeches feel better about sucking the wealth out of the poor and middle class in this country to feed the rich, I feel like it isn’t too late for you to do something about it. A 10 year old could see how stupid your fake outrage is. And I can tell by your elaborate syntactical ‘scorn’ and manufactured nostalgia for ‘the old Sam Walton’ that you are at least 10. Have a nice day.

The United States government puts a premium on corporate cooperation in foreign bribery cases, relying on companies to conduct thorough internal investigations and voluntarily disclose any wrongdoing.

Indications that Wal-Mart Stores may have taken steps to keep an internal investigation from digging deeper into $24 million in questionable payments — and later promoting an executive who may have been implicated in them — may affect how the government decides to proceed against the giant retailer.

Wal-Mart first disclosed in December that it had started “a voluntary internal review of its policies, procedures and internal controls pertaining to its global anticorruption compliance program.

While Walmart cheats its employees and the communities they plunder with their predatory pricing, nothing will be done until consumers will overcome their greed. I know people who would spend $5 in gas to save 40 cents, rather than shop at the store within walking distance. Walmart is creating a world of slums as the many fill the pockets of the few. If you don’t like that idea, don’t shop at Walmart.

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[…] The company appeared to commit virtually every governance sin in its handling of the Mexican bribery case, if the long, carefully reported New York Times story is true, Heineman wrote in an article posted Saturday on the Harvard Law School Forum on Corporate Governance. […]

[…] also wrote “Wal-Mart Bribery Case Raises Fundamental Governance Issues” for the Harvard Law School Forum on Corporate Governance and Financial Regulation on April 28, […]

[…] Although there will be myriad important legal and governance lessons from both the News Corp and Walmart cases, none is more important for business leaders than the imperative to act decisively in the face of demonstrable wrongdoing, and not engage in willful ignorance and indifference with the hope the problem will remain hidden. (See my more detailed analyses of governance issues for News Corp and Walmart.) […]

[…] It is obvious, then, that economic self-interest that in the aggregate can produce societal economic benefit can easily turn into avarice and self-aggrandizement. In the cases of Barclays or GSK, these traits led to fraud in setting interest rates or marketing drugs. And, of course, Barclays and GSK are but the latest in an incessant drumbeat of corporate scandals just since the turn of this century, beginning with Enron (conflicts of interest, misleading public statements) and Worldcom (phony accounting) and leading to News Corp (phone hacking) and Wal-Mart (bribery). (For my take on the the last two, see here and here). […]

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Press Release

Walmart charged with fcpa violations.

FOR IMMEDIATE RELEASE 2019-102

Washington D.C., June 20, 2019 —

The Securities and Exchange Commission today charged Walmart with violating the Foreign Corrupt Practices Act (FCPA) by failing to operate a sufficient anti-corruption compliance program for more than a decade as the retailer experienced rapid international growth.

Walmart agreed to pay more than $144 million to settle the SEC’s charges and approximately $138 million to resolve parallel criminal charges by the U.S. Department of Justice for a combined total of more than $282 million.

According to the SEC’s order, Walmart failed to sufficiently investigate or mitigate certain anti-corruption risks and allowed subsidiaries in Brazil, China, India, and Mexico to employ third-party intermediaries who made payments to foreign government officials without reasonable assurances that they complied with the FCPA. The SEC’s order details several instances when Walmart planned to implement proper compliance and training only to put those plans on hold or otherwise allow deficient internal accounting controls to persist even in the face of red flags and corruption allegations.

“Walmart valued international growth and cost-cutting over compliance,” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit. “The company could have avoided many of these problems, but instead Walmart repeatedly failed to take red flags seriously and delayed the implementation of appropriate internal accounting controls.”

Walmart consented to the SEC’s order finding that it violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934.

The SEC’s investigation was conducted by Jason Rose, Irene Gutierrez, and Laura Bennett. The case was supervised by David Reece. The SEC appreciates the assistance of the Department of Justice Criminal Division’s Fraud Section, the Federal Bureau of Investigation, and the Internal Revenue Service. The SEC also appreciates the assistance of regulators and law enforcement in Brazil, India, and Mexico.

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Walmart's explosive Mexican bribery scandal: A concise guide

The New York Times reports that Walmart allegedly paid at least $24 million in bribes to become a dominant retailer in Mexico

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Walmart isn't just the largest retailer in the U.S. It's also a commercial powerhouse and the largest private employer in Mexico, the jewel of its global business empire. However, Walmart didn't come to dominate the Mexican market without spreading around a little shady cash, almost certainly in violation of U.S. and Mexican law, according to a lengthy, blockbuster report in The New York Times . After Walmart learned about The Times ' inquiries in December, it informed the Justice Department and Securities and Exchange Commission that it was opening an independent investigation into foreign bribery, without providing details. Now the details are out. Here's a brief guide to Walmart's big bribery scandal:

Briefly, what's the story?

In 2005, a former commercial real estate executive at Walmart de Mexico (Walmex) blew the whistle on a massive bribery scheme that fueled the company's explosive growth in the Central American country by paying officials to speed up permits and ignore laws. Walmart dispatched its own investigators, who found evidence of more than $24 million in suspect payments, approved by Walmex's top executives but hidden from the Bentonville, Ark., home office. Presented with this evidence, Walmart buried the information , allowing the implicated Walmex general counsel to wrap up the inquiry and exonerate himself and his fellow executives.

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What does Walmart say?

In a statement, Walmart public-relations chief David Tovar says that the company is "committed to getting to the bottom" of the allegations in The Times article , and more generally "committed to having a strong and effective global anti-corruption program in every country in which we operate." So "if these allegations are true, it is not a reflection of who we are or what we stand for."

Why is this such a big deal?

First, the alleged bribery in Walmart's fastest-growing market violates the company's public commitment to maintaining the highest ethical and moral standards. Second, many of the people allegedly involved in the bribery scheme or cover-up are still with the company: Eduardo Castro-Wright, Walmex CEO from 2002 to 2005, and reportedly the driving force behind the rampant bribery, is now Walmart vice chairman; then–CEO H. Lee Scott Jr. is still on Walmart's board; and current CEO Michael Duke was in charge of all foreign subsidiaries in 2005. Third, although its own investigator informed top Walmart officials that "there is reasonable suspicion to believe that Mexican and USA laws have been violated," the company didn't inform U.S. law enforcement until The Times started poking around, five years later.

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Did Walmart break any U.S. laws?

"This looks like a slam-dunk case under the Foreign Corrupt Practices Act" (FCPA), which bars U.S. companies from bribing officials abroad, says Felix Salmon at Reuters . And as is usually the case, "the crime was bad; the cover-up was worse." Whether or not Walmart actually violated FCPA, it "most definitely violated the culture that the Justice Department has fostered" over the past decade, where companies are expected to self-report their violations, says Nathan Vardi at Forbes .

