This past April, New York Times journalist David Barstow detailed, in a front page article, Wal-Mart de Mexico’s historical business conduct in Mexico.  The article resulted in one of the most intense instances of FCPA scrutiny ever.  (See here for the prior post discussing the April story).

Today, in a front-page article (here) titled “The Bribery Aisle: How Wal-Mart Used Payoffs to Get Its Way in Mexico,” Barstow continues his investigation of Wal-Mart’s historical business conduct in Mexico.

While the extensive article provides much factual detail concerning many of the general issues from the original April article, from an FCPA perspective, the issues largely remain the same.  For my prior analysis of Wal-Mart’s FCPA scrutiny, see this article titled “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”

Based on travel to dozens of towns and cities in Mexico, gathering tens of thousands of documents related to Wal-Mart de Mexico permits, and interviewing scores of government officials and Wal-Mart employees, the article, in pertinent part, states as follows.

“The Times’s examination reveals that Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business.  Nor did it pay bribes merely to speed up routine approvals.  Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited.  It used bribes to subvert democratic governance – public votes, open debates, transparent procedures.  It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction.  It used bribes to outflank rivals.  Through confidential Wal-Mart documents, The Times identified 19 stores sites across Mexico that were the target of Wal-Mart de Mexico’s bribes.  The Times then matched information about specific bribes against permit records for each site.  Clear patterns emerged.  Over and over, for example, the dates of bribe payments coincided with dates when critical permits were issued.  Again and again, the strictly forbidden became miraculously attainable.  Thanks to eight bribe payments totaling $341,000, for example, Wal-Mart built a Sam’s Club in one of Mexico City’s most densely populated neighborhoods, near the Basilica de Guadalupe, without a construction license, or an environmental permit, or an urban impact assessment, or even a traffic permit.  Thanks to nine bribe payments totaling $765,000, Wal-Mart built a vast refrigerated distribution center in an environmentally fragile flood basin north of Mexico City, in an area where electricity was so scarce that many smaller developers were turned away.”

The majority of the article focuses on alleged bribe payments – approximately $200,000 in all – to build a Wal-Mart de Mexico store in Teotihuacan, a city home to several historical treasures.

The allegations focus on a changed zoning map, various permits and licenses needed for construction, town council approval, potential donations to Mexico’s National Institute of Anthropology and History (INAH – the official guardian of Mexico’s cultural treasures) , and offers of money to neighborhoods to expand its cemetery, pave a road, build a handball court, pay for paint and computers for a school, and build a new office building.

As to these later category of alleged payments or offers, the Time article does not mention that even the Department of Justice, in similar types of circumstances, has blessed similar offers of payment in the context of FCPA Opinion Procedure Releases – see here, here, and here.

Like the April article in the Times, today’s story also focuses on the conduct of business leaders at corporate headquarters.  The Times article states as follows.  “Despite multiple news accounts of possible bribes, Wal-Mart’s leaders in the United States took no steps to investigate Wal-Mart de Mexico.”  The article also quotes a Wal-Mart spokesman as saying that while executives in the United States were aware of the controversies surrounding the Teotihucan store, “none of the [Wal-Mart employees interviewed in connection with Wal-Mart's current investigation] , including people responsible for real estate projects in Mexico during [the relevant time period] recall any mention of bribery allegations related to the store.”

In short, and as I originally stated in my prior article, it is useful to view the Wal-Mart story as a corporate governance sandwich with the FCPA merely a condiment.

See here for Wal-Mart’s statement and video concerning today’s New York Times article.  In pertinent part, the statement is as follows.

“The allegations contained in the New York Times article surrounding events in 2003-2004 involving the permitting and licensing process for a Walmart de Mexico store in Teotihuacan, Mexico, have been part of the company’s ongoing investigation of potential violations of the U.S. Foreign Corrupt Practices Act we began more than a year ago. The Audit Committee of the board, comprised entirely of independent directors, is overseeing the investigation. We are also continuing to cooperate with the Department of Justice and the Securities and Exchange Commission on this matter.  At this point, the investigation is still ongoing and we have not yet reached final conclusions. A thorough and independent investigation will take time to complete. We wish we could say more but we will not jeopardize the integrity of the investigation. [...]  While the investigation is ongoing, we have not waited to act. Over the past 20 months, we have made significant improvements to our compliance programs around the world and have taken a number of specific, concrete actions with respect to our processes, procedures and people. Over the past several months we have:

  • Established several new compliance positions around the world;
  • Directed more than 300 third-party legal and accounting experts who have dedicated in excess of 79,000 hours to this effort;
  • Conducted more than 85 in-country visits and more than 1,000 interviews of market personnel;
  • Spent more than $35 million on new processes and procedures; and
  • Conducted training sessions attended by more than 19,000 associates.