Bribery allegations against Wal-Mart. Now India welcomes Wal-Mart with open arms. SoniaG Cong-I Corruption scam continuum?

Wal-Mart CEO Mike Duke at risk in bribery allegations

By  April 23, 2012: 6:52 PM ET


FORTUNE — No top executive of a major U.S. company has ever been charged in connection with U.S.’s Foreign Corrupt Practices Act bribery law. Wal-Mart’s (WMT) CEO Michael Duke could be the first.

Lawyers and FCPA experts say that Duke and other top Wal-Mart officials may have violated the law when they allegedly signed off on a flawed investigation of widespread bribery at the company’s Mexican division. Also potentially damaging for Duke is that it took years for Wal-Mart officials to tell shareholders and government regulators about the potential misdeeds, long after he and other top executives allegedly knew about the reported bribes. According to an article in the New York Times this weekend, Duke found out about the alleged bribes in 2005, but company officials only reportedly informed law enforcement officials about the potential abuses in December, which was after the Times says it told the world’s largest retailer the paper was looking into the matter.

The Department of Justice is reportedly conducting a criminal probe of the Wal-Mart bribery allegations. The Securities and Exchange Commission is investigating as well. On Monday afternoon, Democrats in the House of Representatives said they too would investigate the allegations of bribery by the retailer.

The potential charges against Wal-Mart come at a time when the Justice Department is getting more aggressive in charging top executives in bribery cases. In December, the government charged eight former Siemens officials, including a former member of the German industrial company’s central executive committee, in connection with bribery charges at that company. That was the first time a board member of a large global corporation was charged with a FCPA violation. Many FCPA violations at large companies are settled without naming individuals. In the past five years, the government has brought more FCPA cases against individuals, but those have only had mixed success.

“Wal-Mart is facing potentially huge penalties,” says Jeffrey Kaplan, a FCPA expert at law firm Kaplan & Walker. “It’s harder to say for executives. Corporate officials are required to do something when they find out about bribery, but not that much.”

Wal-Mart would be far from the only large company ensnared by bribery charges under FPCA in the past decade. The law has been around since the 1970s, but officials, aided by Sarbanes Oxley and international treaties, started more aggressively bringing cases under the act about a decade ago. Since then the Department of Justice and the Securities and Exchange Commission have brought about a dozen cases a year alleging bribery. A number have involved large companies. Last year, DOJ officials said they had more than 150 open investigations involving the Foreign Corrupt Practices Act.

Surprisingly, while FCPA makes foreign bribery punishable in the U.S., for a long time there was no requirement that companies and their officials report the misdeeds, even after they found out about them. And that’s why, despite the law, bribery went mostly unchecked for decades even after FCPA was on the books. That changed, at least for public companies, after the passage of Sarbanes Oxley in 2002. Under that law CEOs and CFOs must certify that their companies’ financial filings are correct. Bribes, because they have to hidden, are generally an indicator that at least something in a company’s books has been faked. So under Sarbanes Oxley it’s effectively a violation of securities law not to disclose knowledge of potential bribes.

“You still don’t have to tell law enforcement officials, but you do have to change the language in your financial filings and any deviation from the normal boiler plate usually gets noticed,” says Philip Urofsky, a partner at law firm Shearman & Sterling.

The result has been a flood of FCPA cases. The vast majority of cases brought against large public companies under the act are self-reported by companies either trying to minimize fines or shift blame to low-level employees. That doesn’t appear to be what happened at Wal-Mart. Duke was the head of the company’s international operations when the allegations of bribery came to light at the company. Nonetheless, when he became CEO in early 2009, Duke attested to the fact that the financial statements were accurate, and that all instances of possible fraud had been disclosed. Former CEO Lee Scott appears to have known about the concerns about bribes and signed off on financial statements as well. The company didn’t disclose to shareholders it was investigating a potential violation of FCPA until late last year.

What’s more, while companies are not required to report evidence that their employees bribed foreign officials, they are required to have controls in place to detect bribes and fairly investigate and document the matters when they occur. That doesn’t seem to be what happened at Wal-Mart. According to the Times, after Duke and other company officials found out about the potential bribes they eventually assigned the internal investigation of the matter to an executive who was alleged to have been complicit in the bribery scheme. Unsurprisingly, the official found little evidence of wrong-doing. If the investigation was indeed a sham, then that would be a violation of the FCPA as well.

“If the theory is that Wal-Mart executives created a make-believe investigation, then that would support bringing a case against them,” says Kaplan.

May 21, 2012

The Wal-Mart Corruption Case

The California State Teachers’ Retirement System, the largest teachers’ retirement fund in the country and known as CalSTRS, filed an important lawsuit this month against 27 current and past executives and directors of Wal-Mart Stores Inc., the world’s largest employer.

The case alleges widespread corruption and bribery at the company’s Mexican subsidiary. Last week, the company said it was expanding an internal inquiry to include other subsidiaries. The Justice Department and the Securities and Exchange Commission have begun parallel inquiries. This suit, along with those investigations, could help ensure that the company reckons with what it did wrong and fixes its broken corporate governance.

