Wal-Mart Accused of Using Mexican Governor to Push Bribes

Wal-Mart Stores Inc.’s Mexican unit used a current state governor there to facilitate $156,000 in bribes meant to help open stores, an ex-lawyer for the retailer told company officials in 2005, according to documents released by members of the U.S. Congress.

The payments were negotiated by Graco Ramirez Garrido Abreu, who at the time served as a federal lawmaker for the state of Morelos, a Wal-Mart summary of the accusations stated. It was released Jan. 10 by Democratic Representatives Henry Waxman of California and Elijah Cummings of Maryland, whose staff is investigating the lawyer’s allegations.

The accusations by attorney Sergio Cicero Zapata, who alleged Ramirez was “the main contact person” to speed needed permissions from the Urban Development Ministry, came in a summary of an Oct. 13, 2005 meeting with the retailer’s officials. Cicero, a 28-year veteran of the company, told them he set up the bribery scheme while employed by Wal-Mart. He was forced out in 2004 after colleagues questioned his oversight of payments to consultants in company-related real-estate deals.

Governor Ramirez denied Cicero’s claims, saying on his official website he had no relationship with Wal-Mart at the time in question. Partly based on Cicero’s accounts, the New York Times reported last year that at least $24 million in “suspect payments” were made in Mexico on Wal-Mart’s behalf to open stores. Cicero couldn’t be immediately reached for comment.

Government Probes

Both U.S. and Mexican prosecutors said last year they were investigating the bribery allegations. Wal-Mart de Mexico SAB is the country’s largest private employer, with more than 209,000 employees. Twenty percent of Wal-Mart’s more than 10,000 stores worldwide are in Mexico, following growth over the past decade.

After the Times report, Wal-Mart officials said they had started a corruption investigation of the Mexican unit and expanded the probe to the company’s operations in India, China and Brazil. Wal-Mart officials said in November they had assigned more than 300 lawyers and accountants to the investigation and had spent almost $100 million on it. While Cicero’s claims about the governor were previously reported in Reforma and other Mexican newspapers, they haven’t been widely published outside the country.

“There is nothing new in these documents,” Wal-Mart spokesman Randy Hargrove said. “This information has been part of the company’s ongoing investigation of potential violations of the U.S. Foreign Corrupt Practices Act for more than a year and has been the subject of two New York Times articles.”

Hargrove said the company had provided the documents to the U.S. Department of Justice and the Securities and Exchange Commission as part of its cooperation with those agencies.

Fresh Details

Among the fresh details in the documents released by Waxman and Cummings were that Wal-Mart paid at least $273,000 in bribes to local officials and managers of a power company to expedite construction projects.

Lawyers hired as Wal-Mart consultants handed out envelopes with more than $156,000 in cash to government regulators in Mexico City over a two-year period starting in 2003 to speed up environmental approvals to build new stores, according to the files.

Wal-Mart also paid more than $117,000 in bribes to managers of Luz y Fuerza del Centro, a now-defunct energy company operating outside Mexico City, to jump ahead of other customers and get power for a distribution center, Cicero told a Wal-Mart investigator, according to the documents.

“The same method using an external office was used for the cash deliveries” to the power company, according to notes of the interview with Cicero.

Investor Suits

The bribery allegations prompted Wal-Mart investors to sue the retailer’s board in the U.S., alleging in a lawsuit filed in Delaware state court that directors failed to properly oversee the Mexican unit’s operations and didn’t properly disclose the questionable payments. Three lawsuits have been filed there, seeking access to company files on the bribery allegations.

“The board’s prolonged failure to address detailed and credible allegations of criminal activity” has caused the retailer “substantial harm,” a California state pension fund said in the complaint. Wal-Mart has yet to file a response. Investors including the pension funds contend Wal-Mart may be in violation of the FCPA and other anti-bribery statutes in connection with the alleged payments.

Cicero, who oversaw real-estate issues for the Mexican unit, alerted his former colleagues in the company’s legal department about the bribery scheme in September 2005, according to e-mails and notes included in the files.

Wal-Mart Headquarters

Those officials immediately alerted executives in Wal-Mart’s headquarters in Bentonville, Arkansas, including Michael Duke, according to e-mails. Duke now serves as the retailer’s president and chief executive.

“The attached memorandum summarizes an interview conducted with a former WalMex in-house lawyer,” Thomas Mars, the company’s general counsel at the time, said in an Oct. 15, 2005, e-mail to Duke released by the members of Congress. “The lawyer asserts in some detail the alleged corruption by various WalMex associates, including senior people. You’ll want to read this. I’m available to discuss next steps. PS: Welcome to Wal-Mart International.”

