History/Founding of Wal Mart
In 1958, a Spanish immigrant by the name of Jeronimo Arango founded Cifra, the
predecessor to what is now universally known as Wal Mart De Mexico. Arango spent his
youth travelling Mexico, Spain and the United States while studying art and literature.
After encountering a fifth avenue discount department store in New York City, Arango
was influenced to start his own. Arango, and his two brothers borrowed $240,000 in
pesos from his father and opened a discount store in downtown Mexico City called
Aurrera Bolivar. In 1960, the company opened its first Superamas supermarket, and in
1964, it’s first Vip restaurant. In 1965, Jewel Cos. of Chicago organized a joint venture
with the Arango brothers to start new stores. Approximately a year later, Jewel acquired
forty nine percent stake of the business, equivalent to $20 million. Arango and his
brothers took their part of the money and left the business. In 1971, opened the firm’s
first Bodega Aurrera discount warehouse stores and suburbia department stores. Aurerra
S.A. became publicly owned by 1976, and had such great success that by 1981, Jewels
Mexican operations accounted for approximately a third of its overall income. Times
became difficult in 1982, when the peso collapsed due to huge foreign debt. Arango was
smart enough to buy back Jewels share in the business from its successor, American
Stores Co. for $53.4 million, which he soon renamed Cifra.
In 1991, Cifra formed two key joint ventures with Wal Mart. The first,
Commercializadora Mexico-Americana, promoted trade between the United States and
Mexico. “The second, Club Aurrera, was directed at small businesses and their
employees and was patterned on Wal Marts Sams Club”. During the late 1990s, the
partnership between Cifra and Wal Mart was eliminated. Wal Mart viewed the Mexican
market as one of the company’s fast growing international markets. Wal Marts
commitment to expansion in Mexico was declared in a benchmark transaction in 1997,
one that created a turning point in the history of Cifra. In June 1997, Wal Mart acquired
fifty one percent of Cifra in a $1.2 billion deal. In September of 1997, the merger
agreement was completed, giving Wal Mart control over the stores formally controlled by
the joint venture and the restaurants and stores owned solely by Cifra. The new entity was
then renamed Wal Mart De Mexico. Now that all the businesses are consolidated under
one corporate banner, Wal Marts expansion efforts became increasingly more aggressive.
This merger allowed the company to use the cash flow produced by Cifras other
businesses to expand Sams Club and other Wal Mart supercenters in the Mexican Market.
By the end of the decade, Wal Mart De Mexico consisted of four hundred and sixty units.
Introduction to the Walmart Bribery Scandal
It was unbelievable that Wal Mart was able to buy out Cifra and expand their
businesses so rapidly throughout Mexico without flaw, almost to unbelievable. In
September of 2005, a senior Wal Mart lawyer received an email from a former executive
at Wal Mart De Mexico. Described in the email and follow up conversations was
accusations of how Wal Mart had orchestrated a campaign of bribery to win market
dominance. The former executive stated that in a rush to build stores, the company had
paid bribes to obtain the necessary permits in nearly every corner of the country. He gave
dates, names, and bribe amounts. The man knew so much because for years, he had been
the one in charge of obtaining these permits for Wal Mart De Mexico. Immediately
following these accusations, Wal Mart dispatched investigators to Mexico City where
they found evidence of widespread bribery. They found hundreds of suspect payments as
well as documents stating that not only did Wal Mart De Mexico’s executives knew
about the bribery, but they made efforts to cover it up. In a confidential report to his
superiors, Wal Marts lead investigator summed up his finding’s as “there is reasonable
suspicion to believe that Mexican and USA laws have been violated”.
