THE WAL-MART CORRUPTION CASE: INNOCENTS ABROAD?
by David L. Wilson, World War 4 Report
On April 22 the New York Times ran a major article by reporter David Barstow revealing that Wal-Mart's Mexican subsidiary paid more than $24 million in bribes to fuel the remarkable growth of its stores—and that top Wal-Mart executives in the United States tried to cover up the criminal activity.
The US media were quick to provide "context" for the scandal. Corruption is endemic in Latin America, we were told; Transparency International rated Mexico number 100 out of 183 countries in its 2011 index on perceived levels of corruption. "The scandal tells you that doing business in the world's fastest-growing markets can be fraught with peril," Time magazine wrote. "[G]raft is not necessarily perceived as a serious crime in some places. It's more a way of doing business." The Times downplayed its own excellent investigative reporting by explaining that in Mexico "bribery and other forms of corruption are taken in stride."
The message was clear: if our clean-cut US executives bribe foreign officials, it is because they have been influenced by—and have no choice but to participate in—the corrupt culture they find in the Global South. Besides, "by historical standards, things have never been cleaner," according to New Yorker financial columnist James Surowiecki. The US government is now vigorously enforcing the 1977 Foreign Corrupt Practices Act (FCPA), he wrote in May; the main problem today is corrupt executives from countries like China, India, and Russia.
The Record: IBM, American Rice, Tyson Foods
Most US media failed to provide another type of context: the record of similar cases in the recent past. In fact, four of the largest bribery scandals in Latin America and the Caribbean over the last two decades have involved US corporations.
* In 1994 officials in IBM's Argentine subsidiary paid some $21 million in bribes in order to win a $250 million contract for a computer system at Banco de la Nación. The scandal reached high into the government of then-president Carlos Menem and included the death of a potential witness (officially ruled a suicide). IBM settled with the US Securities and Exchange Commission (SEC) in 2000 by paying a fine of $300,000. The company didn’t have to accept blame, and it denied that any US-based employees were involved. Argentine investigative judge Adolfo Bagnasco thought otherwise and tried, without success, to get the US government to extradite two US-based IBM officials.
* In 1998 the newly installed center-left government of Mexico City charged three executives from IBM's Mexican subsidiary and 19 employees of the city prosecutor’s office with "misuse of power and resources" in connection with a $25.95 million contract for a database system. The city had awarded the contract to IBM without competitive bidding two years earlier, when the famously corrupt Institutional Revolutionary Party (PRI) still controlled the capital's government. The database system never worked. IBM settled in July 1998 by providing the city with $37.5 million in money and computer services, but the company never admitted to being at fault. A municipal court dropped the case against the IBM executives five months later, claiming it didn’t have jurisdiction.
* In 1998 and 1999 American Rice, Inc. paid Haitian customs officials some $500,000 to look the other way as the company imported more rice into Haiti than it declared on customs forms. The loss to the Haitian government came to about $1.5 million in customs fees. The case was unusual in that US courts actually sent two executives to jail: after a series of appeals, in 2008 American Rice president Douglas Murphy was sentenced to 63 months in prison and vice president David Kay to 37 months. The US government didn't fine the company, however, because the board of directors had alerted US regulators to the bribery scheme.
* From 1996 to 2006 Tyson Foods, Inc. paid some $260,000 to two veterinarians who were stationed at the company's plants in Mexico to certify food products as suitable for export. The payments—first disguised as salaries for the inspectors' wives and then as "professional honoraria" for the inspectors themselves—were intended "to keep the veterinarians from making problems," according to a Tyson memo. The company covered up the bribery for two years, but at the end of 2006 it finally reported the situation to the US Justice Department and the SEC. In February 2011 Tyson agreed to pay the US government a $4 million criminal penalty and an additional $1.2 million in fines to the SEC.
This list only covers cases that involved the same type of corruption as the recent Wal-Mart case, so it omits other varieties of corporate crime—for example, from 2004 to 2007 the North Carolina-based Wachovia Corporation allowed as much as $20 billion in Mexican drug cartel money to be laundered through its system. And of course the list only includes the corruption cases that have been uncovered so far.
Differing Perceptions of Crime
The US media were quick to make assumptions about attitudes toward corruption in the United States and south of the border. But do people in Latin America and the Caribbean always take corruption "in stride"? Certainly the Argentine and Mexican IBM scandals seemed to generate a lot more media attention in the affected countries than they did here.
