[Wal-Mart
dispatched investigators to Mexico City ,
and within days they unearthed evidence of widespread bribery. They found a
paper trail of hundreds of suspect payments totaling more than $24 million.
They also found documents showing that Wal-Mart de Mexico’s top executives not
only knew about the payments, but had taken steps to conceal them from
Wal-Mart’s headquarters in Bentonville , Ark. USA laws have been violated.”]
By David Barstow
The former executive gave names, dates and bribe amounts.
He knew so much, he explained, because for years he had been the lawyer in
charge of obtaining construction permits for Wal-Mart de Mexico.
Wal-Mart dispatched investigators to Mexico City Bentonville , Ark. USA
The lead investigator recommended that Wal-Mart expand the
investigation.
Instead, an examination by The New York Times found,
Wal-Mart’s leaders shut it down.
Neither American nor Mexican law enforcement officials were
notified. None of Wal-Mart 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
Wal-Mart in 2008. Until this article, the allegations and Wal-Mart’s
investigation had never been publicly disclosed.
But The Times’s examination uncovered a prolonged struggle
at the highest levels of Wal-Mart, a struggle that pitted the company’s much
publicized commitment to the highest moral and ethical standards against its
relentless pursuit of growth.
Under fire from labor critics, worried about press leaks
and facing a sagging stock price, Wal-Mart’s leaders recognized that the
allegations could have devastating consequences, documents and interviews show.
Wal-Mart de Mexico was the company’s brightest success story, pitched to
investors as a model for future growth. (Today, one in five Wal-Mart stores is
in Mexico Mexico
In one meeting where the bribery case was discussed, H. Lee
Scott Jr., then Wal-Mart’s chief executive, rebuked internal investigators for
being overly aggressive. Days later, records show, Wal-Mart’s top lawyer
arranged to ship the internal investigators’ files on the case to Mexico City
The general counsel promptly exonerated his fellow Wal-Mart
de Mexico executives.
When Wal-Mart’s director of corporate investigations — a
former top F.B.I. official — read the general counsel’s report, his appraisal
was scathing. “Truly lacking,” he wrote in an e-mail to his boss.
The report was nonetheless accepted by Wal-Mart’s leaders
as the last word on the matter.
In December, after learning of The Times’s reporting in Mexico
“We do not believe that these matters will have a material
adverse effect on our business,” the company said in a filing with the
Securities and Exchange Commission.
But The Times’s examination found credible evidence that
bribery played a persistent and significant role in Wal-Mart’s rapid growth in Mexico
A Wal-Mart spokesman confirmed that the company’s Mexico
“If these allegations are true, it is not a reflection of
who we are or what we stand for,” the spokesman, David W. Tovar, said. “We are
deeply concerned by these allegations and are working aggressively to determine
what happened.”
In the meantime, Mr. Tovar said, Wal-Mart is taking steps
in Mexico
The Times laid out this article’s findings to Wal-Mart
weeks ago. The company said it shared the findings with many of the executives
named here, including Mr. Scott, now on Wal-Mart’s board, and Mr.
Castro-Wright, who is retiring in July. Both men declined to comment, Mr. Tovar
said.
The Times obtained hundreds of internal company documents
tracing the evolution of Wal-Mart’s 2005 Mexico
Michael T. Duke,
Wal-Mart’s current chief executive, was also kept informed. At the time, Mr.
Duke had just been put in charge of Wal-Mart International, making him
responsible for all foreign subsidiaries. “You’ll want to read this,” a top
Wal-Mart lawyer wrote in an Oct. 15, 2005 ,
e-mail to Mr. Duke that gave a detailed description of the former executive’s
allegations.
The Times examination included more than 15 hours of
interviews with the former executive, Sergio Cicero Zapata, who resigned from
Wal-Mart de Mexico in 2004 after nearly a decade in the company’s real estate
department.
In the interviews, Mr. Cicero recounted how he had helped
organize years of payoffs. He described personally dispatching two trusted
outside lawyers to deliver envelopes of cash to government officials. They
targeted mayors and city council members, obscure urban planners, low-level
bureaucrats who issued permits — anyone with the power to thwart Wal-Mart’s
growth. The bribes, he said, bought zoning approvals, reductions in
environmental impact fees and the allegiance of neighborhood leaders.