Seriousness Of The Issue
The company reports that the audit committee of the Wal Mart stores board is
examining possible violations of the Foreign Corrupt Practices Act, “a federal law that
makes it a crime for American Coorporations and their subsidiaries to bribe foreign
officials”, along with other forms of misconduct in connection with foreign subsidiaries,
including Wal Mart De Mexico. Wal Mart is also the subject of investigations by the
Securities and Exchange Commission as well as the Justice Department. Wal Marts
beliefs as of now are that these matters wont have a material effect on its business, given
the uncertainties in many situations. However, the company cannot assure that these
matters will not be material to its business in the future. Wal mart quickly received
accusations from labor critics, worried about press leaks and deflating stock prices, the
company’s leaders quickly realized that these accusations could indeed have devastating
consequences. In one meeting where the bribery case was discussed, H Lee Scott Jr., at
the time Wal Marts chief executive, rebuked internal investigations for being overly
aggressive. Soon after, the company’s top lawyer arranged to send the internal
investigators files directly to Mexico City. Following this action, the primary
responsibility for the investigation immediately shifted to the General Council, the same
Council who was thought to have authorized the bribes. In December of 2005, Wal Mart
informed the Justice Department that it had began an internal investigation into the
possible violations of the Foreign Corrupt Policies Act. David Tovar, a Wal Mart
spokesman confirmed that the company’s Mexico operatrions, and its handeling of the
2005 case, are now a top priority of its inquiry. Mr. Tovar stated that “ Wal Mart is taking
steps in Mexico to stregnthen compliance with the Foriegn Corrupt Practices Act”.
How Much Money Could This End Up Costing Wal Mart
Wal Marts shares plunged nearly five percent in April of 2012, as investors
weighed allegations that Wal Mart De Mexico bribed forign officials to obtain permits so
that the company could speed up growth. If Wal Mart De Mexico is found in violation to
the Foreign Corrupt Policies Act, this will cost the company a lot of money. Past Justice
Department and SEC penalties are usually about one percent or two percent of annual
sales. 2011 records show that this would penalize Wal Mart for at least $4.5 billion, or 77
cents per share. The bigger impact of the picture could be on Wal Marts Mexican growth.
This would cause a slowdown in new stores openings and could mean a five percent
decrease in growth, which would be equivalent to a $1.3 billion loss. Top executives at
Wal Mart De Mexico are said to have already made hundreds of illegal payments to
expedite the openings of new stores worth more then $24 million. To date, Wal Mart has
already lost over ten billion in value after its price share dropped. Using past experiences
as a guide, Wal Mart will likely pay over one hundred million in legal fees to investigate
and defend itself, and could very well pay additional fines to the Department Of Justice
and the Securities And Exchange Commission.
Company Profile
Wal Mart is the world’s largest retailer, but it doesn’t stop there, the company also
owns restarants, discount stores, supermarkets, supercenters, warehouse clubs,
hypermarkets, sams clubs, apparel stores, and neighborhood markets. The companys
stores offer all types of grocery goods, as well as basically and appliance that you would
need inside or outside of your home. Wal mart is even bigger then Europe’s Carrefour,
Metro AG, and Tesco combined, while also employing approximately 2.2 million people.
In the United States alone, Wal Mart operates more then four thousand stores, including
six hundred and ten Sam’s Club warehouses, three thousand plus supercenters that sell
groceries and general merchandise, and an increasing number of smaller formatting
stores. The companys international division is growing rapidly with more then 5,600
locations. Wal Mart is the number one retailer in Mexico and Canada and has operations
in Asia, Europe, Africa, and South America. Wal Marts headquarters are located in
Bentonville, Arkanas. The current Chief Executive Officer (President) is Michael Duke,
the Vice President is Douglas Mcmillion, Mr. Mcmillion is also the President of Wal
Mart international. Charles Holly Jr. is the Chief Financial Officer. Wal Marts revenue
this far in 2012 has reached $446950.00 million, a six percent increase from a year ago.
Ethics
The use of ethics in businesses has been around for hundreds of years. Ethics is
defined as “the rules of conduct recognized in respect to a particular class of human
actions or a particular group, culture, etc”. The use of ethics has evolved a lot over the
years, especially in the business world. In business, ethics is basically the behavior a
business adheres to in its daily interactions with todays world. The ethics of a particular
business can be very diverse. Businesses usually receive a bad reputation because they
are thought to only be interested in making money, with little interest of the customers
themselves. This is the manner in which some businesses conduct themselves, which
brings up the concept of ethical behavior. Good business ethics should be a part of every
business. This is not the case, however, many global businesses can be viewed as not
thinking to highly of business ethics. Many major brands and companys have been fined
millions of dollars over the years for breaking ethical business laws.