But isn't bribery common in Mexico?

Yes, and in much of the rest of the world, says Tim Worstall at Forbes . So while "it looks as if there's something at least worth investigating under the FCPA" in Walmart's Mexico fiasco, "I would argue that that is a problem with the FCPA," not Walmex's practices. We may not like bribery, and we shouldn't accept it in the U.S., but corruption is the price of doing business in Mexico and many other countries. "This really is just the way of the world," and we either tolerate it or put our companies at a competitive disadvantage.

What happens next?

The Justice Department "will be under tremendous pressure to demonstrate that there are consequences" for flouting the FCPA, says Forbes ' Vardi . Otherwise, nobody will see the point in self-reporting their own violations of the law. It's bigger than just this Mexico scandal, says Reuters ' Salmon . The Times ' "report shows that corruption is marbled throughout Walmart's international operations, not only in Mexico but also in Asia," and "I'm quite sure that multiple extremely senior heads are going to roll."

Read the entire article in The New York Times .

Sources: AP , Forbes ( 2 ), Guardian , New York Times , Reuters , Wall Street Journal

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Everyone’s Problem: Looking Beyond the Wal-Mart Bribery Case

May 9, 2012 • 11 min read.

In a case that continues to reverberate across borders, Wal-Mart Stores, the world’s largest retailer, announced recently that it has started its own probe into allegations that executives at its Mexican operations made hundreds of illegal payments to help expedite the opening of new stores. According to legal and ethics experts at Wharton and elsewhere, the case raises broader questions about how multinational companies conduct business in foreign countries.

In a case that continues to reverberate across borders, Wal-Mart Stores, the world’s largest retailer, announced recently that it has started its own probe into allegations that executives at its Mexican operations made hundreds of illegal payments — worth more than $24 million — to help expedite the opening of new stores. According to a report in The New York Times , Wal-Mart officials in the U.S. learned about the bribery allegations in 2005, but failed to alert U.S. or Mexican officials at the time.

The charges have cast a dark cloud over Wal-Mart, which is also the largest retailer in Mexico and the country’s top private-sector employer. According to news reports, Wal-Mart’s own probe of possible bribery could force the firing of some of the firm’s executives, and bring serious fines from the U.S. government if investigations reveal that the company’s senior managers knew about the illicit payments but did not take sufficient action. The day after the allegations were made public, Wal-Mart shares fell nearly 5%.

That may be only the beginning of Wal-Mart’s troubles: In other repercussions, leaders of New York City’s pension funds said they would vote their shares against the five Wal-Martdirectors standing for re-election at the company’s shareholder meeting in June. Also, t he California State Teachers’ Retirement System, which holds more than 5.3 million Wal-Mart shares, has filed a lawsuit alleging that the firm’s senior officials engaged in massive opportunistic sales of the company’s stock before news of the Mexico allegations broke in late April.

According to legal and ethics experts at Wharton and elsewhere, the Wal-Mart case raises broader questions about how multinational companies conduct business in foreign countries. Is Wal-Mart’s alleged bribery in Mexico an anomaly, or is it more typical of multinational behavior than many corporate executives would like to admit? Is the practice of bribing public officials ever justifiable from an economic or ethical point of view? And apart from collapsing share prices and shareholder lawsuits, what are some of the other possible consequences of bribing foreign officials?

Mind the Rules

Despite the hoopla surrounding the Wal-Mart case, corporate bribery of public officials remains an all too common practice in many countries around the world, according to the most recent annual report by Transparency International (TI), a Berlin, Germany-based nonprofit with more than 100 chapters around the world. The organization’s Corruption Perceptions Index 2011 charges that many governments in Asia, Latin America and the Middle East still fail to protect their citizens from the abuse of public resources, bribery and secretive decision-making. Among them, Mexico is hardly the worst offender on the list. The 10 countries where bribery and other forms of corruption were most frequent last year include Somalia, North Korea, Burma (Myanmar), Afghanistan, Uzbekistan, Turkmenistan, Sudan, Iraq, Haiti and Venezuela. Mexico ranked 100 th among 183 nations surveyed by TI, exactly the same ranking earned by far less-developed countries such as Benin, Burkina Faso and Malawi.

For all the dissatisfaction expressed in that report, corruption experts generally agree that multinational executives in the U.S. and other countries are taking anti-corruption statutes more seriously than in the past. One reason is the U.S. Foreign Corrupt Practices Act (FCPA) of 1977, which imposes serious penalties on U.S. companies that bribe foreign officials. In addition, a growing number of executives recognize that bribery is not only ethically wrong, but economically counter-productive.

In an article published in the most recent edition of American Business Law Journal, titled “The Business Case for Complying with Bribery Laws,” Philip M. Nichols , a professor of legal studies and business ethics at Wharton, writes that several scholars have “convincingly marshaled together research that demonstrates the impediment to economic growth, degradation of social and political institutions, misallocation of resources and skills, impoverishment and numerous other societal ills that corruption inflicts on polities and economies.” He adds that although there is a shortage of “firm-level empirical data on the consequences of paying bribes,” the existing research, combined with theoretical discussions and the realities of the regulatory environment, makes “a very strong business case … for complying with the rules regarding bribery.”

Shaun Donnelly, vice president of investment and financial services at the United States Council for International Business, a New York City-based nonprofit, says that “the trend is in the positive direction…. The public sentiment is that bribery is not an acceptable way to do business,” and global companies are becoming more scrupulous about compliance with the law. In the years following the FCPA of 1977, “U.S. companies were constrained to do the right thing, but other countries’ companies were not,” Donnelly notes. However, since the 1990s, international institutions have enacted their own similar anti-corruption conventions, including those endorsed by the Organization of American States (1997), the Council of Europe (1999), the African Union (2003) and, most significantly, the Anti-Bribery Convention of the Paris-based Organisation for Economic Co-operation and Development (1999). “A lot of big companies take this seriously, and have training programs, annual reviews and reminders,” he adds.

Nichols argues that growing global economic integration has also helped to encourage many companies to shun bribery and other acts of corruption that might have seemed commonplace in the past. “Governments recognize that controlling the local damage done by bribery requires coordination [with other governments],” he says. “Any actor who engages in [what seems to be] a local activity exposes himself to global coordination” in this newly integrated economy. Globalization “has made more people aware of corruption and of its negative impact. What was thought of as ‘other people’s problem’ now becomes ‘our problem,'” he notes. Likewise, businesses no longer view themselves as single companies, but rather as a regional or global network of suppliers, employees and distributors.