He called it working “the dark side of the moon.”
The Times also reviewed thousands of government documents
related to permit requests for stores across Mexico
The Times conducted extensive interviews with participants
in Wal-Mart’s investigation. They spoke on the condition that they not be
identified discussing matters Wal-Mart has long shielded. These people said the
investigation left little doubt Mr. Cicero’s allegations were credible. (“Not
even a close call,” one person said.)
But, they said, the more investigators corroborated his
assertions, the more resistance they encountered inside Wal-Mart. Some of it
came from powerful executives implicated in the corruption, records and
interviews show. Other top executives voiced concern about the possible legal
and reputational harm.
In the end, people involved in the investigation said,
Wal-Mart’s leaders found a bloodlessly bureaucratic way to bury the matter. But
in handing the investigation off to one of its main targets, they disregarded
the advice of one of Wal-Mart’s top lawyers, the same lawyer first contacted by
Mr. Cicero.
“The wisdom of assigning any investigative role to
management of the business unit being investigated escapes me,” Maritza I.
Munich, then general counsel of Wal-Mart International, wrote in an e-mail to
top Wal-Mart executives.
The investigation, she urged, should be completed using
“professional, independent investigative resources.”
The Allegations Emerge
On Sept. 21, 2005 ,
Mr. Cicero sent an e-mail to Ms. Munich telling her he had information about
“irregularities” authorized “by the highest levels” at Wal-Mart de Mexico. “I
hope to meet you soon,” he wrote.
Ms. Munich was familiar with the challenges of avoiding
corruption in Latin America . Before joining Wal-Mart in 2003, she had spent 12 years
in Mexico Latin America as a lawyer
for Procter & Gamble.
At Wal-Mart in 2004, she pushed the board to adopt a strict
anticorruption policy that prohibited all employees from “offering anything of
value to a government official on behalf of Wal-Mart.” It required every
employee to report the first sign of corruption, and it bound Wal-Mart’s agents
to the same exacting standards.
Ms. Munich reacted quickly to Mr. Cicero’s e-mail. Within
days, she hired Juan Francisco Torres-Landa, a prominent Harvard-trained lawyer
in Mexico City
During hours of questioning, Mr. Torres-Landa’s notes show, Mr. Cicero described how Wal-Mart de
Mexico had perfected the art of bribery, then hidden it all with fraudulent
accounting. Mr. Cicero implicated many of Wal-Mart de Mexico’s leaders,
including its board chairman, its general counsel, its chief auditor and its
top real estate executive.
But the person most responsible, he told Mr. Torres-Landa,
was the company’s ambitious chief executive, Eduardo Castro-Wright, a native of
Ecuador Mexico
Mr. Cicero said that while bribes were occasionally paid
before Mr. Castro-Wright’s arrival, their use soared after Mr. Castro-Wright
ascended to the top job in 2002. Mr. Cicero described how Wal-Mart de Mexico’s
leaders had set “very aggressive growth goals,” which required opening new
stores “in record times.” Wal-Mart de Mexico executives, he said, were under
pressure to do “whatever was necessary” to obtain permits.
In an interview with The Times, Mr. Cicero said Mr.
Castro-Wright had encouraged the payments for a specific strategic purpose. The
idea, he said, was to build hundreds of new stores so fast that competitors
would not have time to react. Bribes, he explained, accelerated growth. They
got zoning maps changed. They made environmental objections vanish. Permits
that typically took months to process magically materialized in days. “What we
were buying was time,” he said.
Wal-Mart de Mexico’s stunning growth made Mr. Castro-Wright
a rising star in Bentonville. In early 2005, when he was promoted to a senior
position in the United
States Mexico
Mr. Cicero’s allegations were all the more startling
because he implicated himself. He spent hours explaining to Mr. Torres-Landa
the mechanics of how he had helped funnel bribes through trusted fixers, known
as “gestores.”
Gestores (pronounced hes-TORE-ehs) are a fixture in Mexico
But often gestores play starring roles in Mexico
Mr. Cicero told Mr. Torres-Landa it was his job to recruit
the gestores. He worked closely with them, sharing strategies on whom to bribe.
