Wal-Mart faces big fines amid bribery charges

Wal-Mart faces big fines amid bribery charges

A customer pays at the cash register at a Wal-Mart, world’s largest retailer, superstore in Mexico City in this file photo dated Nov. 18, 2011. (Photo: AP)

April 24, 2012, Tuesday/ 15:28:00

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. Two Democratic US congressmen, Elijah Cummings and Henry Waxman, said Monday that they were launching an investigation into the matter, and they sent a letter to CEO Mike Duke asking for a meeting. And The Washington Post reported late Monday that the US Department of Justice has been conducting a criminal probe of the allegations since December, citing people familiar with the matter. If Wal-Mart is 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 Wal-Mart executives could lose their jobs - or worse, 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 in 2005 told Wal-Mart top brass about 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 down the probe despite a report by its lead investigator that Mexican and US laws likely were violated.

In December, Wal-Mart said in a filing with the Securities and Exchange Commission that it had begun an investigation into an overseas operation related to its compliance with the foreign corrupt practices law. Over the weekend, the company revealed that it had met with officials from the SEC and the Justice Department 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 Justice Department and the SEC declined to comment for this story. But legal experts say if there is a government investigation into the bribery allegations, the results could vary widely. In recent probes into corporations- and their executives - the penalties for violating the foreign corruption law have ranged from big fines for the companies to jail time for the executives.

In February, for instance, Albert "Jack" Stanley, a former KBR Inc. CEO got a 2 1/2 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, an engineering and construction firm, 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 US 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 a government probe into Wal-Mart's alleged bribery campaign would 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. If the government finds that Wal-Mart or its executives were negligent, the company could face fines and top executives could lose their jobs. But if it's determined that there was a cover-up that involved actions such as falsifying records, there could be criminal charges. Mexico's federal government, however, indicated late Monday that it would not be investigating the matter. It said it had no jurisdiction in the case because the report only referred to the involvement of Mexican state and city officials.

Eduardo Castro-Wright, who was head of Wal-Mart de Mexico at the time of the alleged bribes and, could face criminal charges, experts say. According to the New York Times, he was the driving force behind the bribery. Duke, Wal-Mart's CEO who was over the company's international division at the time of the investigation, could also face 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.

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