This is very relevant to the Wal Mart bribery scandal. This issue would be
classified as very unethical for many reasons. Ethics is understood as playing by the
rules, and doing the right thing, but Wal Mart De Mexico did the complete opposite.
They wanted to gain international market dominance so bad, that they violated the code
of ethics. Top executives at Wal Mart De Mexico bribed foreign officials millions of
dollars to illegally obtain permits so that the company could expand quickly. To obtain a
building permit, takes a lot of time. First, one must call the local building permit authority
to obtain an application form. Next the applicant must fill out the form with the type of
project being built, along with the methods of construction. The applicant must then
submit the application along with necessary documents such as site plans, blueprints, etc.
It’s a vey long and tedious process. These bribes are highly unethical to all of Wal Marts
competitors. Essentially they cheated so that their store would be accessible in nearly
every location. This would put a lot of smaller, less known competing stores out of
business unfairly. The question that arises here is, do customers and shoppers really care
about the moral compass and integrity of the stores they shop at? Apparently the answer
is yes, according to Carrol Cone, a managing director of brand and corporate citizenship
of Edelman. “In a world of radical transparency, and 24/7 instant communications, what a
company stands for and how it behaves is more important then ever”. Eighty seven
percent of American consumers surveyed showed that they believe businesses need to put
as much focus on societys interests as they do on business interests. So overall, this
conflict Wal Mart has with business ethics, could end up being incredibly detrimental to
the company.
Allegations Towards Wal Mart De Mexico
On September 21, 2005, the allegations began to compile even further. Sergio
Cicero Zapata sent another email to Maritza I. Munich, at the time general council of Wal
Mart International. Ms. Munich hired a Senior Wal Mart Lawyer, Juan Francisco TorresLanda, and the three of them sat in on a meeting in October of 2005. Mr. Cicero decribed
how Wal Mart De Mexico had perfected the art of bribery, then covered it all up with
fraudulent accounting. Mr. Cicero implicated many of Wal Mart De Mexicos leaders,
including its General Council, Chief Auditor, its Board Chairman, and its top Real Estate
Executive. He further explained to Mr. Torres-Landa, that the person most responsible
“was the companys most ambitious chief executive, Eduardo Castro Wright, a native of
Ecuador who was recruited from Honeywell in 2001 to become Wal Marts Chief
Executive Officer in Mexico”. Mr. Cicero implemented that although bribes were
occasionally paid before Mr. Castro Wrights arrival, there use sky rocketed after Mr.
Castro Wright ascended to the top job in 2002. Mr. Cicero further informed Mr. TorresLanda on how Wal Mart De Mexicos top executives set “very aggressive growth goal” in
which to required opening new stores “ in record times”. He stated that Wal Mart De
Mexocos executives were under pressure to do whatever it takes to obtain the permits. In
an interview with the New York Times, Mr. Cicero said that Mr. Castro Wright had
encouraged these payments as part of a strategic purpose. The idea was to open hundreds
of new locations so fast, that competitors would not have time to react. “What we wer
buying was time”, Mr. Cicero said. These bribes accelerated growth, Wal Mart made
environmental objections vanish, and got zoning maps changed. These permits usually
take months to process, while the company was able to do it in a matter of days, he
explained. Mr. Casto Wright became a rising star in Bentonville, and in 2005, Mr. Duke
promoted him to senior position in the United States. Mr. Ciceros allegations were all the
more stunning because he implicated himself. He spent hours explain to Mr. TorresLanda the mechanics of how he helped channel bribes through trusted fixers “called
gestores”. He explained how it was his job to recruit the gestores. He shared strategies
with them on whom to bribe. Mr. Cicero approved Wal Marts payments to the gestores. It
was carefully montored through a system of secret codes that only a selected group of
Wal Marts Executives knew about. The gestores would then submit invoices with brief
descriptions of their services on them. Mr. Cicero implied that the real stories were told
on these invoices. “The codes identified the specific irregular act performed.” Finally,
Mr. Castro Wright and other top Wal Mart De Mexico Executives would receive a
schedule of every payment performed each month, and then they “purified the bribes in
accounting records as simple legal fees”.