He also approved Wal-Mart de Mexico’s payments to the gestores. Each payment covered
the bribe and the gestor’s fee, typically 6 percent of the bribe.
It was all carefully monitored through a system of secret
codes known only to a handful of Wal-Mart de Mexico executives.
The gestores submitted invoices with brief, vaguely worded
descriptions of their services. But the real story, Mr. Cicero said, was told
in codes written on the invoices. The codes identified the specific “irregular
act” performed, Mr. Cicero explained to Mr. Torres-Landa. One code, for
example, indicated a bribe to speed up a permit. Others described bribes to
obtain confidential information or eliminate fines.
Each month, Mr. Castro-Wright and other top Wal-Mart de
Mexico executives “received a detailed schedule of all of the payments
performed,” he said, according to the lawyer’s notes. Wal-Mart de Mexico then
“purified” the bribes in accounting records as simple legal fees.
They also took care to keep Bentonville in the dark. “Dirty
clothes are washed at home,” Mr. Cicero said.
Mr. Torres-Landa explored Mr. Cicero’s motives for coming
forward.
Mr. Cicero said he resigned in September 2004 because he
felt underappreciated. He described the “pressure and stress” of participating
in years of corruption, of contending with “greedy” officials who jacked up
bribe demands.
As he told The Times, “I thought I deserved a medal at
least.”
The breaking point came in early 2004, when he was passed
over for the job of general counsel of Wal-Mart de Mexico. This snub, Mr.
Torres-Landa wrote, “generated significant anger with respect to the lack of
recognition for his work.” Mr. Cicero said he began to assemble a record of
bribes he had helped orchestrate to “protect him in case of any complaint or
investigation,” Mr. Torres-Landa wrote.
“We did not detect on his part any express statement about
wishing to sell the information,” the lawyer added.
According to people involved in Wal-Mart’s investigation,
Mr. Cicero’s account of criminality at the top of Wal-Mart’s most important
foreign subsidiary was impossible to dismiss. He had clearly been in a position
to witness the events he described. Nor was this the first indication of
corruption at Wal-Mart de Mexico under Mr. Castro-Wright. A confidential
investigation, conducted for Wal-Mart in 2003 by Kroll Inc., a leading
investigation firm, discovered that Wal-Mart de Mexico had systematically
increased its sales by helping favored high-volume customers evade sales taxes.
A draft of Kroll’s report, obtained by The Times, concluded
that top Wal-Mart de Mexico executives had failed to enforce their own
anticorruption policies, ignored internal audits that raised red flags and even
disregarded local press accounts asserting that Wal-Mart de Mexico was
“carrying out a tax fraud.” (The company ultimately paid $34.3 million in back
taxes.)
Wal-Mart then asked Kroll to evaluate Wal-Mart de Mexico’s
internal audit and antifraud units. Kroll wrote another report that branded the
units “ineffective.” Many employees accused of wrongdoing were not even
questioned; some “received a promotion shortly after the suspicions of
fraudulent activities had surfaced.”
None of these findings, though, had slowed Mr.
Castro-Wright’s rise.
Just days before Mr. Cicero’s first debriefing, Mr.
Castro-Wright was promoted again. He was put in charge of all Wal-Mart stores
in the United
States
The Initial Response
Ms. Munich sent detailed memos describing Mr. Cicero’s
debriefings to Wal-Mart’s senior management. These executives, records show,
included Thomas A. Mars, Wal-Mart’s general counsel and a former director of
the Arkansas State Police; Thomas D. Hyde, Wal-Mart’s executive vice president
and corporate secretary; Michael Fung, Wal-Mart’s top internal auditor; Craig
Herkert, the chief executive for Wal-Mart’s operations in Latin America; and
Lee Stucky, a confidant of Lee Scott’s and chief administrative officer of
Wal-Mart International.
Wal-Mart typically hired outside law firms to lead internal
investigations into allegations of significant wrongdoing. It did so earlier in
2005, for example, when Thomas M. Coughlin, then vice chairman of Wal-Mart, was
accused of padding his expense accounts and misappropriating Wal-Mart gift cards.
