Northwest Arkansas Democrat-Gazette
Wal-mart bribes alleged in reports
Inquiry focuses on Mexico unit
MEXICO CITY — In September 2005, a senior Wal-mart lawyer received an e- mail from a former executive at the company’s largest foreign subsidiary, Wal- Mart de Mexico. In the e- mail and follow- up conversations, the former executive described how Wal- Mart de Mexico had orchestrated a campaign of bribery to win market dominance. In its rush to build stores, he said, the company had paid bribes to obtain permits in virtually every corner of the country.
That former executive — Sergio Cicero Zapata — provided the lawyer names, dates and bribe amounts. He knew so much, he explained, because for years he had been the lawyer in charge of obtaining construction permits for WalMart de Mexico.
Wal-mart dispatched investigators to Mexico City, and within days they had unearthed evidence of widespread bribery, according to documents. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-mart de Mexico executives not only knew about the payments, but had taken steps to conceal them from Wal-mart’s headquarters in Bentonville, sources said.
In a confidential report to his superiors, Wal-mart’s lead investigator, a former FBI special agent, summed up investigators’ initial findings this way: “There is reasonable suspicion to believe that Mexican and USA laws have been violated.”
In research for this article, The New York Times reviewed internal documents and conducted extensive interviews with participants in Wal-mart’s investigation, who spoke on condition of anonymity.
The lead investigator recommended that Wal- Mart expand the investigation.
Instead, an examination by The Times found, WalMart officials shut it down.
Neither American nor Mexican law enforcement officials were notified, and none of Wal-mart de Mexico’s leaders were disciplined. Indeed, its chief executive , Eduardo CastroWright, identified by Cicero as the driving force behind years of bribery, was promoted to vice chairman of Wal-mart in 2008. Until this article, the allegations and Wal-mart’s investigation had never been publicly disclosed.
Under fire from labor critics, worried about news leaks and facing a sagging stock price, Wal-mart leaders recognized that the allegations could have devastating consequences, documents and interviews show.
Wal-mart de Mexico was the company’s brightest success story. It was pitched to investors as a model for future growth. (Today, one in five Wal- Mart stores is in Mexico.)
At one point, records show, Wal-mart’s top lawyer arranged to ship the internal investigators’ files on the case to Mexico City. Primary responsibility for the investigation was then given to the general counsel of Wal-mart de Mexico, though the same general counsel was alleged to have authorized bribes.
The general counsel exonerated his fellow Wal-mart de Mexico executives, according to documents.
When Wal-mart’s director of corporate investigations, a former top FBI official, read the general counsel’s report, his appraisal was scathing. “Truly lacking,” he wrote in an e-mail to his boss.
The report was nonetheless accepted by Wal-mart’s leaders, who then considered the matter closed.
In December, after learning of The Times’ reporting in Mexico, Wal-mart informed the Justice Department that it had begun an internal investigation into possible violations of the Foreign Corrupt Practices Act, a federal law that makes it a crime for American corporations and their subsidiaries to bribe foreign officials. WalMart said the company had learned of possible problems with how it obtained permits but stressed that the issues were limited to “discrete” cases.
“We do not believe that these matters will have a material adverse effect on our business,” the company said in a filing with the Securities and Exchange Commission.
But The Times’ review found that bribery played a persistent and significant role in Wal-mart’s rapid growth in Mexico, where Wal-mart now employs 209,000 people, making it the country’s largest private employer.
A Wal-mart spokesman confirmed that the company’s Mexico operations — and its handling of the 2005 case — were now a focus of its inquiry.
“If these allegations are true, it is not a reflection of who we are or what we stand for,” said the spokesman, David Tovar. “We are deeply concerned by these allegations and are working aggressively to determine what happened.”
In the meantime, Tovar said, Wal-mart is taking steps in Mexico to strengthen compliance with the Foreign Corrupt Practices Act. “We do not and will not tolerate noncompliance with FCPA anywhere or at any level of the company,” he said.
The Times laid out this article’s findings to WalMart officials weeks ago. The company said it shared the findings with many of the executives named, including H. Lee Scott, now on Wal- Mart’s board, and Castro-wright, who is retiring in July. Both men declined to comment, Tovar said.
The Times obtained hundreds of internal company documents tracing the evolution of Wal- Mart’s 2005 Mexico investigation. The documents show that WalMart officials recognized the seriousness of the allegations. Working in secrecy, a small group of executives, including several current members of Wal-mart’s senior management, kept close tabs on the inquiry, the documents show.
Michael Duke, Wal-mart’s current chief executive, was also kept informed. At the time, Duke had just been put in charge of Wal- Mart International, making him responsible for all foreign subsidiaries. “You’ll want to read this,” a top Wal-mart lawyer wrote in an Oct. 15, 2005, e-mail to Duke that gave a detailed description of former executive Cicero’s allegations.
The Times’ examination included more than 15 hours of interviews with Cicero, who resigned from Wal-mart de Mexico in 2004 after nearly a decade in the company’s real estate department. He told The Times that he had felt underappreciated. He described the “pressure and stress” of participating in years of corruption, of contending with “greedy” officials who jacked up bribe demands. “I thought I deserved a medal at least,” he told The Times.
For him, the breaking point came in early 2004, when he was passed over for the job of general counsel of Wal-mart de Mexico. At that point, Cicero began to assemble a record of bribes he had helped orchestrate to “protect him in case of any complaint or investigation,” a Wal-mart investigator wrote.
In interviews with The Times, Cicero recounted how he had helped organize years of payoffs. He described personally dispatching two trusted outside lawyers to deliver envelopes of cash to government officials. They targeted mayors and city council members, obscure urban planners, low-level bureaucrats who issued permits — anyone with the power to thwart Wal-mart’s growth. The bribes, he said, bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders.
He called it working “the dark side of the moon.”
The Times also reviewed thousands of government documents related to permit requests for stores across Mexico. The examination found many instances in which permits were given within weeks or even days of Wal-mart de Mexico’s payments to the two lawyers. Again and again, The Times found, legal and bureaucratic obstacles melted away after payments were made.
People who participated in Wal-mart’s investigation said the inquiry left little doubt that Cicero’s allegations were credible. (“Not even a close call,” one person said.)
But, they said, the more investigators corroborated his assertions, the more resistance they encountered inside Wal-mart. Some of it came from powerful executives implicated in the corruption, records and interviews show. Other top executives voiced concern about possible legal and reputational harm.
In handing the investigation off to one of its main targets, the leaders disregarded the advice of one of Wal- Mart’s top lawyers — Maritza Munich — the same lawyer Cicero had contacted with his allegations.
“The wisdom of assigning any investigative role to management of the business unit being investigated escapes me,” Munich, then general counsel of Wal-mart International, wrote in an e-mail to top Wal-mart executives.
The investigation, she urged, should be completed using “professional, independent investigative resources.” Information for this article was contributed from Mexico City by Alejandra Xanic von Bertrab and James C. Mckinley Jr. of The New York Times.