New York Times publishes allegations of Wal-Mart bribery and cover up in Mexico

The Takeaway

Two leading Congressional Democrats on Monday announced that they were launching an investigation into allegations that Wal-Mart de Mexico paid millions of dollars in bribes to Mexican government officials in order to expand more rapidly.

The Congressman, Representative Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee, and Representative Henry Waxman, the top Democrat on the House Energy and Commerce Committee, will also investigate whether American Wal-Mart officials covered up or deliberately ignored evidence of the payments — violations of the U.S. Foreign Corrupt Practices Act. Those alleglations and more were detailed in a New York Times investigation published on Saturday.

Wal-Mart de Mexico is Mexico’s largest private employer. One in five Wal-Mart stores can be found in Mexico.

According to the story by the Times, the company’s remarkable growth in Mexico in the early 2000s was assisted by an extensive network of bribes made to Mexican officials. The bribes bought the quick approval of mayors, urban planners, environmental impact analysts, and other figures who were able to facilitate the company’s rapid expansion into the Mexican market.

Ben Heineman, a senior fellow at Harvard Law School and expert on corporate governance said that if the allegations are true, Wal-Mart will face implications for breaking federal law.

“There are two aspects of the (Foreign Corrupt Practices Act), one is American companies cannot bribe foreign public officials to get benefits,” Heineman said. “Secondly, they must keep accurate books and records and control their transactions in a transparent way. The allegations are that Wal-Mart had used systematic bribery to get stores built in a very quick fashion and that they falsified the documents, tried to hide those bribes in Mexico.”

According to the Times story, many of Wal-Mart’s top executives were aware of the possibility of an ongoing bribery scandal but chose not to investigate it further. In 2005, the article says, Wal-Mart conducted an internal investigation turning up over $24 million in “suspect payments” doled out across Mexico. In an incongruous decision from Wal-Mart’s top lawyers in the United States, the investigation was then handed over to José Luis Rodríguezmacedo, the general counsel of Wal-Mart de Mexico and a target of several of the allegations. In 2006 Rodríguezmacedo filed a report saying there was “no clear indication” of bribery and the investigation was closed.

Heineman said if the report published by the New York Times is true, Wal-Mart may additionally face charges of covering up criminal activity.

“It can be a obstruction of an ongoing crime,” Heineman said. “Rather than having a full investigation in the period 2005-2006, the people in Arkansas twice, the top leaders, shut it down and basically tried to sweep it under the rug.”

In a statement posted Friday in response to the New York Times article, Wal-Mart’s corporate communications noted the time that has elapsed since the alleged bribery occurred.

“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. We are deeply concerned by these allegations and are working aggressively to determine what happened.,” the statement read.

Even though the alleged criminal activity is dated, Heineman thinks Wal-Mart will work to defend its reputation.

“I think given the corporate citizen they try to be today, they are going to have to be very forthcoming,” Heineman said. “They have just announced that there will be a full investigation by an outside law firm and forensic experts reporting, not to the management, but to the board of directors and the audit committee. Once these investigations start, they are very hard to stop.”

Looking ahead, Heineman thinks that Wal-Mart doesn’t have a choice but to comply with stringent investigations.

“The person who gave the New York Times the information had all the data, because he was at the center of the bribes himself. So there is a tremendous amount of evidence in the hands of people other than Wal-Mart,” Heineman said. “They must investigate it fully and come clean with the government. They have no choice. And that may mean that heads roll.”

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