In September 2005, a senior Walmart lawyer received an alarming e-mail from a former executive at the company’s largest foreign subsidiary, Wal-Mart de Mexico. In the e-mail and follow-up conversations, the former executive described how Wal-Mart de Mexico had orchestrated a campaign of bribery to win market dominance. In its rush to build stores, he said, the company had paid bribes to obtain permits in virtually every corner of the country.
The former executive gave names, dates and bribe amounts. He knew so much, he explained, because for years he had been the lawyer in charge of obtaining construction permits for Wal-Mart de Mexico.
Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than US$24 million. They also found documents showing that Wal-Mart de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from Walmart’s headquarters in Bentonville, Arkansas.
Photo: Reuters
In a confidential report to his superiors, Walmart’s lead investigator, a former FBI special agent, summed up their initial findings this way: “There is reasonable suspicion to believe that Mexican and USA laws have been violated.”
The lead investigator recommended that Walmart expand the investigation.
Instead, an examination by the New York Times found, Walmart’s leaders shut it down.
Neither US nor Mexican law enforcement officials were notified. None of Wal-Mart de Mexico’s leaders were disciplined. Indeed, Wal-Mart de Mexico chief executive Eduardo Castro-Wright, identified by the former executive as the driving force behind years of bribery, was promoted to vice chairman of Walmart in 2008. Until this article, the allegations and Walmart’s investigation had never been publicly disclosed.
However, the Times’ examination uncovered a prolonged struggle at the highest levels of Walmart, a struggle that pitted the company’s much publicized commitment to the highest moral and ethical standards against its relentless pursuit of growth.
Under fire from labor critics, worried about press leaks and facing a sagging stock price, Walmart’s leaders recognized that the allegations could have devastating consequences, documents and interviews show. Confronted with evidence of corruption in Mexico, top Walmart executives focused more on damage control than on rooting out wrongdoing.
In one meeting where the bribery case was discussed, H. Lee Scott Jr, then Walmart’s chief executive, rebuked internal investigators for being overly aggressive. Days later, records show, Walmart’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 Wal-Mart de Mexico — a remarkable choice since the same general counsel was alleged to have authorized bribes.
The general counsel promptly exonerated his fellow Wal-Mart de Mexico executives.
In December last year, after learning of the Times’ reporting in Mexico, Walmart informed the US Department of Justice that it had begun an internal investigation into possible violations of the Foreign Corrupt Practices Act, a federal law that makes it a crime for US corporations and their subsidiaries to bribe foreign officials. Walmart said the company had learned of possible problems with how it obtained permits, but stressed that the issues were limited to “discrete” cases.
“We do not believe that these matters will have a material adverse effect on our business,” the company said in a filing with the Securities and Exchange Commission.
However, the Times’ examination found credible evidence that bribery played a persistent and significant role in Walmart’s rapid growth in Mexico, where Walmart now employs 209,000 people, making it the country’s largest private employer.
A Walmart spokesman -confirmed that the company’s Mexico operations — and its handling of the 2005 case — were now a major focus of its inquiry.
“If these allegations are true, it is not a reflection of who we are or what we stand for,” spokesman David Tovar said. “We are deeply concerned by these allegations and are working aggressively to determine what happened.”
In the meantime, Tovar said, Wal-Mart is taking steps in Mexico to strengthen compliance with the US’ Foreign Corrupt Practices Act (FCPA).
“We do not and will not tolerate noncompliance with FCPA anywhere or at any level of the company,” he said.
The Times laid out this article’s findings to Walmart weeks ago. The company said it shared the findings with many of the executives named here, including Scott, now on Walmart’s board, and -Castro-Wright, who is retiring in July. Both men declined to comment, Tovar said.
The Times’ examination included more than 15 hours of interviews with the former executive, Sergio Cicero Zapata, who resigned from Wal-Mart de Mexico in 2004 after nearly a decade in the company’s real-estate department.
In the interviews, Cicero recounted how he had helped organize years of payoffs. He described personally dispatching two trusted outside lawyers to deliver envelopes of cash to government officials. They targeted mayors and city council members, obscure urban planners, low-level -bureaucrats who issued permits — anyone with the power to thwart Wal-Mart’s growth. The bribes, he said, bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders.
He called it working “the dark side of the moon.”
The Times also reviewed thousands of government documents related to permit requests for stores across Mexico. The examination found many instances where permits were given within weeks or even days of Wal-Mart de Mexico’s payments to the two lawyers. Again and again, the Times found, legal and bureaucratic obstacles melted away after payments were made.
The Times conducted extensive interviews with participants in Walmart’s investigation. They said the more investigators corroborated his assertions, the more resistance they encountered inside Walmart. Some of it came from powerful executives implicated in the corruption. Other top executives voiced concern about the possible legal and reputational harm.
In the end, people involved in the investigation said, Walmart’s leaders found a bloodlessly bureaucratic way to bury the matter, but in handing the investigation off to one of its main targets, they disregarded the advice of one of Walmart’s top lawyers, the same lawyer first contacted by Cicero.
“The wisdom of assigning any investigative role to management of the business unit being investigated escapes me,” Maritza Munich, then general counsel of Walmart International, wrote in an e-mail to top Walmart executives.
The investigation, she urged, should be completed using “professional, independent investigative resources.”
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