Wal-Mart bribery scandal unsurprising

Superama, Sam’s Club, Bodega Aurrerá, VIPS, Suburbia. These stores and restaurants dot the landscape in most Mexican cities. But they do not display a competitive, healthy business venue that represents growth and a developing middle class. Rather, they expose a Mexican monopoly that evokes the stereotype of the country’s corrupt business practices. Wal-Mart de México, the U.S. subsidiary of Wal-Mart, owns all of these stores. Along with Wal-Mart Supercenters, these stores total at more than 2,000 locations in Mexico. Wal-Mart de México is the country’s largest private employer and the biggest retail company in Latin America. As a New York Times investigation recently revealed, the company reached this point through bribery of municipal and state officials. The U.S. Justice Department conducts investigations that must punish implicated Wal-Mart executives, and the Mexican government also has a role in investigating the case to make sure it does not happen again.

The New York Times investigation brought global attention to a company that already symbolizes the United States’ unyielding capitalism. Unsurprisingly, the Wal-Mart de México case has become a public relations nightmare. Especially as more information leaks, anti-Wal-Mart activists will fortify their arsenal to fight the corporation. Wal-Mart was aware of this possibility, which is why the corporation attempted to bury the investigation years ago.

In brief, the investigation showed evidence of Mexican officials receiving millions of dollars in bribes from Wal-Mart de México in exchange for expediting construction permits and for other favors that help the company to expand aggressively. Indeed, through these means, Wal-Mart de México won dominance, establishing a monopoly in a crucial market.

In September 2005, a former executive at Wal-Mart de México told a senior Wal-Mart lawyer the whole story, providing names and bribe amounts. According to the New York Times report, Wal-Mart investigators then discovered a trail adding up to more than $24 million in bribes. Upon this finding, Wal-Mart leaders shut down further investigation to conceal the mess. The company failed to notify law enforcement in the United States or in Mexico. This is where Wal-Mart went wrong: focusing on covering up corruption, rather than disciplining executives.

The most ridiculous of Wal-Mart’s decisions was to then ship internal investigation files to Mexico City. In doing so, the case’s responsible party became Wal-Mart de México’s general counsel—the same counsel allegedly to have permitted the bribes. Not surprisingly, the counsel exonerated the implicated Wal-Mart de México executives. The leading figure behind the allegations, Eduardo Castro-Wright, was rewarded for expanding Wal-Mart de México by being promoted to vice-chairman of Wal-Mart in 2008.  

Although allegations of Wal-Mart de México’s corrupt business practices have been around for years, only the New York Times report forced the company to rethink these practices. The company will continue these practices if U.S. and Mexican judicial processes only punish the corporation at a bare minimum, with fines for example. Wal-Mart informed the U.S. Justice Department of the investigation only after learning about the New York Times’ reporting in Mexico. The Justice Department is implicated because there are possible violations of the Foreign Corrupt Practices Act, a federal law making it illegal for U.S. corporations and their subsidiaries to bribe foreign officials.

As John Ackerman, professor and legal researcher in Mexico City, said in The Daily Beast, the New York Times accusations demonstrate “that Wal-Mart has not taken any measures to stop the wrongdoing and that, seven years later, absolutely no one has been punished for the criminal acts.”  Both the U.S. and Mexican governments should immediately begin investigations into Wal-Mart’s corrupt practices in Mexico, which are likely to extend beyond the scope of this bribery scandal.

The true problem here is that these accusations are not shocking. Wal-Mart executives failed to treat the corruption because they saw bribery as embedded in Mexico’s business climate. One informant told the New York Times, “[I]t’s a Mexican issue; it’s better to let it be a Mexican response.” There needs to be equal respect for U.S. and Mexican laws and for honest business practices everywhere.

Ackerman pointed out that the entire scandal’s “implication is clear,” showing no need to “apply high standards of honesty and accountability when dealing with ‘backward’ or ‘underdeveloped’ nations.”  The corporation would rather “profit from lawlessness than uphold the rule of law,” he said.  

A double standard has permitted the blatant disregard and continuation of corrupt business practices between the United States and Mexico. With such a rewarding business relationship, Mexico has little incentive to modernize judicial processes and strengthen the rule of law.  Multinational corporations, in theory, foster liberalized business climates that contribute to lesser-developed nations’ modernization. But Wal-Mart has failed Mexicans, serving as a hurdle toward development. Now that the U.S. Justice Department has a stake in this, it must use this opportunity to affirm that Mexico is an equal partner in creating a better North America. It must show there is no double standard for the United States and Mexico, and no advantages for large corporations like Wal-Mart. The United States must respect and tolerate nothing but legality from its southern neighbor.