At first, Wal-Mart took the same approach with Mr. Cicero’s
allegations. It turned to Willkie Farr & Gallagher, a law firm with
extensive experience in Foreign Corrupt Practices Act cases.
The firm’s
“investigation work plan” called for tracing all payments to anyone who had helped
Wal-Mart de Mexico obtain permits for the previous five years. The firm said it
would scrutinize “any and all payments” to government officials and interview
every person who might know about payoffs, including “implicated members” of
Wal-Mart de Mexico’s board.
In short, Willkie Farr recommended the kind of independent,
spare-no-expense investigation major corporations routinely undertake when
confronted with allegations of serious wrongdoing by top executives.
Wal-Mart’s leaders rejected this approach. Instead, records show, they decided Wal-Mart’s lawyers would supervise a
far more limited “preliminary inquiry” by in-house investigators.
The inquiry, a confidential memo explained, would take two
weeks, not the four months Willkie Farr proposed. Rather than examining years
of permits, the team would look at a few specific stores. Interviews would be
done “only when absolutely essential to establishing the bona fides” of Mr.
Cicero. However, if the inquiry found a “likelihood” that laws had been
violated, the company would then consider conducting a “full investigation.”
The decision gave Wal-Mart’s senior management direct
control over the investigation. It also meant new responsibility for the
company’s tiny and troubled Corporate Investigations unit.
The unit was ill-equipped to take on a major corruption
investigation, let alone one in Mexico
But Mr. Lewis and his boss, Kenneth H. Senser, vice
president for global security, aviation and travel, were working to strengthen
the unit. Months before Mr. Cicero surfaced, they won approval to hire four
“special investigators” who, according to their job descriptions, would be
assigned the “most significant and complex fraud matters.” Mr. Scott, the chief
executive, also agreed that Corporate Investigations would handle all
allegations of misconduct by senior executives.
And yet in the fall of 2005, as Wal-Mart began to grapple
with Mr. Cicero’s allegations, two cases called into question Corporate
Investigations’ independence and role.
In October, Wal-Mart’s vice chairman, John B. Menzer,
intervened in an internal investigation into a senior vice president who
reported to him. According to internal records, Mr. Menzer told Mr. Senser he
did not want Corporate Investigations to handle the case “due to concerns about
the impact such an investigation would have.” One of the senior vice
president’s subordinates, he said, “would be better suited to conduct this
inquiry.” Soon after, records show, the subordinate cleared his boss.
The other case involved the president of Wal-Mart Puerto
Rico. A whistle-blower had accused the president and other executives of
mistreating employees. Although Corporate Investigations was supposed to
investigate all allegations against senior executives, the president had
instead assigned an underling to look into the complaints — but to steer clear
of those against him.
Ms. Munich objected. In an e-mail to Wal-Mart executives,
she complained that the investigation was “at the direction of the same company
officer who is the target of several of the allegations.”
“We are in need of clear guidelines about how to handle
these issues going forward,” she warned.
The Inquiry Begins
Ronald Halter, one of Wal-Mart’s new “special
investigators,” was assigned to lead the preliminary inquiry into Mr. Cicero’s
allegations. Mr. Halter had been with Wal-Mart only a few months, but he was a
seasoned criminal investigator. He had spent 21 years in the F.B.I., and he
spoke Spanish.
He also had help. Bob Ainley, a senior auditor, was sent to
Mexico
On Nov. 12, 2005 ,
Mr. Halter’s team got to work at Wal-Mart de Mexico’s corporate headquarters in
Mexico City
By day’s end, they had found 441 gestor payments. Each was
a potential bribe, and yet they had searched back only to 2003.
Mr. Cicero had said his main gestores were Pablo Alegria
Con Alonso and Jose Manuel Aguirre Juarez, obscure Mexico City
Sure enough, Mr. Halter’s team found that nearly half the
payments were to Mr. Alegria and Mr. Aguirre. These two lawyers alone, records
showed, had received $8.5 million in payments. Records showed Wal-Mart de
Mexico routinely paid its gestores tens of thousands of dollars per permit. (In
interviews, both lawyers declined to discuss the corruption allegations, citing
confidentiality agreements with Wal-Mart.)
