Sunday, April 22, 2012

Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle by David Barstow

Two more days, and it would have been a year since I last posted. The story that brought me back and inspired me to add to this pretty much now-defunct blog? A Wal-Mart corruption scandal in Mexico that implicates high-level executives that have been promoted since a corporate investigation.

David Barstow of The New York Times details the incredible cover-up at Wal-Mart de Mexico, Wal-Mart's largest foreign subsidiary, of bribery amounts to obtain building permits throughout the country totaling $24 million—and this investigation, conducted in late 2005 by the company's investigation branch, only went back to 2003. If this wasn't bad enough, Barstow goes a step further to highlight how then-Wal-Mart executives who have since then been promoted to higher positions attempted at every step of the company's investigation to impede its process, cloud the truth and push off the blame.

With Barstow holding the sole byline, and only two contributors listed, the amount of damning information unearthed by the trio's investigative reporting is truly astounding. Each paragraph reads like an accusation—and at times, it seemed almost farcical how intelligent human beings can go about making self-serving decisions, and then have it cemented in email records.

At the center of the scandal is a former executive, Sergio Cicero Zapata, who actually oversaw most of the transactions between the company and "gestores," fixers enlisted to help Wal-Mart expand quickly and extensively by obtaining building permits, among other things. After resigning in 2004, Cicero blew the whistle by approaching Maritza Munich, the then-general counsel of Wal-Mart International who has since left the company, to detail the company's practices.

It's a long read, but definitely worth it, because by the end of it, the main targets of the investigation—Eduardo Castro-Wright and later, Jose Luis Rodriguezmacedo Rivera—gets a hold of the corporate inquiry, and Cicero is blamed as the main mastermind for the bribes.
But, they said, the more investigators corroborated his assertions, the more resistance they encountered inside Wal-Mart. Some of it came from powerful executives implicated in the corruption, records and interviews show. Other top executives voiced concern about the possible legal and reputational harm. 
In the end, people involved in the investigation said, Wal-Mart’s leaders found a bloodlessly bureaucratic way to bury the matter. But in handing the investigation off to one of its main targets, they disregarded the advice of one of Wal-Mart’s top lawyers, the same lawyer first contacted by Mr. Cicero. 
“The wisdom of assigning any investigative role to management of the business unit being investigated escapes me,” Maritza I. Munich, then general counsel of Wal-Mart International, wrote in an e-mail to top Wal-Mart executives. 
The investigation, she urged, should be completed using “professional, independent investigative resources.”        
Doubly entertaining to me is how much of it could probably apply to Cambodia and how the culture of arrogance that permeates major businesses can hinder their ability to make decisions that will likely benefit in the long run.

Line after line of Barstow's reporting reveals how Wal-Mart higher-ups were offered a clear shot to exonerate the company's reputation by taking the steps necessary to weed out corruption—which was then promptly bypassed in order to just perform damage control. 
In short, Willkie Farr [a law firm with extensive experience in Foreign Corrupt Practices Act cases] recommended the kind of independent, spare-no-expense investigation major corporations routinely undertake when confronted with allegations of serious wrongdoing by top executives.
Wal-Mart’s leaders rejected this approach. Instead, records show, they decided Wal-Mart’s lawyers would supervise a far more limited “preliminary inquiry” by in-house investigators.        
I don't know enough about Cambodia's business community to know about what form corruption takes but I do know something of Cambodia's general climate (in a non-weather sense) that tends to encourage "facilitation fees," as they are known here. I don't want to say anything too obvious or incriminating (though I suppose I already have, in so many words) but what I think Barstow's piece could benefit from, perhaps as a Part Two look, is the government agencies that Wal-Mart had to go through in order to get these permits. Where did the $24 million go? To the gestores, sure, but in the end, who were the officials or the agencies palming the money?

This isn't something that is the easiest thing to track, and in and of itself, Barstow's piece is already incredible and ridiculously chock-full of corporate corruption. But this corruption was necessary in order to facilitate the growth of Wal-Mart in Mexico, and it was only possibly because of how that country operates. 

I'm not taking away fault (hell, no)—I'm saying, please widen the investigation in whatever way possible to show how the Mexican government is actually condoning and encouraging something like this to happen. 

One last quote from the piece:
Another person familiar with the thinking of those overseeing the investigation said Wal-Mart would have reacted “like a chicken on a June bug” had the allegations concerned the United States. But some executives saw Mexico as a country where bribery was embedded in the business culture. It simply did not merit the same response.
“It’s a Mexican issue; it’s better to let it be a Mexican response,” the person said, describing the thinking of Wal-Mart executives.
In the midst of this debate, Ms. Munich submitted her resignation, effective Feb. 1, 2006. In one of her final acts, she drafted a memo that argued for expanding the Mexico investigation and giving equal respect to Mexican and United States laws.
“The bribery of government officials,” she noted dryly, “is a criminal offense in Mexico.”          
Seriously, just replace "Mexico" with... well, you know.

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