According to Felipe Monteiro , a Wharton management professor, multinationals should gladly accept today’s more stringent legal requirements as the premium paid for the numerous benefits that they derive from operating on an unprecedented scale. For example, huge firms like Wal-Mart have power over their suppliers, and can implement some best practices not accessible to small firms. The Wal-Marts of the world “have lots of advantages,” including access to global sourcing, he points out. “Being less flexible on issues of corruption [than some of their local competitors] is a cost they have to pay.”

More broadly, Monteiro notes that global managers must make a series of trade-offs between those business practices that they may need to adapt to local ways and those practices they must maintain as core procedures everywhere around the world. The more stringent the international requirements for transparency, disclosure and documentation become, “the more difficult it is for multinationals to have different practices [in different countries] without getting into trouble.”

A Dose of Skepticism

William S. Laufer , a Wharton professor of legal studies and business ethics, takes a more skeptical view of current trends. “It is true that Foreign Corrupt Practices Act enforcement is increasing … and that having a robust FCPA compliance program is seen as part of a larger firm-level risk mitigation practice,” he says. “It is unclear, however, whether the step-up in extraterritorial enforcement along with renewed FCPA compliance efforts have any significant impact on rates of corruption and bribery. Not surprisingly, these data are lacking. Evidence-based research on the effectiveness of different anti-corruption compliance programs and overall strategy is also sorely lacking…. [Confidence] that any of this makes a difference is premature and likely imprudent.”

Until recently, there has been “no systemic study” of the topic, Nichols notes, in part because corrupt activity takes place under the table, and many people are reluctant to talk openly about what they are doing, with whom and how often. TI’s Corruption Perceptions Index, for example, has been criticized for relying on third-party survey data. Critics also note that TI data about specific countries varies widely depending on the public perception of the nation, the completeness of the surveys and the methodology used.

What Went Wrong at Wal-Mart?

Given the growing consensus that anti-corruption requirements must be taken seriously, the allegations against Wal-Mart are somewhat surprising, experts note. After all, for Wal-Mart, opening new stores in Mexico and other foreign locations is “a fundamental part of its business model,” says Nien-he Hsieh , a professor of legal studies and business ethics at Wharton. Either Wal-Mart’s senior management didn’t know what was going on, or it knew what was happening but did not particularly care about clamping down on such illegal behavior, he suggests.

If companies understand the risks of non-compliance, why would they make payoffs? One possible reason, says Nichols, is that some people “get a cowboy thrill from making a bribe.” This may be particularly true among unsophisticated companies that don’t want to invest the time and effort to do things right. More commonly, perhaps, this pattern of behavior may derive from a perception that bribery is simply “business as usual” in developing countries. “It is a lazy person’s solution instead of really selling your solutions,” says Donnelly, a former U.S. ambassador to Sri Lanka. “Some people think [incorrectly] that ‘this is a poor country, so everyone is corrupt. This is just the way things are done.’”

When senior managers engage in this behavior, it has a negative impact throughout the organization, according to Nichols. “There is a tendency, when top managers engage in undisciplined or self-motivated behavior, for the managers below them to engage in the same behavior.” Such behavior becomes part of the corporate culture, fueling a vicious cycle of low ethical expectations.

“In the U.S., you can clearly distinguish between a gift and bribe,” Nichols adds. That’s because a bribe involves a specific quid pro quo in return for the payment. But in emerging nations, it may be more difficult to make such a distinction. In some countries, executives are instructed that the giving of lavish gifts is an essential component of the local culture, not something to be scorned as improper. Shunning such a practice may even sour key personal relationships.

To avoid any possibility of impropriety, however, Nichols says that some companies wisely “draw the line very low” — excluding even small gifts, such as free lunches, from what is considered acceptable. Adhering to the “when in Rome, do as the Romans do” rule ascribes to others an “inflexibility that we won’t ascribe to ourselves. The idea that my rules are slightly different from yours, and there is an unbridgeable gap, is an argument that has no reality; it is presumptuous,” warns Nichols. People will realize that you are not insulting them if you politely refrain from any kind of gift exchange, even when a specific quid pro quo is not spelled out, he suggests.

Hsieh agrees, noting that some companies may “tend to underestimate the extent to which they can engage in certain practices” — such as firmly refusing any kind of improper payments. “We shouldn’t assume that everyone is corrupt in [a given] country. We have to make it clear” that payoffs are not acceptable, he adds. The aim should be to nip corruption in the bud at the outset.

At the same time, companies from developed nations should bear in mind that corrupt practices like bribery are not limited to the developing world; they often just take more subtle form in tightly regulated countries. “One of the unfortunate artifacts of narrowly thinking about corruption as an impediment to development is an unbecoming sense of self-righteousness,” Laufer points out. “To be sure, there should be indignation about the impact of corruption on poverty, the unlevel playing field at the base of the economic pyramid and the exploitation by multinational corporations of lax enforcement of laws in countries where the rule of law is compromised.” However, “there should be some measured humility in how the ‘developed’ world prescribes anti-corruption strategies.

“Put aside all of the forms of corruption for which federal, state and local laws apply, and consider something [such as] corporate-political influence,” Laufer adds. “Late last fall, the CPA-Zicklin Index of Corporate Political Accountability and Disclosure was unveiled at Wharton…. This annual index tracks the extent to which companies disclose their political spending — spending that is designed quite simply to buy influence. Is this corruption?”

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Wal-Mart Abroad

This series won a Pulitzer Prize for investigative reporting on April 15, 2013.

Confronted with evidence of widespread corruption in Mexico, top Wal-Mart executives focused more on damage control than on rooting out wrongdoing, an examination by The New York Times found.

Wal-Mart’s Response

David W. Tovar, a spokesman for Wal-Mart, responds to The New York Times.

Four Bribes, One Wal-Mart

Wal-Mart de Mexico faced a series of legal obstacles in its quest to build a supermarket in the protected archaeological zone around the pyramid complex in Teotihuacán. It overcame those obstacles by authorizing bribes, records and interviews show.

Zoning Bribe: $52,000

The biggest hurdle was Teotihuacán’s zoning map. It clearly prohibited commercial development where Wal-Mart wanted to build. Wal-Mart de Mexico authorized a $52,000 bribe payment to have the map altered, records and interviews show.

Traffic Bribe: $25,900

Wal-Mart wanted to build by the main entrance into Teotihuacán, in a spot already choked with traffic. Wal-Mart de Mexico authorized a $25,900 bribe payment to gain the approval of local traffic authorities, records and interviews show.

Archaeology Bribe: Up to $81,000

Wal-Mart could not build by the pyramids without a permit from the agency that protects Mexico’s cultural landmarks. Wal-Mart de Mexico offered a “donation” of up to $45,000 and a “personal gift” of up to $36,000 in exchange for the permit, records and interviews show.