Mr. Cicero stated that he resigned in 2004 because he felt unappreciated. He
described the stress, and pressure, of working in years of corruption, contending with
greedy officials who increased their bribe demands. The breaking point came when Mr.
Cicero was passed over for the job of General Council at Wal Mart De Mexico. Mr.
Torres-Landa wrote that Mr. Cicero claimed that he began to assemble a particular record
of a set of bribes he helped orchestrate “to protect him in any case of complaint or
investigation.” The lawyer could not detect any intent that Mr. Cicero wanted to sell this
information. According to people involved in Wal Marts investigation, Mr. Ciceros
allegations towards Wal Marts most important foreign subsidiary are impossible to
dismiss. Not to mention, this isn’t the first sign of corruption under Mr. Castro Wright at
Wal Mart De Mexico. In 2003, Kroll inc., a leading investigation firm, discovered that
Wal Mart de Mexico had systematically increased its sales by helping favored high
volume customers evade sales taxes. The New York Times had obtained a draft of Krolls
report, stating that Wal Mart de Mexico had failed to enforce their own anticorruption
policies, “ignored internal audits that raised red flags and even disregaurded local press
accounts asserting that Wal Mart de Mexico was carrying out a tax fraud”. Many
employees accused of wrongdoing were not punished. Instead, they received promotions
shortly after the suspicians of fraudulent activities had surfaced.
Wal Marts Response
Wal Marts immediate defense was to attempt to deflect some of this blame. Mr.
Halter, the lead investigator into an inquiry of Mr. Ciceros allegations, wanted to
interview top executives who were accused as having serious roles in the bribery scandal.
His first target was Mr. Rodriguezmacedo, an executive who Mr. Cicero clearly
identified as a main participant in the use of gestores. When asked to shed light onto
these allegations, Mr. Rodriguezmacedo responded with evasive hostility. When asked
for the gestores billing records, he stated that, there wasn’t time to track them down.
Executives became more forthcoming, after the investigation complained to hir
authorities. Led by Mr. Rodriguezmacedo, they responded with an attack on Mr. Ciceros
credibility. They told investigators that the gesture audit raised doubts about Mr. Cicero,
since he was in charge of most of the payments. When they began to expect that he was
benefitting, they asked Kroll to investigate. It was then, thet asserted, “that Kroll
discovered that Mr. Ciceros wife was a law partner of one of the gestores”. They claimed
that Mr. Cicero was then fired because he failed to disclose that fact. Based on this
behavior, Mr. Rodriguezmacedo argued, that the gestor payments were a ruse by Mr.
Cicero to defraud Wal Mart de Mexico. He added, “Mr. Cicero and the gestores, probably
kept every last peso of the facilitating payments”. He claimed that bribes could not have
been paid, if the money was stolen first. It was this argument, that gave Wal Mart
justification to end the inquiry.
Case Closed And Reccomendations
For those who had investigated Mr. Ciceros allegations, the preliminary inquiry
had been just that. In memos and meetings, Wal Mart argued that with their findings
clearly justified a full investigation. Mr. Castro Wrights exact role is yet to be
determined. Mr. Halther was never authorized to question him, and his computer files
never examined. Mr. Rodriguezmacedo, the man now in charge, wrote a report that
concluded “ there is no evidence or clear indication, of bribes paid to Mexican
government authorities with the purpose of wrongfully securing any licenses or permits”.
His report did in fact concede that Wal Mart de Mexicos executives had indeed
authorized years of payments to gestores. However, it never explained what these
executives expected these gestores to do with these payments. Mr. Rodriguezmacedo was
also silent on the fact that Wal Mart de Mexico had doled out donations to get permits.
He also failed to address the evidence that he and other executives had surpressed and
rewritten audits that would have alerted Bentonville to improper payments. The bulk of
Mr. Rodriguezmacedos report attacked the integrity of Mr. Cicero.
Authough Wal Mart has not yet been found guilty, and no punishment has been
implicated, avoiding this from reoccurring is simple. Both the United States and Mexican
government should make an example of Wal Mart. Whether they are proven guilty or not,
every company that gos international is required to become familiar with the Foreign
Exchange Practices Act. These companys are required to know every last deatail of this
federal law. If the punishment for breaking the law is a lot more severe, this will prevent
these same mistakes from reoccurring in the future.
