A U.S. probe of possible bribery in Mexico by a Wal-Mart Stores Inc. (WMT) unit to boost store growth follows more than a decade of allegations that the company violated laws on illegal immigrant workers, overtime, gender bias and preservation of evidence in pursuit of larger profits.
The world’s largest retailer has been frequently sued by the government, its own employees and its customers in cases that have also included accusations of corruption, as well as discrimination and destruction of evidence.
“Wal-Mart’s had a long history of legal conflict because they have a way of doing business that pushes the edges of what the law allows,” said James Post, a professor at Boston University School of Management. “Sometimes it goes over the line.”
The Justice Department is investigating potential criminal charges under the U.S. Foreign Corrupt Practices Act, according to a person familiar with the probe who wasn’t authorized to speak publicly about the matter. Alisa Finelli, a Justice Department spokeswoman, declined to comment yesterday on the probe.
Wal-Mart said it was conducting an internal investigation after an April 21 New York Times story detailed alleged bribes of more $24 million paid by officials of its Mexican subsidiary, Wal-Mart de Mexico SAB. The Times story also reported that top Wal-Mart executives blocked an earlier investigation into the bribery allegations, first raised within the company in 2005.
“This is a huge governance failure,” Post said yesterday in a phone interview. “I think there will be a lot of casualties at the senior management and board levels.”
The U.S. anti-corruption law makes it illegal for companies to bribe foreign officials outside the country as part of their business.
“We take compliance with the U.S. Foreign Corrupt Practices Act very seriously and are committed to having a strong and effective global anti-corruption program in every country in which we operate,” David Tovar, a Wal-Mart spokesman, said in an April 21 statement. “We will not tolerate noncompliance with FCPA anywhere or at any level of the company.”
Wal-Mart has hired auditing firm KPMG and law firm Greenberg Traurig LLP for a compliance review of its global operations and law firm Jones Day to investigate its Mexican operations, said a person familiar with the matter who didn’t want to be identified because it wasn’t public.
Greg Rossiter, a spokesman for Bentonville, Arkansas-based Wal-Mart, declined to comment yesterday on the company’s previous legal disputes.
Brian Sawers, who teaches corporate law at the University of Maryland law school, said that Wal-Mart’s response to internal reports of bribery, as described by the New York Times, set it apart from most big international companies.
“You hire an outside firm and forensic accountants and give them a blank check and they turn over every rock in Mexico,” he said. “They would have gotten a black eye, but it would have been small. And now they’re looking at just a whole lot more trouble.”
Wal-Mart has been sued hundreds of times by workers claiming racial, sexual, religious or other bias in pay, promotions and other treatment. According to data compiled by Bloomberg, 358 of 3,044 federal court lawsuits in which Wal-Mart was a plaintiff or defendant since 2009 involved employment issues.
The cases filed against Wal-Mart in federal court this month include lawsuits by a maintenance employee in Utah alleging violations of the Americans with Disabilities Act, a fitting room worker in South Carolina claiming gender and race discrimination, and a pharmacist in Louisiana contending religious bias.
A lawsuit brought in California by six women contending gender discrimination was granted class-action status in 2004, allowing them to sue as a group on behalf of more than 1 million female workers nationwide. The U.S. Supreme Court in June barred the suit as a national class action because the plaintiffs failed to prove the retailer had a nationwide policy that led to gender discrimination. The case was sent back to the district court in San Francisco.
Women in this case amended their complaint in October to limit bias claims to female workers in California. The new complaint alleges Wal-Mart blocked women in the state from promotions and paid them less than men for comparable work. A hearing on Wal-Mart’s motion to dismiss the complaint is scheduled for June 8.
A separate lawsuit on behalf of women in Texas filed in October also claimed bias in pay and promotions. The plaintiff is seeking to represent more than 45,000 women who worked in Texas Wal-Mart and Sam’s Club stores from Dec. 26, 1998, until at least June 2004. Wal-Mart’s motion to dismiss the case is pending.
