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Wal-Mart plays role of 'aggressive and creative corrupter' in Mexico

We talked back in April about a stunning Wal-Mart scandal, uncovered by the New York Times' David Barstow, who found evidence of the retail behemoth
Wal-Mart plays role of 'aggressive and creative corrupter' in Mexico
Wal-Mart plays role of 'aggressive and creative corrupter' in Mexico

We talked back in April about a stunning Wal-Mart scandal, uncovered by the New York Times' David Barstow, who found evidence of the retail behemoth bribing public officials in Mexico. As it turns out, the larger controversy is sill unfolding.

Wal-Mart longed to build in Elda Pineda's alfalfa field. It was an ideal location, just off this town's bustling main entrance and barely a mile from its ancient pyramids, which draw tourists from around the world. With its usual precision, Wal-Mart calculated it would attract 250 customers an hour if only it could put a store in Mrs. Pineda's field.One major obstacle stood in Wal-Mart's way.After years of study, the town's elected leaders had just approved a new zoning map. The leaders wanted to limit growth near the pyramids, and they considered the town's main entrance too congested already. As a result, the 2003 zoning map prohibited commercial development on Mrs. Pineda's field, seemingly dooming Wal-Mart's hopes.But 30 miles away in Mexico City, at the headquarters of Wal-Mart de Mexico, executives were not about to be thwarted by an unfavorable zoning decision.

The zoning map wouldn't be official until it was published in a government newspaper, so Wal-Mart apparently delivered a $52,000 bribe to a local bureaucrat who redrew the lines, changed the map in the company's favor, and then sent it to the newspaper. Locals were outraged by the store, but never knew about the bribe that made it happen.

Here in the U.S., it's been widely reported that a senior Wal-Mart lawyer learned about the company's campaign of bribery in virtually every corner of Mexico in 2005, and an internal investigation was launched. That is, until Wal-Mart executives squashed the probe a year later, before the extent of the scandal was clear.

So, the New York Times is doing what the company would not: getting to the bottom of the alleged, systemic Wal-Mart corruption in Mexico.

There may be some who believe that Mexican business practices somehow necessitate bribes, and that Wal-Mart was just going along with standard practices in the country. It may have simply been the price of doing business, the argument goes.

Except, this isn't even close to being true.

The Times's examination reveals that Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance -- public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals.Through confidential Wal-Mart documents, The Times identified 19 store sites across Mexico that were the target of Wal-Mart de Mexico's bribes. The Times then matched information about specific bribes against permit records for each site. Clear patterns emerged. Over and over, for example, the dates of bribe payments coincided with dates when critical permits were issued. Again and again, the strictly forbidden became miraculously attainable.Thanks to eight bribe payments totaling $341,000, for example, Wal-Mart built a Sam's Club in one of Mexico City's most densely populated neighborhoods, near the Basílica de Guadalupe, without a construction license, or an environmental permit, or an urban impact assessment, or even a traffic permit. Thanks to nine bribe payments totaling $765,000, Wal-Mart built a vast refrigerated distribution center in an environmentally fragile flood basin north of Mexico City, in an area where electricity was so scarce that many smaller developers were turned away.

A few quick thoughts. First, this is a fantastic piece of journalism. Kudos to the Times, Barstow, and everyone involved.

Second, Wal-Mart has made an effort to clean up its image in recent years, and this seems like another dramatic setback for the company. There is, after all, the U.S. Foreign Corrupt Practices Act, which prohibits American companies or their subsidiaries from giving bribes to foreign officials. The Justice Department and the Securities and Exchange Commission have already begun investigations, and given the latest findings, it would appear Wal-Mart has a serious problem on its hands.

And finally, it's also worth mentioning that it's not just Mexico. Wal-Mart's internal investigations -- the ones that weren't quietly shuttered -- found evidence of alleged bribery in China, Brazil, and India, and some top company executives in those countries have already been forced from their jobs.