CalSTRS, an owner of millions of Wal-Mart shares, brought this shareholder action on behalf of Wal-Mart, seeking damages for the company as a result of alleged violations of fiduciary duties by corporate officials. This type of suit, filed in the Court of Chancery of Delaware where Wal-Mart is incorporated, is often a long shot. But under Delaware law, it seems the right response for the kind of wrongdoing alleged, which was reported by David Barstow in The Times last month.

The complaint describes hundreds of illegal bribes from September 2005 to May 2006 and a subsequent cover-up by an executive “implicated in authorizing bribes,” who caused Wal-Mart to sweep “everything under the rug” for almost six years. It details the harm executives and directors caused to Wal-Mart and shareholders because of legal and ethical violations.

In a shareholder action, a plaintiff has to establish one of two things: that the corporate officials acted out of their own self-interest rather than the company’s, or that the officials no longer deserve protection against liability under the so-called business judgment rule because of indefensible decisions they made.

While this test was designed to make it hard for such lawsuits to proceed against a company’s officials, it leaves room for meritorious suits against misconduct. In this case, shareholders are right to demand answers and accountability from Wal-Mart’s executives and directors.

Ivan Castano, Contributor

I follow Latin America’s growing billionaire ranks

4/24/2012 @ 7:29PM |3,757 views

Corruption Case Could Cripple Wal-Mart’s Spectacular Growth In Mexico

Wal-Mart, Playa del Carmen Q.R. (Originally &q...

Walmart de Mexico could see permits to open new stores in Mexico limited or removed following a bribery scandal in the country, in which the US retailer allegedly paid government officials as much as $24.5 million to provide faster access to store-building permits, Mexico City-based analysts said.

However, they noted any such a move won’t have a disastrous impact on Wal-Mart, because 50% of the stores it plans to open in Mexico and Central America will be for its smaller supermarket chains, rather than Wal-Mart mega-stores.

Wal-Mart’s shares on the Mexican bolsa have plummeted in the last couple of days after the New York Times published an article on Sunday detailing how the company had bribed the officials to provide faster building permits. The article also alleged top Wal-Mart executives in the U.S. executives about the bribes in Mexico but covered them up.

Despite Mexican transparency agency Transparencia Mexico’s request that the central government investigate the case, Mexico has so far indicated the allegations involve regional government officials, so it does not fall within its jurisdiction to look into it.

The issue is, however, being investigated by the U.S. Securities and Exchange Commission and the U.S. Department of Justice, according to the New York Times.

On Monday Wal-Mart said it would create a new executive position to ensure that a U.S. law banning the bribery of foreign politicians is met. It said it was conducting its own investigation of the Mexican case. Walmart de Mexico did not return phone calls seeking comment.

Slower growth?

According to analysts, Walmart de Mexico opened 233 stores between 2001 and 2005, the period in which the alleged bribes took place. However, the discount retailer’s growth was even more “spectacular” during 2005-2011, when it opened over 900 stores, they said.

Overall, Walmart has opened 2,000 stores in Mexico  in 12 years. In  2011, it opened 441 outlets between Mexico and Central America. However, this year it’s expected to open 360 outlets. Analyst Paola Sotelo from Monex broker in Mexico City said she expects Walmart to reduce openings by 80 stores annually in the next few years in the region as the market becomes saturated. However, Sotelo said that if the Mexican government decides to limit future opening permits, that number could fall sharply. Nevertheless, because most stores planned are for its small-format supermarket, Walmart Mexico won’t be heavily impacted by such a decision.

“The store-opening regulation could become stricter or there could eventually be a government fine,” Sotelo said. “Either way, given the amount of cash Walmart has, we don’t expect a fine to significantly impact them while 50% of the new stores they will open are small ones.”  Sotelo cut her Walmart de Mexico price target to 41 pesos from 42 pesos. Walmart de Mexico closed at 36.2 pesos on Tuesday, a drop of 4.4% vs. Monday’s close.

She added Walmart’s Central American growth is mainly based on acquisitions of rival stores, rather than the construction of new ones. For this reason, the corruption allegations are unlikely to slow the company’s growth there.

Gerardo Copca, director of Mexican broker MetAnalisis, said the Mexican government could make it harder for Walmart de Mexico to obtain new-store construction permits following the scandal. However, he said Walmart’s plans are already a lot more ambitious than most competitors and agreed with  Sotelo that the new stores will be smaller and therefore less crucial for Walmart’s bottom line.

Aggressive expansion

“Their plans are double what competitors like Soriana, Comercial Mexican or Chedraui are planning, so from a competition standpoint, limiting their permits could make sense” after the corruption case. “Still, Walmart is a big employment creator in the country so while I think the government could slow their expansion, they are not going to let them crash.”

Copca also lowered his Walmart target share price to 45 pesos from 46 pesos, adding that he doesn’t expect the shares will be pressured in the longer term.

“Right now there is a lot of noise about Walmart and investor fear about the scandal’s repercussions. But eventually, it will fade away.”

Consumers don’t seem to be taking notice. “I don’t think anyone will stop shopping in Walmart because of this issue,” Sotelo said. “They have the lowest prices in the market and people like that.”

Walmart operates 2,755 stores in Mexico, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, including a range of discount outlets, supermarkets and hypermarkets.


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