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Walmart "deeply concerned" by accusations of endemic corruption

New York Times investigation alleges corruption in Mexican subsidiary and subsequent cover-up by US

The New York Times claims, in a 7,600 word report, that Walmart's Mexican subsidiary, Walmart de Mexico, operates a culture in which corruption is endemic.

It reports that in September 2005, after a tip-off from a former executive, Walmart dispatched investigators to Mexico City and uncovered a paper trail showing over $24m of suspect payments. The lead investigator reported back to the US headquarters that:

There is reasonable suspicion to believe that Mexican and USA laws have been violated.

As ever, what could have been the end of the scandal appears instead to have been merely the beginning:

Neither American nor Mexican law enforcement officials were notified. None of Walmart de Mexico’s leaders were disciplined. Indeed, its chief executive, Eduardo Castro-Wright, identified by the former executive as the driving force behind years of bribery, was promoted to vice-chairman of Walmart in 2008. Until this article, the allegations and Walmart’s investigation had never been publicly disclosed.

If the evidence holds up, the situation is likely to become a textbook example of the sort of practices outlawed in the US by the Foreign Corrupt Practices Act, which bans US citizens and corporations from bribing foreign officials. Responding to the story, Walmart on Saturday said:

If these allegations are true, it is not a reflection of who we are or what we stand for. We are deeply concerned by these allegations and are working aggressively to determine what happened.

The case comes as a blow to the retailer, which is strongly invested in emerging markets for continued growth. The company is the largest private employer in the world, the largest public corporation by revenue and the largest retailer in the world – but in developed countries, its growth has largely peaked. As well as in the US and Canada, where it works under its own name, it operates as Asda in the UK and Seiyu in Japan. Its strongest emerging markets are in China and Latin America, as well as India, where it owns the Best Price brand.

These other markets are not left untouched by the report, which claims that the US headquarters were receiving reports of corruption from Asia at a rate of five per month – 90 in the past 18 months.

One aspect of the case that is as yet largely unmentioned is the company's Mexican banking subsidiary, Banco Walmart. The company exists in a regulatory black hole, since, as a foreign company, Mexico expects it to be regulated by the US; the US meanwhile has consistently refused to let Walmart operate as a bank domestically, so it is not under the jurisdiction of financial regulators. As Felix Salmon writes, all corruption is bad but corruption in banks, frequently used for money-laundering, is worst, and following these reports Mexican authorities may have little confidence that Banco Walmart is corruption-free.

The company concluded its statement:

We are working hard to understand what occurred in Bentonville [where Walmart's headquarters are located] more than six years ago and are committed to conducting a complete investigation before forming conclusions.

Unfortunately, we realise that, at this point, there are some unanswered questions. We wish we could say more but we will not jeopardise the integrity of the investigation.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.