Walmart became a household name in Mexico in 1991 when Walmart Stores, Inc., headquartered in Bentonville, Arkansas,

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Walmart became a household name in Mexico in 1991 when Walmart Stores, Inc., headquartered in Bentonville, Arkansas, entered into a joint venture with the longtime Mexican retail firm Cifra. This joint venture led to the opening of new stores under the names Walmart and Sam’s Club, along with Cifra’s Superama and Bodega Aurrerá outlets. Walmart purchased Cifra in 1997, creating Walmart de Mexico, which eventually became the largest employer in Mexico with more than 209,000 workers across 2,200 stores. By 2014, one-fifth of all Walmart stores worldwide were located in Mexico. Throughout 2003, Mexican managers of the retail giant Walmart pursued an aggressive plan to open a new store in the city of Teotihuacán on land that was not zoned for commercial development. Teotihuacán (pronounced tay-o-tea-wah-KHAN) boasts some of Mexico’s most significant remnants of the ancient Aztec civilization, and many parts of the city remained protected for cultural and archeological reasons. Resisting Walmart’s concerted efforts to change the applicable zoning ordinance, Teotihuacán’s city council voted on August 6, 2003, to reaffirm a ban on commercial development in the proposed area

Gaining Approval

Surprisingly, on August 20, 2003, the state Office of Urban and Regional Planning, which certified and published cities’ zoning proposals, made an unexpected and apparently unauthorized revision to Teotihuacán’s zoning map that designated the land in question as eligible for commercial use. Walmart neither made a formal request for this last-minute change nor petitioned the state planning office to alter the map. However, in the days between the city council’s vote and the state planning office’s revision, Walmart managers in Mexico displayed a confidence that the development would proceed by undertaking environmental assessments of the area, obtaining approval for additional construction funding, and seeking building permits. Internal Walmart records show that Sergio Cicero Zapata, a high-level real estate manager in the company’s Mexican subsidiary, authorized a payment of $52,000 on the day after the Office of Urban and Regional Planning formally published the altered version of Teotihuacán’s zoning map.

According to Cicero, the intended recipient of that payment was the director of the state planning office, who was responsible for publishing an official record of a city’s zoning decisions. Around the same time, further payments were authorized by Cicero that enabled the construction of Walmart’s store in Teotihuacán, including $114,000 to the mayor of Teotihuacán to secure building licenses, road construction permits, and certification that the land was free from archaeologically sensitive artifacts. Eventually the store in Teotihuacán was built, and it remained open, despite vocal resistance from community activists and members of the city council.

The development of Walmart’s Teotihuacán store has been revealed to be only a small part of a systematic effort within its Mexican operations to secure favorable treatment on many matters by bribing government officials. Investigations by journalists and by Walmart officials in the United States in response to news stories also prompted reviews by the U.S. Department of Justice and the Securities and Exchange Commission on whether Walmart violated the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) during the early- to mid-2000s.

Bribery in Walmart’s Mexican operations was sophisticated and well-organized. Alarmed by what he had observed, Cicero initially reported the company’s use of bribes to Walmart executives in the United States to expose what he considered to be significant wrongdoing. He emailed Walmart’s general counsel for international operations, Maritza Munich, on September 21, 2005, and identified specific practices that he and other Walmart de Mexico officials routinely used to secure bureaucratic actions in the company’s favor. These included permissions by local zoning boards and city councils, successful environmental impact assessments, and, in some cases, expedited construction and land use permits. Such special treatment was instrumental in receiving timely legal authorization to open new stores as part of its aggressive expansion plans. Central to Cicero’s allegations was that the top leaders at Walmart de Mexico, including the chief executive, Eduardo Castro-Wright, and general counsel, José Luise Rodríguezmacedo Rivera, had authorized irregular payments, which were believed to have totaled more than $16 million between 2003 and 2005 and almost $24 million in total since the formation of Walmart de Mexico.¹

How were the bribes conducted?

Cicero was part of this strategy. It was his job to cultivate relationships with well-placed, highly trusted individuals within the communities where Walmart de Mexico was seeking to build stores. Those individuals were known as gestores, agents who help others to successfully navigate Mexico’s byzantine bureaucracy. Cicero recruited gestores to arrange and subsequently deliver bribes on behalf of Walmart. Cicero reported to Munich that he would provide envelopes of cash to gestores who subsequently handed the money to mayors, city council members, and other bureaucrats to do Walmart’s bidding. The gestores would submit invoices that covered the bribe payments as well as their fees, which were typically 6 percent of the bribe amounts paid. These invoices used special terminology to disguise the nature of the payments. Bribes were recorded for accounting purposes as innocuous fees for services or permits.

