War Story: The Wal-Mart Mexico Bribery Scandal

The Wal-Mart Mexico scandal has created a never-ending list of curious consumers, and a long-lasting sour taste in the mouths of shareholders. The fraud allegation is very basic but the case is incredibly complex, in which I hope this blog sheds some light on any questions you may have.

In 2005, Wal-Mart’s key executives received significant and what seemed to be highly-credible evidence that executives of its substantially large subsidiary, Wal-Mex, had paid hundreds of bribes to Mexican officials for the purpose of securing real-estate and other competitive advantages, effectively drowning competitors. These allegations were investigated internally, and although the results seemed conclusive violating FCPA and Mexican laws, they were essentially dismissed by US executives. Reports show that the US executive team addressed the results of the internal investigation as “overly aggressive” and they “…do not believe that these matters will have a material adverse effect on the business” (It is important to note that approximately 20% of Wal-Mart stores reside in Mexico, which accounts for approximately 2,000 locations).

Since the investigation hit a new level in 2012, when The New York Times published an article bringing this scandal to light, Wal-Mart has incurred a bill over $650 Million in damage control mode. Although Mexico was the tip of the iceberg for Wal-Mart’s internal issues. They then faced questions and additional investigation into their operations outside of Mexico. Walmart has stores in 26 countries around the world employing over 800,000 workers outside of the US. An FCPA attorney stated that “Before any resolution with US authorities is possible, the company has to look under every stone for possible corruption.”

The investigation and damage-control process that has been under-weigh, seems to have paid off. The Wall Street Journal reported in October of 2015, that the Department of Justice had largely finished its bribery probe into Wal-Mart’s Mexican unit and had found substantially less evidence than was originally expected. A case may still be present, but it is on a much smaller scale.

It is imperative and crucial for companies expanding internationally to combat corruption proactively in order to stay out of crisis and damage control mode as much as possible. Wal-Mart in particular has spent millions more defending the allegations than may have been needed if they had their hand closer to the pulse of its Mexico operations. As I have emphasized in the past, it is impossible to eliminate the risk of fraud, however it is possible to minimize that risk by implementing proper controls, saving a business substantial amounts of money down the road.

If you have questions about our team or our expertise surrounding the FCPA and other international bribery laws and regulations, please call me at 612.455.4555 or visit our website at www.intellexforensics.com.