Cicero told Wal-Mart investigators he was ordered by his superiors to hire outside attorneys to handle “irregular payments,” made to speed up the approval process for new stores, according to the files. Wal-Mart officials noted in e-mails that Cicero was alleging the payments were bribes.

Expansion Efforts

Starting in 2003, Wal-Mart officials pressured the Mexican unit’s executives to speed up expansion efforts, Cicero said, according to the notes.

“A policy of the goal justifies the means was followed, included sponsoring irregular payments,” he told the investigators, according to the notes.

Those pressures prompted the payments negotiated by Ramirez, which were paid to government officials in Mexico City, Cicero said, according to the files.

“The payments were made to facilitate the steps with the Urban Development Ministry as regards the urban impact statements for new sites,” the notes state. Cicero said he’d “witnessed at least two of the cash deliveries just to make sure that they were being turned over to the designated persons.”

To win approval for a Wal-Mart-backed grocery store near Teotihuacan, a famous archaeological site about 30 miles northeast of Mexico City, Wal-Mart officials authorized more than $109,000 in bribes to local officials and regulators, Cicero said, according to the notes. The site includes some of the largest pyramids built by pre-Aztec civilizations in the area.

Historic Site

Wal-Mart’s consultants handed out more than $97,000 to seven of 11 city council members who oversaw construction in the area near Teotihuacan, Cicero told investigators. They also paid almost $12,000 to the president of the National Institute of Anthropology and History to secure his approval for the store’s location near a historical site, he added. The NIAH declined to comment on Cicero’s accusations.

Once they learned about the bribery allegations in 2005, Wal-Mart executives in the U.S. ordered an audit of the Mexican unit’s operations, according to the files.

In files released by Waxman and Cummings, Cicero told a Wal-Mart investigator that U.S. executives hadn’t conducted “a full audit” of the Mexican operation since 1988, and that’s why the illegal payments hadn’t surfaced.

A draft report of the audit ordered in the wake of Cicero’s bribery allegations showed investigators found almost $13 million in suspicious payments listed as contributions or donations over a three-year period starting in 2003, according to files obtained by Bloomberg.

Senior Managers

Of those payments, auditors found 441 to consultants, including two law firms, which auditors questioned, the files state. The audit was completed in December 2005.

More than a year before that review, auditors within Wal-Mart’s Mexican operations had alerted senior managers of the units about questionable payments to consultants, according to an e-mail included in the documents. The March 2004 audit found consultants made irregular payments to win store permits across the country, according to the files.

Among the senior managers alerted to the payments in 2004 was Eduardo Castro-Wright, who was the chief operating officer of Wal-Mart’s Mexican unit at the time, according to an e-mail obtained by Bloomberg News. He later became vice chairman of the retailer’s board. Castro-Wright retired in July 2012, according to an e-mail. He couldn’t be immediately reached for comment.

Alert Executives

Eduardo Juarez Rodriguez, a Wal-Mart executive who oversaw the 2004 internal audit, decided not to alert U.S. executives about the review’s findings, according to the e-mail.

“He did not believe the report would be relevant to Bentonville,” U.S. auditors said in an e-mail about their interview of Juarez in November 2005. “This was his decision.”

Wal-Mart officials in the U.S. also questioned whether Cicero had siphoned off funds as part of a bribery scheme, according to e-mails obtained by Bloomberg News.

Joe Lewis, director of corporate investigations for Wal-Mart in 2005, noted in a March 2006 e-mail that executives in the retailer’s Mexican unit suspected Cicero “was able to get away with almost $10 million,” the files state.

Wal-Mart de Mexico had $7.66 billion in sales for the quarter ended Sept. 30. The parent company had $113.9 billion in revenue for the quarter ended Oct. 31.

While investigating the bribery allegations, some Wal-Mart officials said they worried about their safety in Mexico, according to other files not released by Congress.

‘Pistol Whipping’

Ronald Halter, a former FBI agent who served as one of the retailer’s investigators, said in an e-mail obtained by Bloomberg News that he was being asked by his superiors to interview consultants who’d received “$5 million US for what has been described as bribe $” and might feel threatened being questioned about their activities.

Halter noted other security consultants hired by Wal-Mart were beaten with a gun, or a “pistol whipping,” when they attempted to conduct interviews in the country about the retailer’s real-estate deals.

“I do not want to expose myself on what I consider to be an unrealistic attempt to get Mexican lawyers to admit to criminal activity,” Halter said in the e-mail.

Wal-Mart rose 54 cents to $69.89 at 4:15 p.m. in New York Stock Exchange trading.

The California pension fund case is California Teachers’ Retirement System v. Wal-Mart Stores Inc., CA No. 7490, Delaware Chancery Court (Wilmington).

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