Wal-Mart on Thursday reported that its investigation into violations of a federal antibribery 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 recognizes 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.
A Wal-Mart spokesman declined to elaborate on the filing.
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 program that began in the spring, 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 together make up the largest portion of the company’s foreign locations.
Wal-Mart’s international division had been on a growth binge, though that has been slowing lately. In third-quarter results reported Thursday, the company said international sales rose 2.4 percent to $33.2 billion, making up about 29 percent of the company’s overall sales.
More than half of Wal-Mart’s 10,150 stores are international. Mexico has 2,230 stores. Brazil has 534, China, 384.
C. Douglas McMillon, chief executive of Walmart International, said in June that he did not expect the investigation to hinder international growth. “Only time will tell,” he said.
Wal-Mart’s expanding investigation began in spring 2011 as a relatively routine audit of how well its foreign subsidiaries were complying with its anticorruption policies. It is keeping the Justice Department and the S.E.C. apprised of the investigation.
The review was initiated by Jeffrey J. Gearhart, Wal-Mart’s general counsel, who had seen news reports about how Tyson Foods had been charged with relatively minor violations of the Foreign Corrupt Practices Act. He decided it made sense to test Wal-Mart’s internal defenses against corruption.
The audit began in Mexico, China and Brazil, the countries Wal-Mart executives considered the most likely source of problems. Wal-Mart hired the accounting firm KPMG and the law firm Greenberg Traurig to conduct the audit. The firms conducted interviews and spot checks of record systems to check whether Wal-Mart’s subsidiaries were carrying out required compliance procedures.
Wal-Mart Inquiry Reflects Alarm on Corruption
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Wal-Mart Inquiry Reflects Alarm on Corruption