“One very interesting postscript,” Mr. Halter wrote in an
e-mail to his boss, Mr. Lewis. “All payments to these individuals and all large
sums of $ paid out of this account stopped abruptly in 2005.” Mr. Halter said
the “only thing we can find” that changed was that Mr. Castro-Wright left
Wal-Mart de Mexico for the United States
Mr. Halter’s team confirmed detail after detail from Mr.
Cicero’s debriefings. Mr. Cicero had given specifics — names, dates, bribe
amounts — for several new stores. In almost every case, investigators found
documents confirming major elements of his account. And just as Mr. Cicero had
described, investigators found mysterious codes at the bottom of invoices from
the gestores.
“The documentation didn’t look anything like what you would
find in legitimate billing records from a legitimate law firm,” a person
involved in the investigation said in an interview.
Mr. Lewis sent a
terse progress report to his boss,
Mr. Senser: “FYI. It is not looking good.”
Hours later, Mr. Halter’s team found clear confirmation
that Mr. Castro-Wright and other top executives at Wal-Mart de Mexico were well
aware of the gestor payments.
In March 2004, the team discovered, the executives had been
sent an internal Wal-Mart de Mexico audit that raised red flags about the
gestor payments. The audit documented how Wal-Mart de Mexico’s two primary
gestores had been paid millions to make “facilitating payments” for new store
permits all over Mexico
The audit did not delve into how the money had been used to
“facilitate” permits. But it showed the payments rising rapidly, roughly in line
with Wal-Mart de Mexico’s accelerating growth. The audit recommended notifying
Bentonville of the payments.
The recommendation, records showed, was removed by Wal-Mart
de Mexico’s chief auditor, whom Mr. Cicero had identified as one of the
executives who knew about the bribes. The author of the gestor audit,
meanwhile, “was fired not long after the audit was completed,” Mr. Halter
wrote.
Mr. Ainley arranged to meet the fired auditor at his hotel.
The auditor described other examples of Wal-Mart de Mexico’s leaders
withholding from Bentonville information about suspect payments to government
officials.
The auditor singled out José Luis Rodríguezmacedo Rivera,
the general counsel of Wal-Mart de Mexico.
Mr. Rodríguezmacedo, he said, took “significant information
out” of an audit of Wal-Mart de Mexico’s compliance with the Foreign Corrupt
Practices Act. The original audit had described how Wal-Mart de Mexico gave
gift cards to government officials in towns where it was building stores.
“These were only given out until the construction was complete,” Mr. Ainley
wrote. “At which time the payments ceased.”
These details were scrubbed from the final version sent to
Bentonville.
Investigators were struck by Mr. Castro-Wright’s response
to the gestor audit. It had been shown to him immediately, Wal-Mart de Mexico’s
chief auditor had told them. Yet rather than expressing alarm, he had appeared
worried about becoming too dependent on too few gestores. In an e-mail, Mr.
Rodríguezmacedo told Mr. Cicero to write up a plan to “diversify” the gestores
used to “facilitate” permits.
“Eduardo Castro wants us to implement this plan as soon as
possible,” he wrote.
Mr. Cicero did as directed. The plan, which authorized
paying gestores up to $280,000 to “facilitate” a single permit, was approved
with a minor change. Mr. Rodríguezmacedo did not want the plan to mention
“gestores.” He wanted them called “external service providers.”
Mr. Halter’s team made one last discovery — a finding that
suggested the corruption might be far more extensive than even Mr. Cicero had
described.
In going through
Wal-Mart de Mexico’s database of payments, investigators noticed the company was making hefty
“contributions” and “donations” directly to governments all over Mexico —
nearly $16 million in all since 2003.
“Some of the payments descriptions indicate that the
donation is being made for the issuance of a license,” Mr. Ainley wrote in one
report back to Bentonville.
They also found a document in which a Wal-Mart de Mexico
real estate executive had openly acknowledged that “these payments were
performed to facilitate obtaining the licenses or permits” for new stores.
Sometimes, Mr. Cicero told The Times, donations were used hand-in-hand with
gestor payments to get permits.