And do people in the United States necessarily perceive corruption as a serious crime? The New Yorker’s Surowiecki noted that US political scientist Samuel Huntington--best known for his "clash of civilizations" theory and his fear of Spanish-speaking immigrants—claimed in 1968 that bribery was actually beneficial to foreign countries. Huntington held, in Surowiecki’s paraphrase, that without bribes "it takes much longer to do anything, and you end up with less economic activity—fewer Wal-Marts, less trade."
Surowiecki disagrees with Huntington. He acknowledges that bribery isn't a victimless crime, but the only victims he mentions are the corporations themselves. "[B]ribes beget more bribes," Surowiecki wrote in his column. "[F]ar from cutting through the red tape, they give bureaucrats a reason to produce more of it; each regulation creates another opportunity to collect a payoff."
In the real world, however, US corporations aren’t bribery's principal victims. No illnesses or deaths have been traced to the Tyson factories whose inspectors were paid not to "make problems," but clearly Tyson was taking risks with people's health. The loss of $1.5 million in customs revenues might seem minor in the United States, but it is a serious problem in a country as poor as Haiti—and profiting off smuggled rice was especially unconscionable at a time when local rice farmers were already being pushed out of the market by competition from government-subsidized US agribusiness.
Red Tape and Ancient Ruins
In the Wal-Mart case, David Barstow's Times exposé suggests that more was involved than just cutting through "red tape" to get building permits. The bribes, he wrote, "bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders."
Just like their counterparts in the United States, many Mexican activists have serious objections to the proliferation of Wal-Mart's big boxes. An editorial in the Mexican daily La Jornada listed some of the complaints against the company: the very low prices it pays its suppliers; its record of driving out small businesses and reducing overall employment; and such labor practices as "low wages, banning of unions, protection contracts, exhausting workdays without overtime."
In 2004 Wal-Mart built an outlet of its Mexican subsidiary Bodega Aurrerá within the ostensibly protected archeological zone at Teotihuacán, a massive complex of first-millennium temples northeast of Mexico City. UNESCO has declared the ruins a World Heritage Site, and the Mexican laws protecting the zone are so stringent that local residents need special permits to add rooms to their houses. Archeologists, artists, intellectuals, environmentalists, unionists and local residents denounced Wal-Mart's plan to build the store; there was even an encampment of hunger strikers protesting the desecration of the site.
Despite the opposition, Wal-Mart managed to get the necessary permits in just six months. It is not clear at this point whether bribes were involved, but the company obviously had a big budget for the project. Guillermo Rodríguez, who was the mayor of the nearby town of San Juan Teotihuacán at the time, told La Jornada that Wal-Mart offered a "donation" to the municipal treasury; when the town refused, the company gave the money directly to representatives of the neighborhood where the store was to be built. The company's contribution, the mayor said, was 600,000 pesos--about $42,800 at current exchange rates.
And Now the Bank Scandal
Just two months after the Times' revelations about Wal-Mart in Mexico, another major scandal hit Corporate America.
In late June, the British bank Barclays was fined about $450 million for rigging the interest rates it reports for Libor (London Inter-bank Offered Rate), the index used as the basis for hundreds of trillions of dollars in derivatives, mortgages and various loans in the United Kingdom, the United States and other countries. Banks that colluded in this criminal activity included such US giants as Citigroup, JPMorgan Chase and Bank of America.
With the Libor scandal there was no way for US media to blame endemic corruption in the Global South, or to claim the US government was working to make sure that "things have never been cleaner"—the past 20 years have been characterized by the systematic deregulation of the banking sector. Instead, US media outlets apparently decided to take the corruption "in stride." To a large extent, they didn't even cover it. Media Matters has documented that during the first month after the scandal broke, US television evening news programs devoted more time to stories about sharks than to reports on a financial crime that potentially affected millions of the networks’ viewers.
Too much coverage of Libor and other banking scandals might make people suspect that corruption isn't a problem of nationality or innately corrupt cultures, that the real problems are global—a worldwide corporate mentality whose only principle is turning a profit, legal systems that jail poor people for petty crimes and look the other way when the super-rich steal millions, and media establishments that try to extenuate corporate crimes with "context."
David L. Wilson is co-author, with Jane Guskin, of The Politics of Immigration: Questions and Answers (Monthly Review Press, 2007). He also co-edits Weekly News Update on the Americas, a summary of news from Latin America and the Caribbean.
From our Daily Report:
Mexico: money laundering scandals multiply
World War 4 Report, July 24, 2012
Mexico: Wal-Mart stocks plunge after bribery exposé
World War 4 Report, May 1, 2012
Mexico: study blames NAFTA in obesity epidemic
World War 4 Report, April 10, 2012
Special to WORLD WAR 4 REPORT, Aug. 12, 2012
Reprinting permissible with attribution