IN SEPTEMBER 2005 a senior Walmart lawyer received an alarming email from a former executive at the company’s largest foreign subsidiary, Walmart de Mexico. In the email and follow-up conversations, the former executive described how Walmart 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. For years he had been the lawyer in charge of obtaining construction permits for Walmart de Mexico.
Walmart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totalling more than $24 million (€18 million). They also found documents showing that Walmart 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.
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 Walmart de Mexico’s leaders were disciplined. Indeed, its chief executive, Eduardo Castro-Wright, identified by the former executive as the force behind years of bribery, was promoted in 2008. Until this article, the allegations and Walmart’s investigation had never been publicly disclosed. But the Times examination uncovered a prolonged struggle at the highest levels of Walmart, a struggle that pitted its commitment to the highest ethical standards against its relentless pursuit of growth.
Walmart’s leaders recognised that the allegations could have devastating consequences, documents and interviews show. Walmart de Mexico was the company’s brightest success story – a model for future growth. Confronted with evidence of corruption in Mexico, top Walmart executives focused on damage control.
In one meeting where the bribery case was discussed, H Lee Scott jnr, then Walmart’s chief executive, rebuked internal investigators for being overly aggressive. Days later 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 Walmart de Mexico – the same general counsel alleged to have authorised bribes. The general counsel promptly exonerated his fellow executives. When Walmart’s director of corporate investigations read the general counsel’s report, his appraisal was “truly lacking”. But the report was accepted by Walmart’s leaders as the last word on the matter.
In December, after learning of the Times’ reporting in Mexico, Walmart informed the US Justice Department 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 American 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.
But the Times’ examination found credible evidence that bribery played a significant role in Walmart’s rapid growth in Mexico, where it now employs 209,000 people and is Mexico’s largest private employer.
A Walmart spokesman confirmed that the 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 W Tovar said. “We are deeply concerned by these allegations and are working aggressively to determine what happened.”
In the meantime, Tovar said, Walmart is taking steps in Mexico to strengthen compliance with the Foreign Corrupt Practices Act. “We do not and will not tolerate noncompliance with FCPA anywhere or at any level of the company,” he said.
The Times laid out its findings to Walmart weeks ago. The company said it shared the findings with many executives named here, including Scott, now on Walmart’s board, and Castro-Wright (retiring in July). Both men declined to comment, Tovar said.
The Times obtained hundreds of internal company documents tracing the evolution of Walmart’s 2005 Mexico investigation. The documents show Walmart’s leadership recognised the seriousness of the allegations. Working in secrecy, a small group of executives kept tabs on the inquiry.
Michael T Duke, Walmart’s chief executive, was also kept informed. At the time, Duke had just been put in charge of Walmart International, making him responsible for all foreign subsidiaries. “You’ll want to read this,” a top Walmart lawyer wrote in a 2005 email to Duke that gave a detailed description of the former executive’s allegations.
The Times’ examination included more than 15 hours of interviews with the former executive Sergio Cicero Zapata, who resigned from Walmart de Mexico in 2004. In the interviews, Cicero recounted how he had helped organise years of pay-offs.
The Times also reviewed thousands of government documents relating to permit requests for stores across Mexico. The examination found many instances where permits were given within weeks or days of Walmart de Mexico’s payments to the two lawyers.
In the end, people involved in the investigation said, Walmart’s leaders found a 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.
– (New York Times News Service)
