Troubles in Mexico for Wal-Mart

First it was an article in the New York Times and then it spread over to the Internet during the last two weeks of April 2012 that a subsidiary of the retail behemoth Wal-Mart Stores, Wal-Mart de Mexico, is involved in a $24 million bribery scandal in Mexico in September 2005. It was alleged that the subsidiary paid to obtain expedited approvals and permits to build new Wal-Mart stores in Mexico. Investors were quick to dump the stock of the company resulting in approximately $16 billion market value loss. According to published reports, Wal-Mart’s own investigation revealed that there were some irregularities occurred in obtaining permits to build new stores in Mexico.

The U.S. companies conducting business overseas, among host of other regulations, are also subject to the Foreign Corrupt Practices Act of 1977 (FCPA). The Wal-Mart is headquartered in Arkansas and therefore, is subject the 1977 act. This act mainly addresses accounting transparency requirements mainly implemented by the U.S. Securities and Exchange Commission and bribery of foreign officials. It prohibits, among other things, bribery to influence foreign officials by individuals and enterprises.

If found guilty, Wal-Mart could face severe penalties under the FCPA and consequently some officials may eventually leave the company.