Walmart probing bribery charges in India

New York Times Posted: Nov 17, 2012 at 1037 hrs
New York Wal-Mart on Thursday reported that its investigation into violations of a federal anti-bribery law had extended beyond Mexico to China, India and Brazil, some of the retailer’s most important international markets. The disclosure, made in a regulatory filing, suggests Wal-Mart has uncovered evidence into potential violations of the Foreign Corrupt Practices Act, as the fallout continues from a bribery scheme involving the opening of stores in Mexico that was the subject of a New York Times investigation in April.

The announcement underscores the degree to which Wal-Mart recognises that corruption may have infected its international operations, and reflects a growing alarm among the company’s internal investigators. People with knowledge of the matter described how a relatively routine compliance audit rapidly transformed into a full-blown investigation late last year — involving hundreds of lawyers and three former federal prosecutors — when the company learned that The Times was examining problems with its operations in Mexico.

A person with direct knowledge of the company’s internal investigation cautioned that Thursday’s disclosure did not mean Wal-Mart had concluded it had paid bribes in China, India and Brazil. But it did indicate that the company had found enough evidence to justify concern about its business practices in the three countries — concerns that go beyond initial inquiries and that are serious enough that shareholders needed to be told.

Wal-Mart issued a statement confirming the new disclosures, and said it would be inappropriate to comment further on the new allegations until it had concluded the investigations. The Justice Department and the Securities and Exchange Commission, with Wal-Mart’s cooperation, are also looking into the company’s compliance with the antibribery law.

The Times reported in April that seven years ago, Wal-Mart had found credible evidence that its Mexican subsidiary had paid bribes in its effort to build more stores, a violation of the corrupt practices act, and that an internal investigation had been suppressed by executives at the company’s Arkansas headquarters. Wal-Mart has so far spent $35 million on a compliance programme that began in spring 2011, and has more than 300 outside lawyers and accountants working on it, the company said. It has spent $99 million in nine months on the current investigation.

Consequences of the expanding investigation could include slower expansion overseas and the identification of even more problems. The company said in the filing on Thursday that new inquiries had begun in countries “including but not limited to” China, India and Brazil. While the disclosure did not specify the nature of the possible bribery problems in the three countries, it “clearly will cause more scrutiny on every real estate project being considered, and one would think at the minimum it will slow down the process as more controls need to be passed through,” said Colin McGranahan, an analyst with Sanford C. Bernstein.

International growth is critical to Wal-Mart, the world’s largest retailer, and Brazil, India, China and Mexico make up the largest portion of the company’s foreign locations.

NOTE: Enforcement Directorate is investigating allegations that Wal-Mart Stores violated foreign exchange rules when it invested $100 million into a domestic unit owned by its wholesale joint-venture partner.

The decision to Enforcement Directorate probe Wal-Mart comes after a member of Parliament wrote to the Prime Minister earlier this year, raising allegations of potential violations of investment rules, and the complaint was subsequently passed from one government department to another.

The MP had accused Wal-Mart of clandestinely and illegally investing $100 million in the multi-brand retail business of its wholesale joint venture partner, Bharti Enterprises, as early as 2010, before India allowed foreign companies to operate front-end stores.