The New York Times is reporting that, after receiving information from a whistle-blower detailing bribes to Mexican officials in connection with an aggressive program of opening stores, Wal-Mart executives in Bentonville, Arkansas failed to follow the recommendations of their own investigators to launch a more detailed enquiry. Instead, Wal-Mart shifted authority to conduct a further investigation to the very organizational unit whose activities were the subject of the whistle-blower's allegations and the initial enquiry.
A lengthy article in the New York Times alleges that corporate officers at Wal-Mart headquarters in Arkansas outsourced an investigation -- as well as documents -- to Wal-Mart de Mexico. The investigation concerned allegations by an insider that Wal-Mart de Mexico was paying bribes on a very broad scale to government officials to grease the skids for the issuance of building permits, zoning variances, etc. so that Wal-Mart could press ahead at breakneck pace with a strategy of achieving market dominance by overwhelming its competition... by opening stores all over the country faster than the competition could match. (Sounds a bit like Ronald Reagan's defense-buildup strategy to bring about the collapse of the Soviet Union.)
The whistle-blower was Sergio Cicero Zapata, a Mexican lawyer who held an in-house position in Wal-Mart de Mexico's real estate department for nearly ten years. Mr. Cicero resigned from Wal-Mart de Mexico in 2004 after being passed over for a promotion. The next year, he contacted Maritza I. Munich, then general counsel of Wal-Mart International, informing her that he had information about “irregularities” authorized “by the highest levels” at Wal-Mart de Mexico.
Ms. Munich hired a Mexico City lawyer to look into the matter. She flew to Mexico to interview Mr. Cicero. Mr. Cicero provided detailed information that suggested widespread involvement in a program of bribery, reaching to the highest levels of Wal-Mart de Mexico. Among those whom he implicated were Wal-Mart de Mexico’s board chairman, general counsel, chief auditor, top real estate executive, and the company’s chief executive, Eduardo Castro-Wright.
The scheme had been hidden from Wal-Mart's US headquarters by means of fraudulent accounting. The bribes were passed through attorneys and gestores -- fixers/facilitators/go-betweens hired by the attorneys, and showed up on the books as legal expenses.
The payments became much more common after Mr. Castro-Wright took the helm in 2002. His aggressive growth strategy paid personal dividends when he was promoted to a position at Wal-Mart's corporate headquarters in Arkansas.
The information conveyed to Ms. Munich triggered an internal investigation. Investigators, including retired federal law-enforcement officials, journeyed to Mexico to review the books and to conduct interviews. They came back and wrote a report stating that there appeared to be a major problem and that a full-blown investigation was in order.
In the meantime, the Mexicans began to push back. They complained of high-handed tactics and attempts at intimidation by the investigators sent down from Arkansas. They attempted to smear the whistle-blower, saying that his wife was partners with one of the lawyers who allegedly dispensed the bribes, and that the bribes likely ended up in the whistle-blower's own pocket.
Eventually, the executives in the US decided to assign responsibility for a further investigation of the very people whose activities had been called into question in the first place. They shipped documents from Wal-Mart HQ to Wal-Mart de Mexico, ostensibly to assist the investigators in their investigations of themselves. The investigators found that they had committed no improprieties. By 2006, it was case closed.
The Times has been working on this story for some months. Wal-Mart was apprised of what the Times's investigative reporters had found and was offered the opportunity to comment.
In this diary, Tasini argues that this is not news, given Wal-Mart's pattern of law-breaking and of maximizing profit over all else.
I think that Tasini may be underestimating the importance of this story. This could pose very, very serious problems from Wal-Mart executives and for the corporation itself under the Foreign Corrupt Practices Act. There is also the matter of misprision of felony and conspiracy..
It seems clear that the bribery scheme was hatched in Mexico, and not in the United States, and that it proceeded apace without the knowledge of Wal-Mart HQ until Mr. Cicero contacted Ms. Munich. At that point, everything changed, and the real story is what Wal-Mart did with the information once it was dropped into its lap.
Among other things, it is open to question whether Wal-Mart fulfilled its obligations to maintain adequate accounting systems.
The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions. See 15 U.S.C. § 78m. These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls.
Link.
The lesson of Watergate: it's not the original crime that will do you in, it's the cover-up.