India to Mexico, Walmart accused of paying bribes for profits worldwide

A 'sorceress' in Brazil, a 'wink' in India: Walmart pleads guilty after a decade of bribes

Inside Walmart’s corporate offices in Brazil, one local contact was known as the “sorceress” for the ability to obtain government permits quickly.
 
In India, concerns about bribery were met with a “wink and a nod” by Walmart’s local business partner. In China, money was funnelled to a local landlord for “government relationship consulting services.” And in Mexico, cars and computers were donated to governments in communities where Walmart was planning to build new stores.
 
For more than a decade, Walmart used middlemen to make dubious payments to governments around the globe in order to open new locations, United States prosecutors and securities regulators said in a settlement agreement on Thursday. But even as employees frequently raised alarm, the company’s top leaders did little to prevent Walmart from being involved in bribery and corruption schemes.
 
That lack of internal control led to a seven-year inquiry that culminated on Thursday with Walmart’s Brazilian subsidiary pleading guilty to a federal crime. The guilty plea, and the $282 million in fines that Walmart has agreed to pay, capped one of the biggest investigations ever under the Foreign Corrupt Practices Act, which makes it illegal for American corporations to bribe overseas officials.
 
“Walmart profited from rapid international expansion, but in doing so chose not to take necessary steps to avoid corruption,” Brian A Benczkowski, an assistant attorney general, said in a statement.
 
The investigation, which was conducted by the Department of Justice and the Securities and Exchange Commission, came after The New York Times revealed in 2012 that Walmart had made suspicious payments to officials in Mexico and then tried to conceal them from top executives at the company’s headquarters in Bentonville, Ark. And even when the issues reached the main office, an internal investigation essentially went nowhere.

The Times’s reporting set off years of legal trouble and executive reshuffling at Walmart. The company has spent roughly $900 million on lawyers and investigators trying to root out the problems, as well as on hiring more people to bolster its compliance systems. Regulators said on Thursday it was not only Walmart’s drive to grow quickly, but its “low-cost philosophy” that led to poor internal controls.
 
The fine Walmart will pay is less than the $600 million that federal prosecutors and regulators had sought when Walmart was discussing a plea agreement during the waning days of the Obama administration, The Times reported last November.
 
Walmart was able to negotiate a lower fine after Trump, who had previously criticised the Foreign Corrupt Practices Act, took office. Walmart generated a profit of about $7 billion in its 2018 fiscal year.
 
The plea agreement, which was technically related to the company’s improper record-keeping, also showed that problems went far beyond its operations in Mexico, the original focus of The Times’s reporting. Federal regulators said Walmart looked the other way as subsidiaries on three continents paid millions of dollars to middlemen who helped the company obtain permits and other government approvals from July 2000 to April 2011.
 
In Brazil, many payments flowed through the “sorceress,” an otherwise unidentified individual who was also nicknamed the “genie” for sorting “things out like magic,” according to court documents.
 
This person charged a steep price, roughly $400,000, to help smooth the process of getting building permits. Walmart employees in Brazil raised alarms that the “sorceress” may have been a government employee, but those concerns went unheeded.
 
The questionable payments made in India were often recorded on the company’s books with vague descriptions like “professional fees” and “incidental.” As late as July 2011, Walmart received an anonymous tip that an employee in India was involved in a scheme to make improper payments to government officials, but the company never looked into it.
 
In a statement, Walmart said federal regulators had acknowledged the steps the company had taken to improve its anti-corruption measures since the investigations began seven years ago. “Walmart is committed to doing business the right way, and that means acting ethically everywhere we operate,” Walmart’s chief executive, Doug McMillon, said.
 
The Times’s investigation included extensive interviews with a former Walmart executive in Mexico, who described how the company delivered envelopes of cash to officials to buy zoning approvals, reductions in environmental fees and the loyalty of neighbourhood leaders.
 
The settlement agreement that Walmart reached with regulators outlines many of the problems first detailed in The Times investigation. By the time the firm learned about the bribes in 2005, Mexico was a huge profit center and Walmart sought to open stores at a record pace.
 
A lawyer for the Mexico unit, according to the settlement, said Walmart determined which government officials needed to be paid and then funnelled the money through middlemen known as “gestores.” The gestores would receive a check from Walmart, cash it and then use the proceeds to pay the officials.
 
Another Walmart employee in Mexico said there were no records showing what work the gestores did, whom they met with or how many hours they worked. Walmart investigators raised concerns about these payments and recommended that the company conduct further inquiry.
 
But the investigation was eventually handed over to a lawyer in the Mexico unit, who had been accused of authorising many of the payments. That lawyer concluded that the “corruption allegations were unsubstantiated.”
 
The bribery scandal was a huge blow to Walmart’s reputation, spurring investor lawsuits and broader questions about the firm’s leadership.
 
Many of Walmart’s most senior executives in Mexico, India and Bentonville, Ark., left the company in the wake of The Times’s investigation.
 
The case also highlights the perils of US corporations seeking to increase their profits by expanding in countries with different legal systems and political cultures.
 
 
INDIA CONNECTION
 

• Around Nov 2006, prior to the formation of India joint venture, a Walmart real estate employee wrote to Walmart executive that he had received a “wink and nod” when he “brought up transparency and clean transactions” with an employee of India partner
• The India partner employee also admitted that “speed payments” were used in the past
• In 2011, an anonymous source sent an email to certain Walmart executives, alleging an employee of India JV and an employee of India retail business were involved in a scheme to make improper payments to government officials to obtain store operating permits and licences
• These improper payments were recorded in India JV’s books and records with vague descriptions like “misc fees,” “miscellaneous,” “professional fees,” “incidental,” and “government fee”

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