Michael Callanan
10 Airway Circle
Towson, MD 21286
mjcallanan90@hotmail.com
(410) 440-9676
November 25, 2012
Professor Mark Panos
English Department
8000 York Road
Towson, MD 21252
Dear Mark Panos
The attached report, requested by the Towson Unniversity English Department in a letter
to Professor Mark Panos dated November 25, 2012, describes the ongoing scandal of Wal
Mart De Mexico, in which Wal Marts executives bribed state officials to obtain illegal
permits to build new stores. I believe you will find the results of this study useful in
evaluating future developments of coorporations within the confines of the Foreign
Corrupt Practices Act.
This study was designed to examine three different areas:



The ongoing bribery scandal of Wal Mar De Mexico, along with the companys
background.
Case details and allegations towards the company.
The verdict of the case, along with proposals on how similar companys can avoid
this issue as well as potentially new laws to prevent this from reoccurring.
Primary research consisted of phone interviews with a couple executives of Wal Mart.
Secondary resources included the annual budget of Wal Mart, laws that these bribery
allegations conflicted with, books, and online resources. Results of this research,
discussed more thoroughly in this report, indicate that Wal Mart was in fact in violation
of certain laws and regulations in the state of Mexico.
I would be more then willing to discuss this report with you at your request. Thank you
for your time, and appreciation of this report.
Sincerely,
Michael Callanan
Towson Unniversity Student
Executive Summary
Wal Mart De Mexico was in direct violation of the Foreign Corrupt Practices Act, by
bribing Mexican officials to obtain permits to win market dominance. Wal mart paid
approximately twenty five million dollars to state officials to get new stores approved
quickly. In 2005, investigators found that Wal Marts top executives not only knew about
the payments to the officials, but had taken steps to conceal them from Wal Marts
headquarters in Bentonville, AR.
My conclusion that Wal Mart systematically paid about twenty five million dollars in
bribes to local government officials to get new stores approved quickly is based on
information supplied from The Daily Ticker, Personal Interviews with executives, books,
and online resources.
Analysis of the data revealed information in three areas:

Ethical Issue. The background of Wal Mart and the series of events on the way
the company got started. Wal Mart De Mexico obtained permits to win market
competition by organizing a campaign to pay local government officials.

Case Study. How big this issue actually is, along with the amount of money Wal
Mart spent on these bribes, and potentially how much this mistake will end up
costing them. Wal Mart company profile and market share. A series of allegations
against Wal Mart.

Verdict. The overall punishment for Wal Marts actions along with proposals of
how similar companys can avoid this same mistake. The passing of possible laws
that would prevent companys from repeating this same mistake in the future.
On the basis of these findings, it is recommended that the government pass additional
laws that will prevent companys from violating the Foreign Corrupt Practices Act in the
future. Also, much greater consequences for violators so that companys wont be able to
make this same mistake.
WAL MART BRIBERY SCANDAL
Presented to
Professor Mark Panos
Towson, MD
Prepared By
Michael Callanan
Towson Unniversity Student
November 25, 2012
TABLE OF CONTENTS
EXECUTIVE SUMMARY ………………………………………………………… iv
INTRODUCTION: HISTORY/ BACKGROUND OF WAL MART, INTRODUCTION
TO WAL MART BRIBERY SCANDAL…………………………....………...…1, 2, 3
SERIOUSNOUS OF THE ISSUE………………………………………………….. 3, 4
HOW MUCH MONEY COULD THIS END UP COSTING WAL MART……….….4
COMPANY PROFILE………………………………………………………………4, 5
ETHICS………………………………………………………..………………….5, 6, 7
ALLEGATIONS TOWARD WAL MART…………………………………...….7, 8, 9
WAL MARTS RESPONSE………………………………………………….……..9,10
CASE CLOSED AND RECCOMENDATIONS…………………………...……..10,11
LIST OF FIGURES
Figure
1 Timeline……………………………………...…………………..See Appendix
2 Organizational Chart……………………………………………..See Appendix
3 Logical Fallacies……………………………………………...….See Appendix