Lawyers suing Wal-Mart over gender bias claims “are pursuing a series of narrower class cases,” Joe Sellers, a lawyer for the women, said in an interview. He said he expects 15 or more such cases seeking class-action status to be on file by the end of the year.
“We’re still interviewing women to assess whether their claims fit the new standards for class actions,” Sellers said.
Wal-Mart earlier settled multiple class-action lawsuits brought in state and federal courts in which the company was accused of failing to pay for all hours worked or not properly compensating employees for overtime. The company announced in December 2008 that it would pay as much as $640 million to settle 63 federal and state class-action lawsuits involving those pay claims.
The claims included allegations that Wal-Mart managers denied or cut short rest breaks, forced overtime or manipulated time cards to reduce pay.
“Resolving this litigation is in the best interest of our company, our shareholders and our associates,” Thomas Mars, then Wal-Mart’s general counsel, said at the time in a joint statement by the company and the plaintiffs. “Many of these lawsuits were filed years ago and the allegations are not representative of the company we are today.”
Wal-Mart lost a $78 million jury verdict in Pennsylvania in 2006 over rest breaks and unpaid work and a $172 million verdict in California in 2005 over meal breaks. The company announced in a regulatory filing in 2009 that it settled the California lawsuit, agreeing to pay at least $77 million and as much as $152 million, depending on the number and amount of claims.
A Minnesota judge in 2008 found the company required hourly employees to work off-the-clock during training and denied full rest or meal breaks in violation of state wage and hour laws. The decision left the company vulnerable to a possible $2 billion judgment. Wal-Mart settled the case for $54 million.
In 2005, the company’s No. 2 executive, Thomas Coughlin, retired after an internal investigation found he had embezzled from the company. In January 2006, Coughlin pleaded guilty to five counts of wire fraud and a tax charge, admitting he falsified expense reports and stole Wal-Mart gift cards to pay for items including hunting gear, alcohol, underwear and a stuffed wild boar.
In 2003, U.S. officials arrested more than 250 suspected illegal immigrants at 61 Wal-Mart stores in 21 states as part of an investigation into cleaning crews and other outside contractors used by the company. Wal-Mart agreed to pay $11 million and to improve its oversight of contractors to resolve the investigation. At the time, the settlement was the biggest payment to the government in a case involving allegations of employing illegal immigrants, according to the government.
In 2002, Wal-Mart replaced its general counsel, Robert Rhoads, with Mars, a former director of the Arkansas State Police. Mars, according to the New York Times, was one of the Wal-Mart executives who received memoranda reporting the bribery allegations in Mexico in 2005, while he was still general counsel. He is now executive vice president and chief administrative officer for Wal-Mart.
In the six years before 2002, Wal-Mart was sanctioned 60 times by judges for concealing and destroying evidence, and for delaying customer lawsuits.
In one case, a Texas judge in a sexual harassment case against Wal-Mart said of the company in 1996: “Rarely has this court seen such a pattern of deliberate obfuscation, delay, misrepresentation, and downright lying to another party and to a court. The court is shocked at this behavior.”
In several of the cases, filed by customers who were attacked outside Wal-Mart stores, the company was found to have concealed a study it had made of parking lot security. In a case filed by a Beaumont, Texas, woman who claimed she was abducted from a Wal-Mart parking lot and raped, a state judge threatened to fine Wal-Mart $18 million for failing to turn over the study.
The judge withdrew the fine after Wal-Mart’s litigation chief apologized in court for the company’s “misguided conduct.” Later, after Wal-Mart had settled the case on confidential terms, a memorandum by the lawyer became public in which he had specifically warned the company about crime in Wal- Mart’s Beaumont parking lots before the incident. Wal-Mart hadn’t turned the memo over to the woman’s lawyers, despite an order requiring it to do so.
To contact the editor responsible for this story: Michael Hytha at email@example.com