Political Bribe: $114,000

Facing certain opposition from local merchants and residents, Wal-Mart de Mexico executives agreed to pay $114,000 in bribes to guarantee the support of Teotihuacán’s mayor and his allies on the municipal council, records and interviews show.

A preview of a New York Times investigation revealing bribery by Wal-Mart as it sought to build in the shadow of one of Mexico’s most revered cultural landmarks, the pyramids of Teotihuacán.

A Leader in the Protests Against Wal-Mart

Wal-Mart and the Pyramids

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Walmart to pay $282 million to settle federal bribery charges

Updated on: June 20, 2019 / 4:24 PM EDT / CBS/AP

Walmart agreed Thursday to pay a total of $282 million to settle a U.S. bribery investigation in connection with the retailer's operations in Brazil, China and other countries.

Of that amount, the company will pay a $138 million to resolve Justice Department allegations that its Brazilian subsidiary secretly funneled more than $500,000 to an intermediary in order to secure government permits. Such payments are a violation of the Foreign Corrupt Practices Act (FCPA), a 1977 law that bars American companies operating abroad from using bribery and other illegal methods.

Walmart also will pay more than $144 million to settle similar charges by the Securities and Exchange Commission. The company allowed subsidiaries in the four countries to "employ third-party intermediaries who made payments to foreign government officials without reasonable assurances that they complied with the FCPA," the SEC said in a statement .

Court documents filed in Alexandria, Virginia, say the corruption occurred in 2009 and 2010, and that the subsidiary's corrupt acts caused the parent company to submit inaccurate financial records.

Walmart said the two settlements constitute a global resolution of federal investigations that stretch back to 2012 and have collectively cost the company more than $900 million.

"We're pleased to resolve this matter," said Walmart President and CEO Doug McMillon in a statement. "Walmart is committed to doing business the right way, and that means acting ethically everywhere we operate. We've enhanced our policies, procedures and systems and invested tremendous resources globally into ethics and compliance, and now have a strong Global Anti-Corruption Compliance Program."

"Sorceress" with permits

In particular, the payments to the intermediary were recorded as payments to a construction company, even though there were numerous "red flags" to indicate that the intermediary was actually a government official. Walmart Brazil was barred at the time from hiring civil servants.

The federal agreement does not identify the intermediary, but describes her in some detail: It says she became known inside Walmart Brazil as a "sorceress" or "genie" for her "ability to acquire permits quickly by 'sort(ing) things out like magic.'"

The plea agreement also includes a provision barring the Brazilian subsidiary from making public claims or issuing press releases contradicting the facts outlined under the plea agreement.

According to the SEC, companies including Halliburton, Anheuser-Busch InBev, JPMorgan and Panasonic Corp. have all reached multimillion settlements under the Foreign Corrupt Practices Act since 2016.

"Walmart valued international growth and cost-cutting over compliance," said Charles Cain, Chief of the SEC Enforcement Division's FCPA Unit, in a statement. "The company could have avoided many of these problems, but instead Walmart repeatedly failed to take red flags seriously and delayed the implementation of appropriate internal accounting controls."

Bentonville, Arkansas-based Walmart, one of the world's largest retailers, recently reported quarterly earnings of $3.8 billion. It announced last year that after "a thoughtful and deliberate review," it decided to sell 80 percent of its stake in Walmart Brazil to Advent International, at a loss of $4.5 billion. At the time, the subsidiary had 438 stores in 18 Brazilian states.

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Walmart's Massive Bribery Scandal: What Happens Now?

Revelations that the company may have hushed up evidence of kickbacks to Mexican officials could drag down past and present executives.

Senior Walmart executives stopped a far-ranging investigation into pervasive bribery in Mexico, which the company engaged in so it could build stores quickly and obtain market dominance.

So alleges a lengthy, carefully reported New York Times story that is likely to set off an explosion affecting America's eighth largest company and its top leaders, including present and past CEOs. Although facts have to be established by the authorities, this piece is a must read because it presents a detailed case that something was rotten in both Mexico City and Bentonville (Walmart's Arkansas headquarters).

The essence of the allegations is that the head of Walmart in Mexico and his chief lieutenants, including the Mexican general counsel and chief auditor, knowingly orchestrated bribes of Mexican officials to obtain building permits, zoning variances, and environmental clearances, and that they also falsified records to hide the payments. When the lawyer in Mexico directly responsible for bribery payments had a change of heart and reported the scheme to Walmart lawyers in the United States, those lawyers hired an independent firm which recommended a major inquiry. This was rejected by senior Walmart management which instead told an internal Walmart investigative unit to look into it.

That unit, too, said that a major inquiry was warranted. But top Walmart leaders in the U.S. referred the matter back to the Walmart general counsel in Mexico -- the very lawyer who was allegedly at the center of the bribery scheme.

Unsurprisingly, the Mexican general counsel promptly closed the matter, finding no problems and suggesting no disciplinary measures for senior Walmart leaders in Mexico.

Although the Times' story was not clear about the implications, the following are distinct possibilities:

Investigation of criminal or civil violations in Mexico by the Justice Department or the Securities and Exchange Commission under the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits bribery of foreign officials and falsification of records. This investigation could expand to Walmart activities in other countries.

Investigation by Mexican authorities of allegedly widespread Walmart bribes and other irregularities. Such an inquiry will have to overcome political hurdles because so many officials may have been involved, and because Walmart is one of Mexico's largest employers (it has more than 200,000 Mexican employees).

A new, robust internal investigation by Walmart (according to the article, it started a new inquiry in December after learning of the Times' reporting, but its scope is unclear). It is hard to imagine, after this story, that the Walmart board of directors can avoid appointing an outside law firm and other forensic experts to examine what happened both with respect to underlying bribery/falsification of records and to rustication of the inquiry back to Mexico.

This could lead to the disciplining of existing directors, executives, or employees -- or attempts by the company to obtain from those individuals money damages for violations of law, of company codes, or of general fiduciary duties.

A related question is whether Walmart will, instead, try to shield itself through legal technicalities. It might claim, for example, that the time has run for any government action or that the payments were minor, facilitating payments for officials to perform duties required of them and thus not illegal under the FCPA (even if the payments were still probably illegal under Mexican law).

Former Walmart CEO and current board member Lee Scott, current CEO Mike Duke, and other present and past senior Walmart leaders (such as the former company general counsel) are mentioned in the story as having knowledge of the underlying problems and as possibly having some role in stopping a major independent inquiry. Again, what their actual role was and whether they have culpability will be determined in the future.

