NEW YORK — Allegations that Wal-Mart Stores Inc. covered up the findings of an internal probe that proved its Mexican subsidiary bribed officials in that country could have huge implications for the world’s biggest retailer and its executives.
The alleged bribery scheme was revealed by The New York Times, which reported that Wal-Mart failed to notify law enforcement after the company’s investigators found evidence of millions of dollars in bribes given to Mexican officials in exchange for getting building permits faster and other favors to help it aggressively expand in the region.
If Wal-Mart violated the Foreign Corrupt Practices Act, which forbids paying bribes to foreign officials, the company could face fines of hundreds of millions of dollars, experts say.
Top Wal-Mart executives could lose their jobs — or go to jail. And the retailer could suffer a public relations nightmare if a lengthy investigation ensues.
“Unlike prior bad PR stories in recent years, this will be a material distraction for Wal-Mart on multiple fronts,” said Charles Grom, a retail analyst at Deutsche Bank.
The Times reported on Saturday that a former company executive told Wal-Mart top brass in 2005 details of a bribery campaign that was used to help the retailer expand in Mexico. The paper said Wal-Mart officials launched an investigation into its Wal-Mart de Mexico subsidiary, but shut the probe down despite a report by its lead investigator that Mexican and U.S. laws likely were violated.
Over the weekend, Wal-Mart said it had disclosed the findings of its investigation to the U.S. Department of Justice and the Securities and Exchange Commission in December, and that it met with officials from both agencies to discuss the company’s ongoing investigation. But, according to the Times, Wal-Mart only did so after being informed that the paper was looking into the allegations.
“We are committed to getting to the bottom of this matter,” Dave Tovar, a Wal-Mart spokesman, said in a statement.
The Department of Justice and the SEC declined to comment for this story. But legal experts say the government likely will launch its own investigations into the bribery allegations. Based on the results of past investigations of companies — and their executives — the penalties for violating the law can range widely from fines to jail time.
In February, for instance, Albert “Jack” Stanley, a former KBR Inc. CEO got a 2½-year prison sentence for his role in a scheme to bribe Nigerian government officials in return for $6 billion in engineering and construction contracts. KBR, a homebuilder, was a Halliburton subsidiary at the time of the bribes.
And in March, medical device maker Biomet Inc. agreed to pay $22.7 million to settle U.S. criminal and civil allegations that it bribed government-employed doctors in Argentina, Brazil and China for more than eight years to win business with hospitals.
Experts say it’s difficult to speculate on how an investigation into Wal-Mart’s alleged bribery campaign could turn out. But they say if the government decides to do its own probe, it will likely look at whether the company had adequate controls in place to prevent bribery, whether there was adequate training to discourage the practice before the violations occurred, and how high up any alleged cover-up took place.
Kevin Abikoff, anti-corruption and internal investigations practice group at law firm Hughes Hubbard & Reed, said that the government will decide whether to file criminal charges against the company and its executives based on whether they tried to cover-up the allegations, including destruction of records or accounting irregularities.
Abikoff said the government is usually more lenient when a company discloses wrong-doing.
“The government can’t tolerate that behavior,” he said. “It’s usually the cover-up that kills.”
According to the New York Times, Eduardo-Castro Wright, who was head of Wal-Mart de Mexico at the time of the alleged bribes, was the driving force behind the alleged bribery.
Wal-Mart’s CEO Mike Duke, who was over the company’s international division at the time of the investigation, also face could intense scrutiny, experts say. As could H. Lee Scott Jr., who was CEO at the time of the allegations and remains on Wal-Mart’s board.
According to the Times story, Scott rebuked internal investigators at one meeting for being overly aggressive.
Shortly after, according to the paper, the investigation turned over the investigation to the general counsel for Wal-Mart de Mexico, who himself was alleged to have authorized bribes. He exonerated his fellow executives, according to the Times story.
Any potential charges could be a headache for Wal-Mart, of Bentonville, Ark., at a time when the company is depending more on emerging markets such as Mexico to fuel its growth and offset sluggish sales in the U.S.
The company, which faces fierce competition from dollar stores to online rivals like Amazon.com, is focused on expanding internationally: That portion of the business accounted for more than a quarter of its overall sales of $418.9 billion in its latest fiscal year.
The company’s international business, which enjoyed a 15.2 percent increase last year, has had the fastest growth compared to its Wal-Mart U.S. business and Sam’s Club division. In particular, Mexico, which it entered in 1991, has been a strong market: Wal-Mart de Mexico is now Wal-Mart’s largest subsidiary, and one out of every five Wal-Mart stores is now in Mexico.
If there is a lengthy government investigation, it could increase the monitoring of its businesses in other regions such as China and Brazil, which could hamper its international growth, experts said. Additionally, any penalties would be a financial pain for Wal-Mart, which recently reversed more than two years of sales declines at its namesake U.S. business.
“This is going to be a major distraction for Wal-Mart,” said Leonard Baynes, professor at business law at St. John’s University.
Copyright © 2011, Capital City Press LLC • 7290 Bluebonnet Blvd., Baton Rouge, LA 70810 • All Rights Reserved