Allegations that Walmart Stores Inc. covered up the findings of an internal probe that proved its Mexican subsidiary bribed officials in that country could have huge implications for the world's biggest retailer and its executives.
The alleged bribery scheme was revealed by the New York Times, which reported that Walmart failed to notify law enforcement after the company's investigators found evidence of millions of dollars in bribes given to Mexican officials in exchange for getting building permits faster and other favors to help it aggressively expand in the region.
If Walmart violated the Foreign Corrupt Practices Act, which forbids paying bribes to foreign officials, the company could face fines of hundreds of millions of dollars. Top Walmart executives could lose their jobs -- or worse, go to jail. And the retailer could suffer a public relations nightmare if a lengthy investigation ensues.
"Unlike prior bad PR stories in recent years, this will be a material distraction for Walmart on multiple fronts," said Charles Grom, a retail analyst at Deutsche Bank.
The Times reported Saturday that Walmart top brass learned of the bribery campaign in 2005 when a former company executive provided details about how it was used to help the retailer expand rapidly in Mexico. The newspaper said Walmart officials launched an investigation but shut it down despite a report by its lead investigator that Mexican and U.S. laws likely were violated.
Over the weekend, Walmart said that it had disclosed the findings of its investigation to the U.S. Department of Justice and the Securities and Exchange Commission in December and that it met with officials from both agencies to discuss the company's ongoing investigation. But, according to the Times, Walmart only did so after being informed that the newspaper was looking into the allegations.
"We are committed to getting to the bottom of this matter," Dave Tovar, a Walmart spokesman, said in a statement.
The Department of Justice and the SEC declined to comment for this story. But legal experts say the government will likely launch its own investigation into the bribery allegations. They say they'll be looking at whether the company had controls to discourage bribery, whether there was adequate training to discourage the practice before the violations occurred and how high up any alleged coverup took place.
Eduardo-Castro Wright, who was head of Walmart de Mexico at the time of the alleged bribes, could face intense scrutiny, experts say. As could Walmart CEO Mike Duke, who was head of the company's international division at the time of the investigation, experts say.
H. Lee Scott Jr., who was CEO at the time of the allegations and remains on its board, could also be probed.
According to the Times story, he rebuked internal investigators at one meeting for being overly aggressive. Shortly thereafter, the Times said, the investigation was turned over to the general counsel for Walmart de Mexico, who was alleged to have authorized bribes. He exonerated his fellow executives, according to the Times story.