Deflecting Blame
When Mr. Halter’s team was ready to interview executives at
Wal-Mart de Mexico, the first target was Mr. Rodríguezmacedo.
Before joining Wal-Mart de Mexico in January 2004, Mr.
Rodríguezmacedo had been a lawyer for Citigroup in Mexico
It was called “Overcoming Challenges in Government
Dealings.”
Yet Mr. Cicero had identified him as a participant in the
bribery scheme. In his debriefings, Mr. Cicero described how Mr.
Rodríguezmacedo had passed along specific payoff instructions from Mr.
Castro-Wright. In an interview with The Times, Mr. Cicero said he and Mr.
Rodríguezmacedo had discussed the use of gestores shortly after Mr.
Rodríguezmacedo was hired. “He said, ‘Don’t worry. Keep it on its way.’ ”
Mr. Rodríguezmacedo declined to comment; on Friday Wal-Mart
disclosed that he had been reassigned and is no longer Wal-Mart de Mexico’s general
counsel.
Mr. Halter’s team hoped Mr. Rodríguezmacedo would shed
light on how two outside lawyers came to be paid $8.5 million to “facilitate”
permits. Mr. Rodríguezmacedo responded with evasive hostility, records and
interviews show. When investigators asked him for the gestores’ billing
records, he said he did not have time to track them down. They got similar
receptions from other executives.
Only after investigators complained to higher authorities
were the executives more forthcoming. Led by Mr. Rodríguezmacedo, they
responded with an attack on Mr. Cicero’s credibility.
The gestor audit, they told investigators, had raised
doubts about Mr. Cicero, since he had approved most of the payments. They began
to suspect he was somehow benefiting, so they asked Kroll to investigate. It
was then, they asserted, that Kroll discovered Mr. Cicero’s wife was a law
partner of one of the gestores.
Mr. Cicero was fired, they said, because he had failed to
disclose that fact. They produced a copy of a “preliminary” report from Kroll
and e-mails showing the undisclosed conflict had been reported to Bentonville.
Based on this behavior, Mr. Rodríguezmacedo argued, the
gestor payments were in all likelihood a “ruse” by Mr. Cicero to defraud
Wal-Mart de Mexico. Mr. Cicero and the gestores, he contended, probably kept
every last peso of the “facilitating payments.”
Simply put, bribes could not have been paid if the money
was stolen first.
It was an argument that gave Wal-Mart ample justification
to end the inquiry. But investigators were skeptical, records and interviews
show.
Even if Mr. Rodríguezmacedo’s account were true, it did not
explain why Wal-Mart de Mexico’s executives had authorized gestor payments in
the first place, or why they made “donations” to get permits, or why they
rewrote audits to keep Bentonville in the dark.
Investigators also wondered why a trained lawyer who had
gotten away with stealing a small fortune from Wal-Mart would now deliberately
draw the company’s full attention by implicating himself in a series of
fictional bribes. And if Wal-Mart de Mexico’s executives truly believed they
had been victimized, why hadn’t they taken legal action against Mr. Cicero,
much less reported the “theft” to Bentonville?
There was another problem: Documents contradicted most of
the executives’ assertions about Mr. Cicero.
Records showed Mr. Cicero had not been fired, but had
resigned with severance benefits and a $25,000 bonus. In fact, in a 2004 e-mail
to Ms. Munich, Mr. Rodríguezmacedo himself described how he had “negotiated”
Mr. Cicero’s “departure.” The same e-mail said Mr. Cicero had not even been
confronted about the supposed undisclosed conflict involving his wife. (Mr.
Cicero flatly denied that his wife had ever worked with either gestor.) The
e-mail also assured Ms. Munich there was no hint of financial wrongdoing. “We
see it merely as an undisclosed conflict of interest,” Mr. Rodríguezmacedo
wrote.
There were other discrepancies.
Mr. Rodríguezmacedo said the company had stopped using
gestores after Mr. Cicero’s departure. Yet even as Mr. Cicero was being
debriefed in October 2005, Wal-Mart de Mexico real estate executives made a
request to pay a gestor $14,000 to get a construction permit, records showed.