In recent years, Walmart has undertaken a major campaign to improve its reputation as a good corporate citizen by changing its practices in such areas as labor relations, environmental protection, and supply chain responsibility. This story will have an impact on that effort. Although its events allegedly took place in the last decade, the inquiry may implicate present members of the Walmart leadership group. The bribery allegations are likely to become a big story that, for a time, overwhelms Walmart's citizenship narrative.

As always, companies face a dilemma in these circumstances: try to sweep serious allegations under the rug and risk coverup charges, or undertake a thorough, wide-ranging inquiry that may implicate past and present leaders and cause the company great embarrassment.

The gist of the the Times' story is the claim that Walmart swept Mexican bribery allegations under the rug once. The question for the company -- and the board of directors -- is whether Walmart should undertake today a systemic, independent inquiry about a highly sensitive matter.

If even half of the Times' story is credible, the answer for the board has to be an unequivocal "yes."

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Walmart's Massive Bribery Scandal: What Happens Now?

Link Copied

Revelations that the company may have hushed up evidence of kickbacks to Mexican officials could drag down past and present executives.

Senior Walmart executives stopped a far-ranging investigation into pervasive bribery in Mexico, which the company engaged in so it could build stores quickly and obtain market dominance.

Unsurprisingly, the Mexican general counsel promptly closed the matter, finding no problems and suggesting no disciplinary measures for senior Walmart leaders in Mexico.

Although the Times' story was not clear about the implications, the following are distinct possibilities:

Investigation of criminal or civil violations in Mexico by the Justice Department or the Securities and Exchange Commission under the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits bribery of foreign officials and falsification of records. This investigation could expand to Walmart activities in other countries.
Investigation by Mexican authorities of allegedly widespread Walmart bribes and other irregularities. Such an inquiry will have to overcome political hurdles because so many officials may have been involved, and because Walmart is one of Mexico's largest employers (it has more than 200,000 Mexican employees).
A new, robust internal investigation by Walmart (according to the article, it started a new inquiry in December after learning of the Times' reporting, but its scope is unclear). It is hard to imagine, after this story, that the Walmart board of directors can avoid appointing an outside law firm and other forensic experts to examine what happened both with respect to underlying bribery/falsification of records and to rustication of the inquiry back to Mexico.

If even half of the Times' story is credible, the answer for the board has to be an unequivocal "yes."

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Wal-Mart Bribery Allegations: What Legal Problems, Penalties Could it Face?

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More than $24 million was involved in allegations of Wal-Mart’s Mexico bribery, according to a recent New York Times investigation. Judy Woodruff and Indiana University’s Joseph Hoffman discuss Wal-Mart’s internal inquiry into whether employees violated federal law and the parameters of the Foreign Corrupt Practices law.

Read the Full Transcript

Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors.

JEFFREY BROWN:

And we turn to the still unfolding story of Wal-Mart and allegations of bribery in Mexico.

Judy Woodruff has more.

JUDY WOODRUFF:

With more than 2,000 stores throughout the country, Mexico is an important foreign market for Wal-Mart. But a New York Times investigation has raised troubling questions over Wal-Mart's dominance there and how it came to be.

Among some of the findings: Former executives for the company orchestrated a campaign of bribery to obtain construction permits and build stores more quickly during the past decade, a paper trail of bribery documenting payments of more than $24 million, and top executives of the company seemed to shut down an internal investigation until recently.

Wal-Mart is now conducting an inquiry into whether employees may have violated the Foreign Corrupt Practices Act. That's a federal law that makes it a crime for American companies to bribe foreign officials.

Bloomberg News also reports the company is the subject of a criminal probe by the U.S. Justice Department.

We look more closely at the law and potential violations with Joseph Hoffmann. He's a professor of law at the Indiana University Maurer School of Law.

And we thank you for being with us.

JOSEPH HOFFMANN, Indiana University Maurer School of Law: Thanks for the invitation.

First of all, Professor Hoffmann, tell us what — more of what is in the Foreign Corrupt Practices Act. What does it say?

JOSEPH HOFFMANN:

So, the FCPA, Foreign Corrupt Practices Act, was enacted in 1977 in the wake of a number of corporate bribery scandals, including the Lockheed scandal.

And the act has two major provisions, one of which prohibits a variety of corporations and individuals within U.S. jurisdiction from paying bribes to foreign government officials. And the other provision, major provision, requires issuers of U.S. stock, stock issued through the U.S. Securities and Exchange Commission procedures, requires those corporations to maintain transparent accounting records, so that bribes can be identified.

And based on the reporting by The New York Times, a story that came out a couple of days ago, what parts of the law is it that Wal-Mart is allegedly supposed to have violated?

Well, of course, we won't know for sure until the Justice Department completes its investigation and actually decides whether to go forward with an enforcement action.

But The New York Times' allegations conceivably could go to both parts of the FCPA. In other words, what The New York Times reports are that Wal-Mart de Mexico was paying bribes to obtain permits and other sorts of approvals from Mexican government officials, and in addition that the accounting used by Wal-Mart's Mexican subsidiary was specifically designed to hide these payments, just the opposite of the kind of transparency that would be required by the FCPA accounting rules.

Now, explain the difference between a payment in order to get business or in order to get a permit or a license, a payment that's legal and one that's considered a bribe. How is that defined in the law?

Well, basically, any payment made to a foreign government official in an effort to try to get them to do something that is either against the rules of law of that country or an effort to get them to exercise their discretion to allow an American company to expand or to do business or even to maintain business in that foreign country would be classified as a bribe.

Now, the FCPA has a specific exception for what are called facilitating payments. These are generally described as payments that are made to facilitate or to speed up the issuance of a permit that would already be something the company would be entitled to get under law, or, for example, to turn on a utility, like the company wants to get the electric turned on or the water.

These are facilitating payments, and they are not considered to be bribes. But if you read The New York Times story carefully, a number of the allegations go way beyond anything that could reasonably be described as facilitating payments.

For example, payments to get zoning approvals, these are not automatic. They're not something that the company's entitled to. They involve exercises of discretion by local government officials, and payment to get those zoning approvals would be a bribe.

So, in other words, there's a pretty clear distinction in the law between what would be considered within the boundaries of what's legal and what would be beyond.

I wouldn't describe it as a clear distinction, Judy.

I think, actually, there's a pretty good case to be made that the distinction can get pretty fuzzy at times, but some of what's alleged in The New York Times story, if it turns out to be true, will clearly be over that line, as fuzzy as it may be.

Now, what about — in talking to you earlier today, you indicated one potential problem the government could have, the Justice Department could have is the statute of limitations, that there's a five-year limit. Explain how they could come into play here.

