India, Beware. If Wal-mart could pay unimaginable bribes in Mexico, what will happen in India?
Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited, an examination by The New York Times found.
A Retail Giant Fueled Growth With Bribes
Wal-Mart longed to build in Elda Pineda’s alfalfa field. It was an ideal location, just off this town’s bustling main entrance and barely a mile from its ancient pyramids, which draw tourists from around the world. With its usual precision, Wal-Mart calculated it would attract 250 customers an hour if only it could put a store in Mrs. Pineda’s field.
One major obstacle stood in Wal-Mart’s way. After years of study, the town’s elected leaders had just approved a new zoning map. The leaders wanted to limit growth near the pyramids, and they considered the town’s main entrance too congested already. As a result, the 2003 zoning map prohibited commercial development on Mrs. Pineda’s field, seemingly dooming Wal-Mart’s hopes.
But 30 miles away in Mexico City, at the headquarters of Wal-Mart de Mexico, executives were not about to be thwarted by an unfavorable zoning decision. Instead, records and interviews show, they decided to undo the damage with one well-placed $52,000 bribe.
The plan was simple. The zoning map would not become law until it was published in a government newspaper. So Wal-Mart de Mexico arranged to bribe an official to change the map before it was sent to the newspaper, records and interviews show. Sure enough, when the map was published, the zoning for Mrs. Pineda’s field was redrawn to allow Wal-Mart’s store. Problem solved.
Wal-Mart de Mexico broke ground months later, provoking fierce opposition. Protesters decried the very idea of a Wal-Mart so close to a cultural treasure. They contended the town’s traditional public markets would be decimated, its traffic mess made worse. Months of hunger strikes and sit-ins consumed Mexico’s news media. Yet for all the scrutiny, the story of the altered map remained a secret. The store opened for Christmas 2004, affirming Wal-Mart’s emerging dominance in Mexico.
The secret held even after a former Wal-Mart de Mexico lawyer contacted Wal-Mart executives in Bentonville, Ark., and told them how Wal-Mart de Mexico routinely resorted to bribery, citing the altered map as but one example. His detailed account— he had been in charge of getting building permits throughout Mexico—raised alarms at the highest levels of Wal-Mart and prompted an internal investigation.
A Bribe Inquiry Silenced
But as The New York Times revealed in April, Wal-Mart’s leaders shut down the investigation in 2006. They did so even though their investigators had found a wealth of evidence supporting the lawyer’s allegations. The decision meant authorities were not notified. It also meant basic questions about the nature, extent and impact of Wal-Mart de Mexico’s conduct were never asked, much less answered.
The Times has now picked up where Wal-Mart’s internal investigation was cut off, traveling 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, including 15 hours of interviews with the former lawyer, Sergio Cicero Zapata.
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 store 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 Basílica 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.
But there is no better example of Wal-Mart de Mexico’s methods than its conquest of Mrs. Pineda’s alfalfa field. In Teotihuacán, The Times found that Wal-Mart de Mexico executives approved at least four different bribe payments—more than $200,000 in all—to build just a medium-size supermarket. Without those payoffs, records and interviews show, Wal-Mart almost surely would not have been allowed to build in Mrs. Pineda’s field.
The Teotihuacán case also raises new questions about the way Wal-Mart’s leaders in the United States responded to evidence of widespread corruption in their largest foreign subsidiary.
Wal-Mart’s leadership was well aware of the protests here in 2004. (The controversy was covered by several news outlets in the United States, including The Times.) From the start, protest leaders insisted that corruption surely played a role in the store’s permits. Although woefully short on specifics, their complaints prompted multiple investigations by Mexican authorities. One of those investigations was still under way when Wal-Mart’s top executives first learned of Mr. Cicero’s account of bribes in Teotihuacán (pronounced Tay-o-tea-wah-KHAN).
But Wal-Mart’s leaders did not tell Mexican authorities about his allegations, not even after their own investigators concluded there was “reasonable suspicion” to believe laws had been violated, records and interviews show. Unaware of this new evidence, Mexican investigators said they could find no wrongdoing in Teotihuacán.
Wal-Mart has been under growing scrutiny since The Times disclosed its corruption problems in Mexico, where it is the largest private employer, with 221,000 people working in 2,275 stores, supermarkets and restaurants.
In the United States, the Justice Department and the Securities and Exchange Commission are investigating possible violations of the Foreign Corrupt Practices Act, the federal law that makes it a crime for American corporations or their subsidiaries to bribe foreign officials. Mexican authorities and Congressional Democrats have also begun investigations, and Wal-Mart has been hit by shareholder lawsuits from several major pension funds.
Wal-Mart declined to discuss its conduct in Teotihuacán while it is continuing its own investigation. The company has hired hundreds of lawyers, investigators and forensic accountants who are examining all 27 of its foreign markets. It has already found potentially serious wrongdoing, including indications of bribery in China, Brazil and India. Several top executives in Mexico and India have been suspended or forced to resign in recent months.
Wal-Mart has also tightened oversight of its internal investigations. It has created high-level positions to help root out corruption. It is spending millions on anticorruption training and background checks of the lawyers and lobbyists who represent Wal-Mart before foreign governments. The company has spent more than $100 million on investigative costs this year.
Wal Mart’s Response
“We are committed to having a strong and effective global anticorruption program everywhere we operate and taking appropriate action for any instance of noncompliance,” said David W. Tovar, a Wal-Mart spokesman.
In Mexico, a major focus of Wal-Mart’s investigation is none other than the boxy, brown supermarket in Mrs. Pineda’s alfalfa field.
Eight years later, it remains the most controversial Wal-Mart in Mexico, a powerful symbol of globalism’s impact on Mexican culture and commerce.
Wal Mart’s Reforms
Here is Wal Mart’s description of how it is strengthening its anti-corruption efforts in Mexico and around the world. As it turns out, the store also took on symbolic importance within Wal-Mart de Mexico,
Mr. Cicero said in an interview. Executives, he said, came to believe that by outmuscling protesters and building in the shadow of a revered national treasure, they would send a message to the entire country: If we can build here, we can build anywhere.