Wal-Mart Caught Up in Bribery Scandal

Retail giant is at the center of a media firestorm following accusations that it silenced an internal bribery investigation.

Wal-Mart Stores Inc. is at the center of a media firestorm following accusations that the retail giant silenced an internal bribery investigation involving the rapid expansion of its retail footprint in Mexico.

This story first appeared in the April 23, 2012 issue of WWD.  Subscribe Today.

The discount giant denied claims made by The New York Times on Saturday that it covered up evidence that executives at Wal-Mart Mexico paid bribes in 2005 to obtain permits to build stores in the country.

“If these allegations are true, it is not a reflection of who we are or what we stand for,” said Wal-Mart spokesman David Tovar. “We are deeply concerned by these allegations and are working aggressively to determine what happened.”

The recent claims are blemish on what’s been story of robust growth internationally for the retailer, beginning with its business in Mexico. In 1991, Mexico became home to Wal-Mart’s first oversees operations and today counts as one of the retailer’s largest global markets with 2,088 doors and sales of just over 379 billion pesos, or $29 billion, last year. Wal-Mart, which recently surpassed the 10,000-store mark worldwide, raked in $444 billion in sales in 2011.

Although the Bentonville, Ark.-based retailer claimed it doesn’t have a “full explanation of what happened,” the allegations may explain the investigation it launched last fall related to compliance with the U.S. Foreign Corrupt Practices Act.

“We will not tolerate noncompliance with the FCPA anywhere or at any level of the company,” Tovar said, adding that Wal-Mart has met “voluntarily” with the U.S. Department of Justice and Securities and Exchange Commission to self disclose the ongoing investigation on the matter.

In December, the retailer filed a quarterly report with the SEC, informing shareholders that it had launched an investigation on the matter.

A spokesman for the SEC declined to comment on the matter Sunday. Calls to the DOJ for comment were not immediately returned.

According to the New York Times, Sergio Cicero Zapata, a former Wal-Mart executive, sent an e-mail to the retailer’s lawyer that described how its Mexico unit had “orchestrated a campaign of bribery to win market dominance.”

Zapata, who had been responsible for construction permits until 2004, told Maritza Munich, who at the time was Wal-Mart’s International general counsel, that execs bribed government officials to get permits that typically took months to obtain. Those permits “magically” materialized within days, said Zapata, who also provided details implicating Wal-Mart Mexico’s then chief executive officer Eduardo Castro-Wright.

Castro-Wright, who joined Wal-Mart Mexico in 2001 as president and chief operating officer, had been instrumental to the retailer’s expansion in the region. Just two years after joining the company, the ambitious Castro-Wright took the reins as ceo of the business.

But in 2010, the executive, by then president and ceo of Wal-Mart U.S., was transferred to oversee Wal-Mart’s e-commerce business, a move that raised eyebrows at the time, considering Castro-Wright’s meteoric rise and success developing the company’s footprint in Mexico.

Perhaps more startling was Wal-Mart’s announcement in September that the 56-year-old vice chairman and ceo of global e-commerce and sourcing would retire from the company this July.

But the focus of the Times’ allegations centered around how Wal-Mart responded to Zapata’s accusations. According to the newspaper, after Zapata alerted Wal-Mart of the bribery, an internal investigation was launched, and evidence of hundreds of suspect payments adding up to more than $24 million were unearthed in the retailer’s Mexico City headquarters.

The Times said the retailer’s lead investigator believed that there was reasonable suspicion that U.S. and Mexican laws had been violated and that an expanded investigation should be conducted.

Instead, Wal-Mart’s leaders shut down proceedings without alerting government officials, said the newspaper, noting that none of the retailer’s executives were disciplined either.

“We are working hard to understand what occurred in Bentonville more than six years ago and are committed to conducting a complete investigation before forming conclusions,” Tovar said. “Unfortunately, we realize that, at this point, there are some unanswered questions. We wish we could say more but we will not jeopardize the integrity of the investigation.”