So, The New York Times story doesn't specifically identify any actions such as bribes paid or cover-ups of — in the accounting sense that took place any later than 2006. And, of course, that's more than five years ago as of right now. The statute would normally preclude the government from starting an enforcement action for activities that took place more than five years ago.

But there are ways to get around that. And one of those ways is if the Justice Department can allege and prove that there was a conspiracy within Wal-Mart to not only pay the bribes, but also to cover up the bribes that were being paid in Mexico. If there was a conspiracy and if there was any action taken in furtherance of that conspiracy within the past five years — that could be something relatively minor, like an e-mail saying, have you taken care of those books? Have you taken care of those records?

Anything like that, that happened within the past five years would open up the whole thing to a conspiracy — charge that would get around the statute of limitations problem.

And just finally — and, again, acknowledging all this is hypothetical — this is now based on a news report. There is an investigation under way, but it's not known.

But if it were proven what is alleged in the article, give us a sense of the size of the penalties or punishments.

You know, it's really hard to put a maximum dollar figure on that.

In the past few days, I have seen estimates ranging from the tens of millions up to billions of dollars. The statute and related statutes provide that, as a criminal matter, Wal-Mart could be fined twice the amount of profits that they expected or sought to gain from the payment of the bribes.

That's a pretty substantial figure. That would clearly — if all of the allegations in the Times story were true, that could clearly run into a very significant sum of money. But, obviously, we have to wait and see what the investigation brings out.

Professor Joseph Hoffmann, Indiana University School of Law, we thank you very much.

You're welcome.

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Wal-Mart to face class-action over alleged bribery in Mexico

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NEW YORK (AP) — A federal judge has granted class-action status to Wal-Mart investors suing the world’s largest retailer over allegations that it covered up a bribery scheme in Mexico to help its business there.

The allegations included that Wal-Mart’s Mexican unit paid millions of dollars in bribes to speed building permits and gain other favors.

In a ruling this week, U.S. District Judge Susan Hickey in Fayetteville, Arkansas, dismissed Wal-Mart’s argument that a Michigan retirement fund could not lead a class-action suit because it suffered no related financial losses. Wal-Mart’s stance was based on a certain accounting method.

But Hickey ruled that the pension fund, the City of Pontiac General Employees’ Retirement System, showed losses using another accounting method and that Wal-Mart failed to adequately explain why its accounting method was preferable.

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“Judicial economy and the best interests of the class members favor class certification,” Hickey wrote.

Randy Hargrove, a spokesman for Bentonville, Arkansas-based Wal-Mart, said the company is considering its options, including an appeal. “We continue to believe that the claims here are not appropriate for certifying a class,” he said.

Investors said Wal-Mart knew about the bribery scheme as early as 2005, seven years before allegations were made public by The New York Times. The newspaper reported that top executives had covered up the finding of an internal investigation and didn’t alert U.S. or Mexican authorities until after the paper said it was investigating the issue.

In July, a federal appeals court rejected a shareholder lawsuit filed against key directors at Wal-Mart that claimed they allowed and concealed alleged bribery in the company’s Mexico division.

Chief Judge William Riley wrote for the 8th U.S. Circuit Court of Appeals that shareholders, including the Louisiana Municipal Police Employees’ Retirement System, did “not give rise to a reasonable reference” that the board of directors learned of the suspected bribery while it was being covered up and the internal investigation squashed. That upheld an Arkansas district court’s dismissal.

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CASE STUDY – MEXICO WALMART SCANDAL

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Walmart Inc. and Brazil-Based Subsidiary Agree to Pay $137 Million to Resolve Foreign Corrupt Practices Act Case

Walmart Inc. (Walmart), a U.S.-based multinational retailer and its wholly owned Brazilian subsidiary, WMT Brasilia S.a.r.l. (WMT Brasilia), have agreed to pay a combined criminal penalty of $137 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA). WMT Brasilia pleaded guilty today in connection with the resolution.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney G. Zachary Terwilliger of the Eastern District of Virginia, Assistant Director Robert Johnson of the FBI’s Criminal Investigative Division and Special Agent in Charge Kelly Jackson of IRS Criminal Investigation’s (IRS-CI) Washington, D.C. office made the announcement.

“Walmart profited from rapid international expansion, but in doing so chose not to take necessary steps to avoid corruption,” said Assistant Attorney General Benczkowski. “In numerous instances, senior Walmart employees knew of failures of its anti-corruption-related internal controls involving foreign subsidiaries, and yet Walmart failed for years to implement sufficient controls comporting with U.S. criminal laws. As today’s resolution shows, even the largest of U.S. companies operating abroad are bound by U.S. laws, and the Department of Justice will continue to aggressively investigate and prosecute foreign corruption.”

“Walmart violated the Foreign Corrupt Practices Act because it failed to implement the internal controls necessary to ferret out corrupt conduct,” said U.S. Attorney Terwilliger. “For more than a decade, Walmart experienced exponential international growth but failed to create safeguards to protect against corruption risks in various countries. This resolution is the result of several years of steadfast work by the prosecutors and our law enforcement partners at the FBI and IRS-CI.”

“The FBI will hold corporations responsible when they turn a blind eye to corruption," said FBI Assistant Director Johnson. "If there is evidence of violations of FCPA, we will investigate. No corporation, no matter how large, is above the law."

“Walmart’s guilty plea is another step in IRS-CI’s ongoing effort to pursue corporations that engage in corruption that prevents fair competition around the world,” said IRS-CI Special Agent in Charge Jackson. “Through our efforts, we delved through layers of transactions and uncovered the bribery of foreign officials. Today’s announcement is a statement that no company, even one as large as Walmart, is above the law.”

According to Walmart’s admissions, from 2000 until 2011, certain Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption were aware of certain failures involving these controls, including relating to potentially improper payments to government officials in certain Walmart foreign subsidiaries, but nevertheless failed to implement sufficient controls that, among other things, would have ensured: (a) that sufficient anti-corruption-related due diligence was conducted on all third-party intermediaries (TPIs) who interacted with foreign officials; (b) that sufficient anti-corruption-related internal accounting controls concerning payments to TPIs existed; (c) that proof was required that TPIs had performed services before Walmart paid them; (d) that TPIs had written contracts that included anti-corruption clauses; (e) that donations ostensibly made to foreign government agencies were not converted to personal use by foreign officials; and (f) that policies covering gifts, travel and entertainment sufficiently addressed giving things of value to foreign officials and were implemented. Even though senior Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption knew of these issues, Walmart did not begin to change its internal accounting controls related to anti-corruption to comply with U.S. criminal laws until 2011.

