Wal-Mart Shares Slump in Pre-Market as Retailer Hit By Bribery Scandal In Mexico

By Bhaskar Prasad | April 23 2012 2:33 AM

Wal-Mart Stores Inc. suppressed an investigation into an extensive bribery campaign carried out by top executives of its Mexican subsidiary, Walmart de Mexico, to gain market dominance across the country, the New York Times reported Saturday.

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In a mad scramble to open as many stores as it could, the company allegedly paid hush money to get permits all over Mexico, and no action was taken against any Walmart de Mexico's top brass even after it came out into the open that bribes were paid to attain permits, the report added.

Shares in the world's biggest retailer slumped 2.3 percent in pre-market trading Monday.

Mexico is one of the most important markets for Wal-Mart, with one out of every five stores operating in that country. According to the report, the retail giant was aware that payments worth more than $24 million are suspected to be paid as bribe.

However, the senior executives of the company decided to shut down the internal investigation instead of notifying the law enforcement department in the US or Mexico. The report adds that the current Wal-Mart Chief Executive Mike Duke and former CEO Lee Scott, who still sits on the company's board, were among the senior executives aware of the bribe charges.

If the allegations are proven, it could result in substantial financial penalties. The probe could also seriously affect the image of the company and the management. The penalties could amount to millions of dollars depending on the assessed competitive advantage gained by the company by paying bribes. A lengthy probe is required, which could take anything from two to four years to assess the payoffs, the Times reported, quoting lawyers.

Meanwhile, Wal-Mart has said that it was deeply concerned about the allegations made in the report. It added that the Department of Justice and the Securities and Exchange Commission were made aware of the internal investigation it conducted. However, according to the New York Times, this admission was made by the company only many years after it came to the notice of the management.

Wal-Mart said on Sunday that in March 2011 Duke had ordered the company to conduct an internal investigation into possible breaches of the Foreign Corrupt Practices Act (FCPA) worldwide. It added that the procedures were tightened to make sure that compliance with the law was strictly followed in Mexico.