A story in The New York Times on Tuesday reported on a scandal which could easily be the biggest the Wal-Mart Corporation has ever endured.
Since its creation in 1962, Wal-Mart (the name of the corporation, Walmart is the brand) has endured more than its share of public relations nightmares. However, unlike many other businesses, the company has brought nearly all of them on itself by its internal practices and policies.
Wal-Mart is the largest retailer in the world, the third largest public corporation, and the world’s biggest private employer.
The manner in which it handles its employees and its strong non-union stance has long been the subject of controversy. Even some of the ways it goes about its daily business have raised some concerns–an incident that resulted in the beating death of a 37 year old woman in China whom store employees claimed had shoplifted merchandise is an example.
It’s been said that with great power comes great responsibility. Or, apparently in Wal-Mart’s case, with great power comes a mountain of cash to do with as it sees fit.
Essentially, the Times’ Tuesday article is about the controversial construction of a Walmart store in San Juan Teotihuacán, a city that is considered the heart of ancient Mexican history and culture.
In 2003, city officials were concerned that Teotihuacán’s huge Mayan pyramids–the region’s main attraction–could eventually lead to a substantial traffic problem, so it was decided to zone the surrounding nearby area to prohibit any commercial development.
The problem was that at the same time, Wal-Mart de Mexico had chosen that soon-to-be-prohibited area to build a new store in some privately-owned alfalfa fields. These were located near both the entrance to the town and the pyramids.
What to do? Well, if you had piles of cash and you were in a poor country, what would YOU do?
What Wal-Mart de Mexico did, simply put, was to find a loophole in the city’s public policy, in which a zoning ordinance doesn’t become law until it’s been published in the local newspaper. So, it bribed a local elected official $52,000 to alter the document before it made it into print. When it was published, how about that! Suddenly the alfalfa fields had been zoned for commercial development!
This is bad enough, but it isn’t over yet.
The main offices of Wal-Mart in Bentonville, Arkansas got word on what had happened. As it should have, it started its own internal investigation…which, curiously, it then abruptly shut down for no apparent reason in 2006, saying that it considered the matter closed and resolved.
Curious, because the Times decided to pick up on that investigation, and concluded that “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.”
This is not a new story. In April of this year the newspaper first revealed the corruption that Wal-Mart de Mexico was involved in:
In September 2005, a senior Wal-Mart lawyer received an alarming 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.
The former executive gave 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 Wal-Mart de Mexico.
Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. 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’s top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart’s headquarters in Bentonville, Ark. In a confidential report to his superiors, Wal-Mart’s lead investigator, a former F.B.I. special agent, summed up their initial findings this way: “There is reasonable suspicion to believe that Mexican and USA laws have been violated.”
The lead investigator recommended that Wal-Mart expand the investigation.
Instead, an examination by The New York Times found, Wal-Mart’s leaders shut it down.
Back to Tuesday’s article. Here is an excerpt:
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.
“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.
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.
Both of the New York Times articles are painstakingly investigated and thoroughly researched, richly detailed and skillfully reported–and well worth reading.
Tuesday’s article goes on to describe how, among other things, Wal-Mart de Mexico was able to obtain permits that ran counter to and afoul of existing rules and regulations preventing the use of heavy equipment in a archeological site. This particular location was and is of great importance to Mexico’s history, and pieces of broken artifacts were found in the dirt that was hauled away from the construction site. Evidence of a small village’s remains were found to be buried there–but still Wal-Mart de Mexico pushed on with its nearly completed construction, despite great protest.