The internal controls failures allowed Walmart foreign subsidiaries in Mexico, India, Brazil and China to hire TPIs without establishing sufficient controls to prevent those TPIs from making improper payments to government officials in order to obtain store permits and licenses. In a number of instances, insufficiencies in Walmart’s anti-corruption-related internal accounting controls in these foreign subsidiaries were reported to senior Walmart employees and executives. The internal control failures allowed the foreign subsidiaries in Mexico, India, Brazil and China to open stores faster than they would have with sufficient internal accounting controls related to anti-corruption. Consequently, Walmart earned additional profits through these subsidiaries by opening some of its stores faster.

In Mexico, a former attorney for Walmart’s local subsidiary reported to Walmart in 2005 that he had overseen a scheme for several years prior in which TPIs made improper payments to government officials to obtain permits and licenses for the subsidiary and that several executives at the subsidiary knew of and approved of the scheme. Most of the TPI invoices included a code specifying why the subsidiary had made the improper payment, including: (1) avoiding a requirement; (2) influence, control or knowledge of privileged information known by the government official; and (3) payments to eliminate fines.

In India, because of Walmart’s failure to implement sufficient internal accounting controls related to anti-corruption, from 2009 until 2011, Walmart’s operations there were able to retain TPIs that made improper payments to government officials in order to obtain store operating permits and licenses. These improper payments were then falsely recorded in Walmart’s joint venture’s books and records with vague descriptions like “misc fees,” “miscellaneous,” “professional fees,” “incidental” and “government fee.”

In Brazil, as a result of Walmart’s failure to implement sufficient internal accounting controls related to anti-corruption at its subsidiary, Walmart Brazil, despite repeated findings in internal audit reports that such controls were lacking, Walmart Brazil continued to retain and renew contracts with TPIs without conducting the required due diligence. Improper payments were in fact paid by some of these TPIs, including a construction company that made improper payments to government officials in connection with the construction of two Walmart Brazil stores in 2009 without the knowledge of Walmart Brazil. Walmart Brazil indirectly hired a TPI whose ability to obtain licenses and permits quickly earned her the nickname “sorceress” or “genie” within Walmart Brazil. Walmart Brazil employees, including a Walmart Brazil executive, knew they could not hire the intermediary directly because of several red flags. In 2009, the TPI made improper payments to government inspectors in connection with the construction of a Walmart Brazil store without the knowledge of Walmart Brazil. WMT Brasilia was a wholly-owned subsidiary of Walmart and was a majority-owner of Walmart Brazil, Walmart’s wholly-owned subsidiary in Brazil, and the majority-owner of retail stores operating as Walmart Brazil.

In China, Walmart’s local subsidiary’s internal audit team flagged numerous weaknesses in internal accounting controls related to anti-corruption at the subsidiary between 2003 and 2011, sometimes repeatedly, but many of these weaknesses were not addressed. In fact, from 2007 until early 2010, Walmart and the subsidiary failed to address nearly all of the anti-corruption-related internal controls audit findings.

Walmart entered into a three-year non-prosecution agreement and agreed to retain an independent corporate compliance monitor for two years. The $137 million penalty reflects a 20 percent reduction off the bottom of the applicable U.S. Sentencing Guidelines fine range for the portion of the penalty applicable to conduct in Mexico and 25 percent for the portion applicable to the conduct in Brazil, China and India. Walmart fully cooperated with the investigation in Brazil, China and India. Walmart cooperated with the investigation in Mexico, but did not timely provide documents and information to the government and did not de-conflict with the government’s request to interview one witness before Walmart interviewed that witness. Walmart did not voluntarily disclose the conduct in Mexico and only disclosed the conduct in Brazil, China and India after the government had already begun investigating the Mexico conduct. The $137 million penalty includes forfeiture of $3.6 million and a fine of $724,898 from WMT Brasilia.

In a related resolution with the U.S. Securities and Exchange Commission (SEC), Walmart agreed to disgorge $144 million in profits.

The FBI’s International Corruption Squad in Washington, D.C. and IRS-CI are investigating the case. Assistant Chiefs Tarek Helou and Lorinda Laryea and Trial Attorney Katherine Raut of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jamar Walker of the Eastern District of Virginia are prosecuting the case.

The Criminal Division’s Office of International Affairs has provided significant assistance by obtaining key evidence in this case, as have public authorities in, among other countries, Mexico and India.

The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa .

Wal-Mart Bribery Case Harvard Case Solution & Analysis

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Wal-Mart Bribery Case Case Solution

PROBLEM ANALYSIS:

Wal-Mart has always wanted to build its stores in the populated locations of the Mexico. It wanted to continue its retail operations in Elda Pineda’s alfalfa field, this is an ideal location for it as this is the main entrance into the town and it is not much far from the historical monuments and pyramids located near the town. It was expecting large number of customer traffic in its alfalfa field, due to the tourism and the highly populated and dense nature of the location.

While in the process of acquiring the location for continuing its commercial operations, its faced an obstacle with respect to the city’s zoning procedures. The leaders of the location wanted to prohibit the construction near pyramids and they also believed that the town’s entrance was already congested enough that even a single commercial construction took place, then the traffic would not be easy to handle. Wal-Mart’s hopes were doomed when they came to know that the 2003 zoning map would prohibit commercial development near Mrs. Pineda’s field. The executive responsible for the development of Wal-Mart in the desired location was not willing to let go of this ideal location to place their retail sites.In response and counter to these consequences they came up with an unethical and illegal solution, they agreed on bribing the authorities to heal the possible threat and damage.

They paid bribes to authorities to make favorable changes to the coning maps of the town, as the zoning map was not to be considered by the law until it was published in a government newspaper. Before the zoning map was sent to the newspaper, Wal-Mart De Mexico arranged a bribe payment to an official to make changes to the map, which would allow the construction and development plans of Wal-Mart.

The operations of Wal-Mart have now started and they have successfully been able to function in the ideal location. Despite their success in acquiring and initiating their store site in Mrs. Pineda’s fields, they are facing a number of criticism and societal opposition as their operations in the location are heavily affecting the cultural and environmental condition of the town. The town perceives the activities of the retail giant to be in against of the cultures and traditions of the town and a number of strikes, hunger sit-ins and protests through different mediums are being conducted by the concerned people living there.

A number of strong entities have already started investigation on their own platforms. These authorities and entities are finding a number of convincing and considerable evidences to conclude to the point that they were involved in the illegal and unethical act of bribing for attaining leadership and edge over their competitors in the Mexican market.

Wal-Mart’s leading executives have found out regarding these negative happening in the Mexican territory and they had also started an investigation for finding out about the unethical acts of executives of the company. A number of managers and individuals, against whom a number of provident evidences were found, have been fired by the organization and they are making every possible amendment to control the situation in Mexico.