After Cicero’s initial disclosure, Munich urged executives in Arkansas to begin an investigation. Following standard FCPA-prescribed practices, Walmart maintained a strict anti-corruption policy that prohibited any employee from offering anything of value to a government official on behalf of Walmart. Munich initially appointed a Mexican attorney to investigate the allegations of bribery. In addition to notifying Michael Duke, vice chairman of Walmart in charge of international operations and later to become CEO, Munich sent memos to Walmart’s executive vice president and senior internal auditor, as well as to the chief executive officer, H. Lee Scott, regarding what she perceived to be credible evidence that bribery was practiced at the highest levels of management in Walmart de Mexico. Rather than hiring a law firm with expertise in FCPA compliance to lead an investigation, executive leadership at Walmart opted to conduct an internal inquiry led by Walmart’s own lawyers in conjunction with the company’s corporate investigations unit. Shortly before this decision, the chief executive of Walmart de Mexico, Castro-Wright, was promoted to vice chairman of Walmart’s U.S. operations.

Within one day, the lead investigators uncovered evidence confirming hundreds of cases where gestores were paid tens of thousands of dollars to secure permits. Two gestores alone received payments totaling $8.5 million. These payments not only coincided with Castro-Wright’s tenure at Walmart de Mexico but also mirrored periods of growth in which new stores were built. They also discovered that Walmart de Mexico’s own auditors had previously notified Castro-Wright and Rodríguezmacedo about possible violations of American and Mexican anti-bribery laws. However, the same auditors claimed that Rodríguezmacedo edited their reports to remove information materially relevant to Walmart de Mexico’s legally questionable activities. This editing effectively kept officials at Walmart headquarters ignorant of the bribery taking place in Mexico.

Criticizing the Investigation

In late 2005, the new chief executive of Walmart de Mexico, Eduardo Solórzano Morales, was openly critical of the ongoing corporate investigation being coordinated from the Bentonville headquarters, stressing that the investigators were secretive, too aggressive in their interviews, and insensitive to the business culture of Mexico. In response, Walmart leaders, including CEO Scott, held a meeting on February 3, 2006, to reorganize the investigation unit’s bribery probe in Mexico. A new company policy was developed that placed greater responsibility for investigations on Walmart subsidiaries. This effectively meant that the company’s investigation into bribery by Walmart de Mexico was now largely under the direction of Rodríguezmacedo, the same general counselor who was initially suspected of involvement in the Mexican bribe payments. The fact that Rodríguezmacedo was now formally leading the investigation of alleged bribery in Mexico was clearly in conflict with the practices prescribed by Walmart’s own ethics and compliance office, which recommended that “investigations should be conducted by individuals who do not have any vested interest in the potential outcomes of the investigation.” Yet, it was Rodríguezmacedo who wrote a final report of the Mexican inquiry, which concluded “there was no evidence or clear indication of bribes paid to Mexican government authorities with the purpose of wrongfully securing any licenses or permits.” His six-page report remained silent on his involvement and that of other executives in expunging prior audits of payments to gestores. The report recommended that managers no longer use gestores and that the parent company make a renewed commitment to its anti-corruption policy.

In late 2011, upon learning of an upcoming story in the New York Times that would provide damaging details of the investigation, Walmart eventually disclosed the information it had gathered about bribery within its Mexican operations. Its attorneys and compliance officers met with the U.S. Department of Justice and the Securities and Exchange Commission to “self-disclose” its knowledge of possible violations of the FCPA. This decision was accompanied by a press release describing Walmart’s new anti-bribery efforts, including the formation of a new FCPA compliance director within its Mexican subsidiary, updated training procedures for its employees, more robust internal accounting controls, and regular reporting to the audit committee of the company’s board of directors on matters related to its ongoing bribery investigation. By 2104, Walmart had spent almost $440 million on FCPA-related internal investigations of its Mexican operations and was facing shareholder lawsuits for the negligent oversight of its Mexican subsidiary.

1. List some alternative ways to handle this situation correctly for Walmart. Also state some recommendations for future improvements for the company. Finally come up with suggested policies or programs Walmart can use in the future.