By Jessica Wohl and Carlyn Kolker
April 22 Allegations that Wal-Mart Stores Inc
stymied an internal investigation into extensive bribery
at its Mexican subsidiary are likely to lead to years of
regulatory scrutiny and could eventually cost some executives
The New York Times reported on Saturday that in September
2005, a senior Wal-Mart lawyer received an email 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 shut down the investigation
and neglected to notify U.S. or Mexican law enforcement
officials, the Times reported.
Legal and retail experts said that the allegations, if
proven true, could badly hamper the company and its management
for years. They could lead to a time-consuming global probe,
substantial financial penalties paid to U.S. authorities, and
the departure of some executives.
One option Wal-Mart will have is to remove some of those
involved in the alleged bribery or cover-up as this could make
it easier to reach an out-of-court settlement with the U.S.
Department of Justice concerning possible breaches of the
Foreign Corrupt Practices Act (FCPA), a U.S. law that forbids
the payment of bribes to foreign government officials.
"Among the remedial actions is 'house cleaning' of anyone
involved in illegal conduct," said Richard Cassin, a lawyer who
is an expert on the FCPA and writes a blog about it. "If a
company can say those involved in the questionable conduct are
already gone, the DOJ is likely to look more favorably on the
company and current management."
Wal-Mart said it had disclosed its probe to the DOJ and the
Securities and Exchange Commission. The company also said it had
taken steps at the Mexico unit, which is widely known as Walmex,
to boost internal controls to make sure it was FCPA compliant.
But, according to the Times, the disclosure came only after
it informed Wal-Mart that it was looking into the bribery
allegations, years after the bribes were said to first come to
A spokesman at the SEC said on Saturday he did not have any
comment on the Times article. A DOJ spokeswoman declined to
"Because of Wal-Mart's inaction for a very long time, it's
likely its exposure is only going to increase," said Michael
Koehler, a professor at Butler University and an expert on the
According to the Times, current Wal-Mart Chief Executive
Mike Duke and former CEO Lee Scott, who still sits on the
company's board, were among senior executives allegedly aware of
the situation. Duke was put in charge of Wal-Mart's
international division in 2005.
The newspaper also reported that the whistleblower Cicero
had identified former Walmex CEO Eduardo Castro-Wright as the
driving force behind years of bribery.
Castro-Wright became CEO of Walmex in 2003 and was named CEO
of Walmart US in 2005 and became a vice chairman in 2008. He led
Wal-Mart's e-commerce business from 2010 until January this
year, and is set to retire on July 1 after the company said last
September that he was going to leave to spend more time with his
family. He could not be reached for comment.
Wal-Mart said in a statement on Saturday it was "deeply
concerned" about the allegations in the Times report. It said it
began an investigation into its compliance with anti-bribery
laws last autumn. The company declined to make Duke or any other
executives available for comment, and said the investigation was
On Sunday, Wal-Mart spokesman David Tovar said Duke had
instructed the company to conduct a worldwide FCPA compliance
review in March 2011.
"Mike is fully supportive of the independent investigation
being conducted in Mexico with oversight by the Audit Committee,
including ensuring that all resources necessary are available to
pursue the independent investigation aggressively," Tovar said.
On Friday, Walmex announced that one executive named the
next day in the Times report, its general counsel and secretary
to the board Jose Luis Rodriguezmacedo, had been assigned to
other duties. He was removed from his role "in the interest of
the investigation," Walmex spokesman Antonio Ocaranza said in an
email, adding that he could not give further details about
Rodriguezmacedo's status at Walmex. Calls to Rodriguezmacedo
were referred to the spokesman.
COSTLY AND FAR-REACHING
Experts in bribery laws said Wal-Mart will be forced to
devote millions of dollars and enormous amounts of manpower to
its internal investigation. In many FCPA cases involving large
companies, they do a large part of the investigation themselves
and then hand the results over to the authorities.
"This is very likely to last two to four years for Walmart.
These worldwide investigations tend to take two to four years in
the normal course of business; it simply takes time," said
Cassin said Wal-Mart faces an uphill battle to convince U.S.
regulators that its problems are confined to Mexico. The U.S.
retailer also has major operations in the UK, Brazil, Japan,
China and Canada, and it is also seeking to expand rapidly in
emerging markets such as India and parts of Africa.
"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," said
The allegations could prove a huge problem for Wal-Mart if
proven true, said Deutsche Bank retail analyst Charles Grom. "It
would put a broadside in the growth engine of the company," he
said. "Unlike prior bad PR stories in recent years, this will be
a material distraction for Wal-Mart on multiple fronts."
Some retail experts said they thought that Wal-Mart would be
unlikely to sacrifice Duke in the investigation and any related
talks over a settlement with the government.
"I don't get the sense that Mike Duke's going to lose his
job over this," said Joseph Feldman, senior retail analyst at
Telsey Advisory Group. "I think that they'll try to put the spin
on it that they have been putting on it - that it happened years
ago, they rooted it out and it doesn't happen anymore."
The company's corporate structure may also reduce the
chances of outside pressure from shareholder activists and
others leading to drastic changes in the executive suite. The
family of Wal-Mart founder Sam Walton owns nearly 50 percent of
the shares and Walton's eldest son, S. Robson (Rob) Walton, is
chairman, and his younger brother Jim is also on the board.
According to the Times, Rob Walton, Duke and Scott also had
received an anonymous email in January 2006 saying Wal-Mart de
Mexico's top real estate executives were receiving kickbacks
from construction companies.
Wal-Mart, which employs 2.2 million people and runs more
than 10,000 stores around the world, is often targeted by labor
and community activists who argue that it underpays its workers
and its sprawling stores undercut smaller shops, often putting
them out of business. It has fought hard to improve its image in
recent years with a number of campaigns, including one to make
its operations more environmentally friendly.
Wal-Mart executives have, though, been active in a lobbying
group that is pushing to scale back the FCPA. A 2010 tax return
for the U.S. Chamber Institute for Legal Reform lists Jeff
Gearhart, Wal-Mart's general counsel since 2009, and Thomas
Hyde, who retired in August 2010 as Wal-Mart corporate
secretary, as two of 40 people who served as board members.
The board includes top lawyers and executives from other
major corporations. Dow Chemical Co, Exxon Mobil Corp and State
Farm Insurance each had two people among the 40 listed board
members during 2010.
The U.S. Chamber Institute for Legal Reform is associated
with the U.S. Chamber of Commerce, the largest business lobbying
organization in Washington, D.C. It wants lawmakers to make
several changes to the corruption law, for example by adding a
provision that would protect a corporation from liability if one
of its employees circumvented compliance measures.