Feds to Investigate Walmart over Mexican Bribery Charges

Walmart de Mexico has 2,088 stores in Mexico

Washington—The U.S. Justice Department has reportedly launched a criminal investigation of Walmart regarding alleged $24 million in bribes that the retail giant’s representatives paid to local officials in Mexico to speed up opening stores there in early 2000s.

According to a Bloomberg News report, the Justice Department is “investigating potential criminal charges under the U.S. Foreign Corrupt Practices Act (FCPA).” Walmart had already said it is conducting its own investigation in to the allegations.

A Justice Department spokesperson declined to comment on the report, as did a spokesperson at the Securities & Exchange Commission (SEC). However, the U.S. Congress may also be investigating. On Monday, Congressmen Elijah Cummings, the ranking member of the House Energy and Commerce Committee, and Rep. Elijah Cummings, ranking member of the House Oversight and Government Reform Committee,  said that they were launching an investigation into the matter, and they sent a letter to Mike Duke, Walmart’s ceo, asking for a meeting.

Should Walmart be found to have violated the Foreign Corrupt Practices Act–which forbids paying bribes to foreign officials–the company could face fines of hundreds of millions of dollars. Top Walmart executives could lose their jobs, or even go to jail. And the retailer may see its expansion plans in Mexico stymied as result.

The New York Times reported on April 21 that Walmart apparently paid $24 million to obtain building permits that gave it market dominance in Mexico, a violation of Mexican laws as well as of the United States. More problematic is that upon learning of the bribery campaign, Walmart officials quashed an internal investigation on the matter.

‘Penalties Can be Incredibly High’

At the time, Lee Scott Jr., then chief executive at Walmart, criticized the company’s investigators as being too aggressive. The investigation files were then sent to Walmart de Mexico to “the same general counsel [who] was alleged to have authorized bribes.” It was at that point that no wrongdoing was found and the investigation was dropped without the company ever having notified either Mexican or U.S. officials, the Times reported. Walmart’s own director of corporate investigations called the Walmart de Mexico probe “truly lacking” in an email to a superior.

Mexico is not investigating Walmart on its bribes because it considers the incidents as local matters.

Last December, Walmart filed with the SEC, saying it was examining whether it was in compliance with the FCPA without saying what region or time period was in question. According to the Times, Walmart filed this with the SEC upon learning of the newspaper’s investigations.

Responding to the allegations, David Tovar, vice president of corporate communications at Walmart, said in a statement: “We take compliance with the U.S. Foreign Corrupt Practices Act very seriously and are committed to having a strong and effective global anti-corruption program in every country in which we operate. 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.”

While federal investigations may be pending, Walmart is already feeling the heat over the case. Walmart de Mexico, which Walmart owns a 69% stake in, saw its shares decline 12% on Monday, the biggest decline since May 1998. Walmart’s shares here slid down nearly 5%, the biggest drop since last August.

The Walmart de Mexico expansion, which took place mainly in the last decade, left Walmart with about 20% of its stores (about 2,088) in Mexico, out of more than 10,000 worldwide.

Jeffrey Lehtman, a partner in Richards Kibbe & Orbe LLP, a law firm that handles FCPA cases, told Bloomberg that “the penalties paid by companies in settling these types of FCPA investigations have grown significantly larger in recent years. Depending on the facts uncovered, companies like Walmart can expect the penalties to be incredibly high.”

 

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