Mexico: Wal-Mart stocks plunge after bribery exposé

Wal-Mart de México’s stocks fell by a total of 15.46% on the Bolsa Mexicana de Valores (BMV, the Mexico City stock market) from April 23 through April 24 following a report in the New York Times that the company’s US-based owner, Wal-Mart Stores, Inc., had covered up a major bribery scandal in 2005. The Mexican branch of the giant retailer is the largest private employer in the country, with 2,138 outlets: 1,250 stores under the Aurrerá name, 214 Wal-Mart stores, 127 Sam’s Clubs, 88 Superamas, 94 Suburbias and 365 restaurants. (La Jornada, Mexico, April 24: LJ, April 25)

The Times reported on April 22 that in 2005 Wal-Mart investigators found evidence that the Mexican subsidiary had fueled its explosive growth with more than $24 million in bribes to obtain building permits, circumvent environmental requirements and stifle community opposition. The bribery violated laws in both Mexico and the US, but Wal-Mart corporate headquarters in Bentonville, Arkansas, failed to report the illegal acts to the two governments. Instead, executives essentially shut the investigation down, according to the Times. The company finally notified the US Justice Department in December 2011, after it learned that the newspaper was working on the story. (NYT, April 22)

Wal-Mart began operating in Mexico in 1991, when it formed a connection with the Aurrerá chain (the name means “forward” in Basque). The administration of former president Carlos Salinas de Gortari (1988-1994) gave special privileges to the firm, according to Enrique Bonilla, director of the National Front Against Wal-Mart. Bonilla says the company only pays 1.6% in taxes on its sales and is allowed to use unpaid employees—packers and parking lot attendants who have to get by on their tips and receive no employee benefits. “This company’s very rapid growth [in Mexico] can’t be explained without support from the highest levels of government,” Bonilla claims. (LJ, April 28)

Government favor for Wal-Mart may not have ended. On April 23 Attorney General Marisela Morales suggested that her office wasn’t in a hurry to bring charges in the corruption scandal. “It’s a case that we still don’t have,” she said, “but if in a given moment it’s in our jurisdiction, of course we’re going to act and ask for whatever is necessary.” (EFE, April 23, via Univision)

The new revelations brought sharp criticism of Wal-Mart both in Mexico and in the US. An editorial in the left-leaning Mexican daily La Jornada noted that the scandal comes on top of many 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.” (LJ April 24) Richard Trumka, president of the largest US labor federation, the AFL-CIO, charged that “the Walmart episode shows the utter futility of expecting large corporations, their boards and their law firms to police themselves” and “reveals the tragic folly of NAFTA [the North American Free Trade Agreement]… a race to the bottom in every respect—including rule of law.” Wal-Mart is the largest private employer in the US as well as in Mexico, and it opposes labor organizing just as strongly in the US as it does in Mexico. (Huffington Post, April 26)

The US media stressed that corruption is endemic in Mexico and in Latin America in general. In a follow-up article on the Wal-Mart scandal, the Times wrote that “bribery and other forms of corruption are taken in stride” in Mexico. (NYT, April 24) The US media avoided mentioning two earlier bribery scandals that involved another major US corporation, the computer giant IBM. In Argentina the multinational allegedly paid $21 million in bribes to win a $249 million contract with the state-owned bank Banco Nación in 1993; the Argentine judge in the case wasn’t able to get IBM employees extradited from the US to testify. A second scandal emerged in 1998 in Mexico City, where IBM had to pay a large settlement in a bribery case involving three IBM executives and a $27 million contract for a database system for the city. After the Mexico City scandal, IBM announced that it had “decided to sign no more direct contracts with the public sector in the region for systems engineering.” (See Update #440)

From Weekly News Update on the Americas, April 29.

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