By Miguel Bustillo
Published by the Wall St Journal, April 23, 2012
Wal-Mart Stores Inc. faces significant legal risks after it disclosed that it is investigating its operations in Mexico for possible violations of the U.S. law that prohibits bribery in foreign countries, legal experts said.
In December, Wal-Mart, the world’s largest retailer, disclosed in a Securities and Exchange Commission filing that it was conducting an internal investigation into a potential violation of the Foreign Corrupt Practices Act, but didn’t say where or give other details. It now says that it also met with SEC and Justice Department officials around that time to alert them to the probe.
Over the weekend, Wal-Mart acknowledged that its probe involved Mexico after the New York Times published a lengthy article reporting that Wal-Mart executives learned in 2005 of allegations of “widespread bribery” designed to smooth the way for the company’s rapid expansion in that country.
Wal-Mart didn’t report the allegations at the time to U.S. or Mexican authorities or conduct an adequate internal probe, the newspaper said, citing company e-mails and documents.
In response to the article, Wal-Mart said in a statement that “if these allegations are true, it is not a reflection of who we are or what we stand for. We are deeply concerned by these allegations and are working aggressively to determine what happened.”
A person familiar with the matter said federal authorities now are directing Wal-Mart to do a thorough probe of its own with help from outside experts.
In recent years U.S. prosecutors have stepped up enforcement of the 1977 foreign-bribery law, and have strongly encouraged companies to move swiftly to report suspected violations. Both the Department of Justice and the SEC , which share responsibility for enforcing the law, declined to comment on the Wal-Mart matter.
Wal-Mart said in a Mexican regulatory filing Friday that it had removed its general counsel in Mexico , José Luis Rodríguezmacedo Rivera, “effective immediately.” Mr. Rodriguezmacedo, who had held the post since 2004, couldn’t be reached for comment.
David Tovar, a spokesman for Wal-Mart, said Mr. Rodriguezmacedo was reassigned “in the interests of the investigation,” but declined to elaborate.
Wal-Mart began a global review of its compliance with the corruption law last spring, with assistance from law firm Greenberg Traurig LLP and auditing firm KPMG LLP, after a risk assessment the year before, Mr. Tovar said Sunday. That, combined with “outside information” he declined to detail, led to the December disclosure, he said.
Any U.S. investigation of Wal-Mart would likely involve close scrutiny of Eduardo Castro-Wright , who presided over the Mexico operation during the period in question in the past decade before becoming vice chairman of the company, said Michael Koehler, a professor of business law at Butler University in Indianapolis . “The classic investigative question of what did you know and when did you know it applies here,” he said.
Mr. Castro-Wright, who is slated to retire from Wal-Mart in July, didn’t return phone calls seeking comment. Wal-Mart declined to make him available, saying he was no longer playing a daily role at the company but was serving as a consultant.
Mr. Castro-Wright formerly served as a director of Dow Jones & Co., the parent of The Wall Street Journal, before its 2007 acquisition by News Corp. A Wal-Mart director, venture capitalist Jim Breyer, serves on the board of News Corp.
If federal investigators found any evidence of a cover-up, they could bring criminal charges against individual executives at the company, Prof. Koehler and other legal experts said.
Wal-Mart Chief Executive Mike Duke, who headed Wal-Mart’s international division in 2005, and former CEO H. Lee Scott Jr ., who remains on the company’s board, didn’t return phone calls seeking comment. The company declined to make Mr. Duke or Mr. Scott available for interviews.
“Mike is fully supportive of the independent investigation being conducted in Mexico with oversight by the [board’s] Audit Committee, including ensuring that all resources necessary are available to pursue the independent investigation aggressively,” said Mr. Tovar, the company spokesman, adding that Mr. Duke supported cooperating with U.S. authorities.
Earlier this month, Mr. Duke met with Mexican President Felipe Calderón and declared that the Mexico business was an example for the rest of the chain, according to an April 13 statement from Mr. Calderón’s office.
If federal authorities conclude that Wal-Mart violated the law, the Justice Department “will levy as large a fine as possible in a case like this, because it has repeatedly counseled companies that companies will be looked on with great favor if they do come forward,” said Kevin T. Abikoff, chairman of the anti-corruption practice at law firm Hughes Hubbard & Reed LLP. “You either pay a small price early or a huge amount later.”
If prosecutors establish that Wal-Mart violated the law, the size of any fine could amount to millions of dollars, depending on the size of the competitive edge U.S. officials estimated the company gained from any illegal actions, lawyers said, estimating that a government probe could take two to four years. The government could also require Wal-Mart to hire an independent compliance monitor.
Alexandra Wrage, president of Trace International, Inc., a nonprofit group that helps companies develop anti-bribery programs, said companies aren’t legally bound to disclose internal probes, but they must show that they took steps to resolve problems. “Company representatives that choose not to voluntarily disclose had better have a good story to tellthe enforcement agencies about their thorough investigation, prompt response and meaningful corrective action the enforcement agencies about their thorough investigation, prompt response and meaningful corrective action,” Ms. Wrage said.
—Amy Guthrie and Russell Gold contributed to this article.
A version of this article appeared April 23, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: Wal-Mart Faces Risk In Mexican Bribe Probe.
© 2012 Dow Jones Co
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