The image of the organization is at stake right now.A number of protests are being conducted out by the town members and the organization’s activities are being perceived in against the betterment of the town’s cultures and natural treasures located in the town. Wal-Mart is damaging the environmental conditions as well. The organization is concerned about the steps that would settle the long driven issue through ways that would not damage the organization and the society as well. The organization must take some efficient steps to overcome the situation in order to remain an operating entity and organization in the location...................

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COMMENTS

Who's Responsible for the Walmart Mexico Scandal?
The Walmart bribery scandal is one of the most closely-watched cases of alleged malfeasance by a global company. It broke into the open in April, 2012, when the New York Times published a lengthy ...
Wal-Mart Hushed Up a Vast Mexican Bribery Case
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According to The New York Times, which first broke the story in 2012, Walmart unearthed evidence of bribery totaling more than $24 million. Although certain Walmart executives discussed revising the company's anti-corruption policy and procedures shortly after they were first promulgated in March 2005, it took the company two years to ...
Wal-Mart Bribery Case Raises Fundamental Governance Issues
Wal-Mart appeared to commit virtually every governance sin in its handling of the Mexican bribery case, if the long, carefully reported New York Times story is true. The current Wal-Mart board of directors must get to the bottom of the bribery scheme in Mexico and the possible suppression by senior Wal-Mart leaders in Bentonville, Arkansas (the company's global headquarters) of a full ...
A 'Sorceress' in Brazil, a 'Wink' in India: Walmart Pleads Guilty After
[Read The New York Times investigation that spurred the bribery case in 2012.] ... The bribery scandal was a huge blow to Walmart's reputation, spurring investor lawsuits and broader questions ...
SEC.gov
2019-102. Washington D.C., June 20, 2019 —. The Securities and Exchange Commission today charged Walmart with violating the Foreign Corrupt Practices Act (FCPA) by failing to operate a sufficient anti-corruption compliance program for more than a decade as the retailer experienced rapid international growth. Walmart agreed to pay more than ...
Walmart to pay $282 million to settle seven-year global corruption
Walmart Inc said on Thursday it will pay $282 million to settle a seven-year-long investigation into whether its overseas units in Mexico, Brazil, China and India violated the U.S. Foreign Corrupt ...
Walmart's explosive Mexican bribery scandal: A concise guide
In 2005, a former commercial real estate executive at Walmart de Mexico (Walmex) blew the whistle on a massive bribery scheme that fueled the company's explosive growth in the Central American ...
Everyone's Problem: Looking Beyond the Wal-Mart Bribery Case
According to a report in The New York Times, Wal-Mart officials in the U.S. learned about the bribery allegations in 2005, but failed to alert U.S. or Mexican officials at the time. The charges ...
Walmart settles with US government over international bribery ...
New York CNN Business —. Walmart is paying nearly $283 million to settle a seven-year federal bribery investigation involving its business in Brazil, China, India and Mexico. From 2000 to 2011 ...
Wal-Mart Abroad
A preview of a New York Times investigation revealing bribery by Wal-Mart as it sought to build in the shadow of one of Mexico's most revered cultural landmarks, the pyramids of Teotihuacán. ... A California Pension Plan Sues Wal-Mart Over Bribery Case. May 3, 2012. Wal-Mart's Good-Citizen Efforts Face a Test. May 1, 2012. New York Pension ...
PDF Walmart Agrees to Pay $282 Million to Resolve DOJ and SEC FCPA Charges
Walmart Agrees to Pay $282 Million to Resolve DOJ and SEC FCPA Charges . On June 20, 2019, the Department of Justice and the Securities and Exchange Commission announced ... David Barstow, "Wal-Mart Hushed Up a Vast Mexican Bribery Case," T. HE . N. EW . Y. ORK . T. IMES (Apr. 21, 2012), available . here. 13. See . Release No. 86159 at ...
Walmart to pay $282 million to settle federal bribery charges
Updated on: June 20, 2019 / 4:24 PM EDT / CBS/AP. Walmart agreed Thursday to pay a total of $282 million to settle a U.S. bribery investigation in connection with the retailer's operations in ...
Walmart's Massive Bribery Scandal: What Happens Now?
Reuters. Senior Walmart executives stopped a far-ranging investigation into pervasive bribery in Mexico, which the company engaged in so it could build stores quickly and obtain market dominance ...
Walmart's Massive Bribery Scandal: What Happens Now?
Reuters. Senior Walmart executives stopped a far-ranging investigation into pervasive bribery in Mexico, which the company engaged in so it could build stores quickly and obtain market dominance ...
Walmart Will Cough Up $282 Million To Put Years-Long Bribery ...
Getty Images. Walmart has agreed to pay $282 million to settle a seven-year bribery investigation by the U.S. government concerning certain payments that were made to foreign officials in places ...
Wal-Mart Bribery Allegations: What Legal Problems, Penalties ...
Story Transcript. More than $24 million was involved in allegations of Wal-Mart's Mexico bribery, according to a recent New York Times investigation. Judy Woodruff and Indiana University's ...
PDF Big-Box Retailer Walmart Makes Big Moves in Social Responsibility
issues such as bribery accusations in Mexico, Brazil, China, and India have created significant ethics and compliance challenges that Walmart is addressing in its quest to become a socially responsible retailer. This case begins by briefly examining the growth of Walmart. Next, it discusses the
Wal-Mart to face class-action over alleged bribery in Mexico
NEW YORK (AP) — A federal judge has granted class-action status to Wal-Mart investors suing the world's largest retailer over allegations that it covered up a bribery scheme in Mexico to help ...
(DOC) CASE STUDY
View PDF. CASE STUDY - MEXICO WALMART SCANDAL In 2005 a whistleblower, Sergio Cicero Zapata, sent an email to a Wal-Mart lawyer stating that Wal-Mart de Mexico had partaken in bribery to win market dominance with Eduardo Castro-Wright, chief executive of Wal-Mart de Mexico, as the ring leader. The former executive was a lawyer, responsible ...
Office of Public Affairs
Walmart Inc. (Walmart), a U.S.-based multinational retailer and its wholly owned Brazilian subsidiary, WMT Brasilia S.a.r.l. (WMT Brasilia), have agreed to pay a combined criminal penalty of $137 million to resolve the government's investigation into violations of the Foreign Corrupt Practices Act (FCPA). WMT Brasilia pleaded guilty today in connection with the resolution.
Wal-Mart Bribery Case Case Solution And Analysis, HBR Case Study
Wal-Mart has always wanted to build its stores in the populated locations of the Mexico. It wanted to continue its retail operations in Elda Pineda's alfalfa field, this is an ideal location for it as this is the main entrance into the town and it is not much far from the historical monuments and pyramids located near the town.

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