Inside corporate corruption

Inside corporate corruption

December 23rd, 2012 in Opinion Times

Wal-Mart Stores Inc., the world's largest retailer, is legend in the United States for piling up vast, multbillion-dollar fortunes for each of its founding family's members while keeping wages low and denying health insurance for its not-quite-full-time employees, whom it has long encouraged to apply for Medicaid, the federal-and-state insurance program for the very poor. For much of this year, however, the company has become equally well known in Washington and the Justice Department for allegations of a widespread culture of corporate bribery in its foreign markets by managers intent on making the chain as ubiquitous in Mexico, China, Brazil and India as it is in the United States.

Since The New York Times began chronicling findings of its own investigations into alleged bribery in Wal-Mart's foreign operations earlier this year, the company - along with Justice Department and Security and Exchange Commission investigators - has apparently expanded an international audit into a full-scale investigation of foreign bribery charges.

Judging by what has been reported in Mexico over the past eight years, however, it is stunning that Wal-Mart has waited so long to undertake a broad inquiry to get to the root of alleged violations of the U.S. Foreign Corrupt Practices Act, which forbids bribery of foreign officials by American companies. A most egregious example of Wal-Mart's practiced laxity was laid bare a few days ago by New York Times reporters David Barstow and Alejandra Xanic von Bertrab.

Their report described how Wal-Mart trampled a long-sought, comprehensive zoning revision to protect the town of San Juan Teotihucan, the gateway to the ancient pyramids outside Mexico City that are regarded as Mexico's most revered cultural landmark. Despite overwhelming local antipathy to the idea of having a Walmart store on the town's treasured plain just one mile from the pyramids - which has long spurred huge numbers of international tourists - Wal-Mart executives in Mexico City arranged bribes to revise the zoning plan to allow the Wal-Mart project, The Times reporters found.

When Wal-Mart broke ground for the store, it ignited fierce, long-running protests, including months of hunger strikes and sit-ins - all of which was covered by Mexico's media. So when the store opened in December 2004, The Times reported, it was taken as a symbol that Wal-Mart would be able to build anywhere it wanted, never mind what local officials and citizens ruled. And though a Mexican lawyer contacted Wal-Mart's Arkansas headquarters to disclose a vast bribery campaign in Mexico to fuel Wal-Mart's expansion, nothing much changed.

Matching records of permits for other Walmart stores in Mexico against claims of specific bribes, however, The Times reporters found a pattern of apparent connectivity. "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," The Times reported.

The paper cited another example of eight bribe payments totaling $341,000 that paved the way for Wal-Mart to build a Sam's Club near Basilica de Guadalupe in one of Mexico City's most densely populated neighborhoods.

Even more troubling, however, is The Times report that Wal-Mart had begun an investigation into the San Juan Teotihucan bribery issue, but shut it down in 2006 without making notable reforms - even though the company reportedly found much evidence that supported the Mexican lawyers' claims. Now the company has 2,230 stores in Mexico, making it the country's dominant retailer - the corporate reward for looking the other way.

New revelations by The New York Times this year have apparently forced Wal-Mart to explore bribery charges more aggressively, not just in Mexico, but also in the huge markets of China, India and Brazil. The company has apparently found enough troubling evidence in those countries to announce last month in a regulatory disclosure that it had opened an expansive investigation in all its 26 foreign markets. The Times reported then that Wal-Mart had hired hundreds of lawyers and accountants to examine its business practices and legal compliance in foreign markets with regard to foreign lobbying and the U.S. antibribery laws.

Wal-Mart obviously isn't the only big American or foreign corporation that has overlooked illegal practices that enrich its profits, executive compensation and shareholders' dividends. Recent Libor rate-rigging charges against half a dozen behemoth banks this fall have amply reaffirmed the lack of integrity and oversight in executives offices.

Corruption remains entrenched because regulators have allowed so many illegal practices to go without criminal prosecution. Thus executives of big corporations and banks are confident they won't go to jail, and that their billion-dollar fines will be paid, essentially, by shareholders. A shift toward criminal convictions and prison time, along with a tear-down of wrongly permitted stores, would help fix the problem of corporate corruption - if only Washington would lean that way.