Wal-Mart Stores Inc.'s probe of possible bribery in Mexico mayprompt executive departures and steep U.S. government fines if itreveals senior managers knew about the payments and didn't takestrong enough action, corporate governance experts said.

Wal-Mart said in an April 21 statement it is looking into a NewYork Times story that said its representatives in Mexico bribedlocal officials to get stores opened faster and that executivesprobed allegations as far back as 2005. In a December 2011 U.S.Securities and Exchange Commission filing, Wal-Mart said it wasexamining whether it was in compliance with the Foreign CorruptPractices Act, without saying what region or when time period wasin question.

At the time Wal-Mart conducted an initial internal probe andended it in 2006, the U.S. Department of Justice was starting tocrack down on foreign bribery cases. Waiting for years to disclosethe case may mean tougher sanctions for the retailer and forindividuals, governance and legal experts said.

“Does the conduct at issue squarely fall into the type ofenforcement actions the DOJ and SEC have been bringing over thelast couple of years? That answer is clearly yes,” said MichaelKoehler, a law professor at Butler University in Indianapolis whoruns the FCPA Professor blog. “If there is enforcement action, theDOJ and SEC are likely to be more harsh because of how it handledthis situation over the last six years.”

Wal-Mart, in its April 21 statement, said it takes compliancewith the corruption law seriously and is moving to find out whathappened. When asked yesterday whether the retailer's board wasnotified about the allegations in 2005 and why the company didn'tmove sooner, spokesman David Tovar said, “That's one of the thingswe are looking into.”

Wal-Mart has hired auditing firm KPMG and law firm GreenbergTraurig LLP for a compliance review of its global operations andlaw firm Jones Day to investigate its Mexican operations, said aperson familiar with the matter.

Tovar said the company isn't making executives available forcomment.

The expansion of Wal-Mart de Mexico, mainly in the last decade,left the world's largest retailer with about 20 percent of itsstores in Mexico, out of more than 10,000 worldwide. Bentonville,Arkansas-based Wal-Mart's sales rose about 6 percent last year to$447 billion.

Share Performance

Wal-Mart stock traded at the equivalent of $61.06 at 12:11 p.m.in Germany, down 2.2 percent from its April 20 close of $62.45 inNew York. Wal-Mart stock has risen 4.5 percent this year, trailingMinneapolis-based Target Corp.'s 12 percent gain.

Wal-Mart executives, including then-Chief Executive Officer andcurrent board member Lee Scott, were made aware of the briberyallegations in 2005, the New York Times reported. So was Mike Duke,the current CEO, who at the end of that year was just taking overinternational operations, the article said.

Scott didn't return a phone call to his home.

Wal-Mart will face pressure from shareholders to take actionagainst any executives who didn't act fully on the briberyallegations sooner, said Charles Elson, director of the John L.Weinberg Center for Corporate Governance at the University ofDelaware.

“If this is all true, it's problematic,” Elson said in atelephone interview. “If any officer was significantly involved,their position has to be reviewed. You have to do the investigatingand determine what did the CEO know and when.”

The Times article said the bribes may have amounted to more than$24 million in payments.

The Times identified executive Eduardo Castro-Wright as acentral figure in the expansion of the alleged payments.Castro-Wright ran Wal-Mart de Mexico as CEO from 2003 to 2005 andwas president and chief operating officer of the unit from 2001 to2003. Some of the alleged bribery took place during that time, thenewspaper reported.

In a telephone interview, Tovar declined to discuss the futureof Castro-Wright, who is now a Wal-Mart vice chairman scheduled toretire July 1.

Wal-Mart said it has met voluntarily with the Justice Departmentand the SEC to discuss the case. The company is also enhancing itsaudit procedures and internal controls to escalate to managementpossible violations of the bribery law.

“We take compliance with the U.S. Foreign Corrupt Practices Actvery seriously and are committed to having a strong and effectiveglobal anti-corruption program in every country in which weoperate,” Tovar said in the company's statement. “We will nottolerate noncompliance with FCPA anywhere or at any level of thecompany.”

L atest Investigation

Wal-Mart started the latest investigation last fall through theboard's auditing committee, and Tovar said in the statement thatthe company hasn't reached any conclusions yet. Wal-Mart willconduct training for its employees and put in place more robustpolicies and controls, according to the statement.

The newspaper detailed the company's 2005 investigation byexamining hundreds of internal documents, as well as more than 15hours of interviews with former Wal-Mart de Mexico executive SergioCicero Zapata, who recounted years of payoffs to governmentofficials.

The Times said it looked at thousands of government documentsrelated to store permit requests throughout Mexico and found manyinstances of permits being granted within weeks or days of Wal-Martde Mexico's payments to two outside lawyers who gave cash to theofficials.

The Times report said that Wal-Mart decided in February 2006 toturn the investigation over to the then-general counsel of theMexican subsidiary, Jose Luis Rodriguezmacedo Rivera, himself atarget of the investigation. Rodriguezmacedo finished the probewithin weeks, concluding there was no evidence of bribes paid toMexican government officials, the Times said.

Rodriguezmacedo declined to comment to the newspaper, andattempts by Bloomberg to reach him were unsuccessful.

The Times reported that in December 2011, after learning of thenewspaper's reporting in Mexico, Wal-Mart told the JusticeDepartment of its investigation into whether some of its actionsviolated U.S. anti-corruption laws. The company is investigatingpermitting, licensing and inspections, according to its form 10-Qfiled with the SEC on Dec. 8, 2011.

The company's filing didn't mention Mexico and stated that, “Wedo not believe that these matters will have a material adverseeffect on our business, financial condition, results of operationsor cash flows.”

Quick Action

Wal-Mart also has hired outside advisers to help with theinvestigation.

“In a large global enterprise such as Wal-Mart, sometimes issuesarise despite our best efforts and intentions,” Tovar said in thestatement. “When they do, we take them seriously and act as quicklyas possible to understand what happened. We take action and work toimplement changes so the issue doesn't happen again.”

While Mexico may be an isolated case, “shareholders will bewondering about Wal-Mart's other 25 markets,” Natalie Berg, ananalyst at Planet Retail in London, said today in an interview.“International growth targets may need to be revised downward, atleast in the near-term,” she said.

The 1977 U.S. law bars companies or individuals regulated orbased in the U.S. from paying bribes to foreign officials to winbusiness. Foreign companies and nationals also can be prosecuted iftheir corrupt acts were committed in the U.S.

In a crackdown on overseas bribery that started during the Bushadministration, the government settled 57 cases against companiesfrom 2005 through 2011 without trial, reaping $4.1 billion for theU.S. Treasury, according to Justice Department data. A push toprosecute more individual defendants during the same period hasproduced mixed results, with some beating charges outright andothers getting less punishment than prosecutors sought.

The Wal-Mart allegations will do nothing to help Mexico fight areputation for government corruption. Latin America'ssecond-biggest economy last year fell to No. 100 out of 183countries for perceived levels of corruption, according toBerlin-based Transparency International.

Mexican Finance Minister Jose Antonio Meade said his governmenthasn't decided whether to open a probe of its own. The governmentis collecting more information on the allegations, he said.

“I've seen the story and we're looking into it,” Meade said inan interview in Washington after participating in a paneldiscussion at the World Bank. He later told reporters in thehallway that officials “don't have enough elements” to open aninvestigation and “when we have enough, we'll decide how toproceed.”

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