* Allegations involve Wal-Mart’s largest foreign unit
* Times says company did not tell law enforcement officials
* Wal-Mart says committed to strong anti-corruption program
By Nivedita Bhattacharjee
April 21 (Reuters) – Wal-Mart Stores Inc, the
world’s largest retailer, squelched an internal investigation
into allegations of bribery at its Mexican subsidiary instead of
broadening the probe, the New York Times reported on Saturday.
The Times said that in September 2005, a senior Wal-Mart
lawyer received an e-mail from Sergio Cicero Zapata, a former
executive at the company’s largest foreign unit, Wal-Mart de
Mexico, describing how the subsidiary had paid
bribes to obtain permits to build stores in the country.
Wal-Mart sent investigators to Mexico City and found a paper
trail of hundreds of suspect payments totaling more than $24
million, but the company’s leaders then shut down the
investigation and notified neither U.S. nor Mexican law
enforcement officials, the Times reported.
According to the Times, current Wal-Mart Chief Executive
Mike Duke and former CEO Lee Scott, who now sits on the
company’s board, were among senior executives allegedly aware of
the situation.
Wal-Mart said in a statement on Saturday it was “deeply
concerned” about the allegations in the Times report and began
an investigation into its compliance with the U.S. Foreign
Corrupt Practices Act (FCPA) last fall. The company also said it
had disclosed the probe to the U.S. Department of Justice and
the Securities and Exchange Commission.
“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 at Wal-Mart.
The company said it had taken steps in Mexico to boost
internal controls for stronger FCPA compliance. It declined to
make any executives available for comment, and said the
investigation was continuing.
Richard Cassin, a U.S. FCPA lawyer, said Wal-Mart faces an
uphill battle to convince the Justice Department and SEC that
its problems are confined to Mexico.
“A corporate attitude toward the corruption there that
allowed a cover-up to happen could signal wider compliance
problems,” said Cassin, who writes an industry blog, FCPA Blog.
“Before any resolution with U.S. authorities is possible,
the company has to look under every stone for possible
corruption. Are there any similar issues in China or other
countries? That’s what U.S. authorities will want to know.
Wal-Mart’s shareholders will be asking the same question,” he
said.
A spokesman at the SEC said it did not have any comment on
the New York Times article. A Justice Department spokeswoman
declined to comment.
Wal-Mart de Mexico, or Walmex, as the company is known
locally, has expanded rapidly since Walmart opened its first
store outside the United States in Mexico City in 1991, then
part of a joint venture.
In 2011, the Mexican unit reported total sales of 379
billion pesos ($29 billion). Walmart’s fiscal 2012 sales, for
the year ended Jan. 31, were $443.85 billion.
STEPS TO CONCEAL PAYMENTS
Middlemen or “gestores” are used in Mexico to help companies
perform a variety of tasks, from obtaining residency permits and
resolving tax issues to obtaining planning authorization.
They are often legitimate actors in Mexico’s bureaucracy,
but a lack of transparency in the system can make it impossible
to know whether bribery is involved in their dealings, several
foreign businessmen working in Mexico told Reuters.
The Times reported that Cicero, the former Walmex executive,
gave names, dates and bribe amounts, adding that he knew so much
because for years he had been the lawyer in charge of obtaining
construction permits for Walmex.
Cicero identified Eduardo Castro-Wright as the driving force
behind years of bribery, according to the Times, adding that no
Walmex leaders were disciplined.
Castro-Wright became CEO of Walmex in 2003 and was named CEO
of Walmart US in 2005. He became a vice chairman in 2008 and led
e-commerce from 2010 until January of this year, and is set to
retire July 1. He could not be reached for comment.
Wal-Mart found documents showing that Walmex’s top
executives not only knew about the payments, but had taken steps
to conceal them from Wal-Mart’s headquarters in Bentonville,
Arkansas, the Times reported.
Wal-Mart hired Willkie Farr & Gallagher, a law firm with
extensive experience in FCPA cases, to look into the matter, but
when the firm suggested a thorough investigation, it was
rejected for a more “limited preliminary inquiry,” the paper
said. Willkie Farr could not be reached for comment.
The Times said Wal-Mart’s own lead investigator, a former
F.B.I. special agent, said there was reasonable suspicion to
believe Mexican and U.S. laws had been violated and had
recommended an expanded investigation.
The Times said that in a meeting where the investigation was
discussed, then Chief Executive Lee Scott rebuked internal
investigators for being too aggressive.
Days later, the paper said its records showed Wal-Mart’s top
lawyer arranged to ship the internal investigators’ files on the
case to Mexico City.
Primary responsibility for the investigation was then given
to the general counsel of Walmex, who was alleged to have
authorized bribes, the Times said. The general counsel then
exonerated his fellow Walmex executives, the report said.
The Justice Department and the U.S. Securities and Exchange
Commission have in the past few years aggressively stepped up
enforcement of the FCPA, a 1970s law that bars bribes to
officials of foreign governments.
In 2010, for example, the agencies collected a record $1.8
billion in sanctions in bringing such cases against major
companies including BAE Systems, Daimler and
Alcatel-Lucent.
But the government units that enforce the law are only
staffed with a few dozen prosecutors and agents who
traditionally rely upon the companies to hire outside lawyers to
conduct the bulk of the investigation themselves, since such
probes usually involve collecting millions of documents and
interviewing hundreds of witnesses outside the United States.
The companies then generally turn over to the agencies the
results of the investigation, which can cost tens or even
hundreds of millions of dollars in legal fees and take several
years to complete.
There was little reaction in Wal-Mart’s shares on Saturday.
The stock has gained about 17 percent in the past 12 months,
outperforming the S&P; 500 index’s 3 percent rise.