The persistent questions and document requests from Mr. Halter’s
team provoked a backlash from Wal-Mart de Mexico’s executives. After a week of
work, records and interviews show, Mr. Halter and other members of the team
were summoned by Eduardo F. Solórzano Morales, then chief executive of Wal-Mart
de Mexico.
Mr. Solórzano angrily chastised the investigators for being
too secretive and accusatory. He took offense that his executives were being
told at the start of interviews that they had the right not to answer questions
— as if they were being read their rights.
“It was like, ‘You shut up. I’m going to talk,’ ” a
person said of Mr. Solórzano. “It was, ‘This is my home, my backyard. You are
out of here.’ ”
Mr. Lewis viewed the complaints as an effort to sidetrack
his investigators. “I find this ludicrous and a copout for the larger concerns
about what has been going on,” he wrote.
Nevertheless, Mr. Herkert, the chief executive for Latin America ,
was notified about the complaints. Three days later, he and his boss, Mr. Duke,
flew to Mexico City
They arrived just as the investigators wrapped up their
work and left.
A Push to Dig Deeper
Wal-Mart’s leaders had agreed to consider a full
investigation if the preliminary inquiry found Mr. Cicero’s allegations
credible.
Back in Bentonville, Mr. Halter and Mr. Ainley wrote confidential reports to Wal-Mart’s top executives in December 2005 laying out all the
evidence that corroborated Mr. Cicero — the hundreds of gestor payments, the
mystery codes, the rewritten audits, the evasive responses from Wal-Mart de
Mexico executives, the donations for permits, the evidence gestores were still
being used.
“There is reasonable suspicion,” Mr. Halter concluded, “to
believe that Mexican and USA
Mr. Halter submitted an “action plan” for a deeper
investigation that would plumb the depths of corruption and culpability at
Wal-Mart de Mexico.
Among other things, he urged “that all efforts be
concentrated on the reconstruction of Cicero
Mr. Cicero, meanwhile, was still offering help. In
November, when Mr. Halter’s team was in Mexico
Mr. Halter proposed a thorough investigation of the two
main gestores. He had not tried to interview them in Mexico
He also envisioned a round of adversarial interviews with
Wal-Mart de Mexico’s senior executives. He and his investigators argued that it
was time to take the politically sensitive step of questioning Mr.
Castro-Wright about his role in the gestor payments.
By January 2006, the case had reached a critical juncture.
Wal-Mart’s leaders were again weighing whether to approve a full investigation
that would inevitably focus on a star executive already being publicly
discussed as a potential successor to Mr. Scott.
Wal-Mart’s ethics policy offered clear direction. “Never
cover up or ignore an ethics problem,” the policy states. And some who were
involved in the investigation argued that it was time to take a stand against
signs of rising corruption in Wal-Mart’s global operations. Each year the
company received hundreds of internal reports of bribery and fraud, records
showed. In Asia alone, there had been 90 reports of bribery just in the
previous 18 months.
The situation was bad enough that Wal-Mart’s top
procurement executives were summoned to Bentonville that winter for a dressing
down. Mr. Menzer, Wal-Mart’s vice chairman, warned them that corruption was
creating an unacceptable risk, particularly given the government’s stepped-up
enforcement of the Foreign Corrupt Practices Act. “Times have changed,” he
said.
As if to underscore the problem, Wal-Mart’s leaders were
confronted with new corruption allegations at Wal-Mart de Mexico even as they
pondered Mr. Halter’s action plan. In January, Mr. Scott, Mr. Duke and
Wal-Mart’s chairman, S. Robson Walton, received an anonymous e-mail saying
Wal-Mart de Mexico’s top real estate executives were receiving kickbacks from
construction companies. “Please you must do something,” the e-mail implored.
Yet at the same time, records and interviews show, there
were misgivings about the budding reach and power of Corporate Investigations.
In less than a year, Mr. Lewis’s beefed-up team had doubled
its caseload, to roughly 400 cases a year. Some executives grumbled that Mr.
Lewis acted as if he still worked for the F.B.I., where he had once supervised
major investigations. They accused him and his investigators of being
overbearing, disruptive and naïve about the moral ambiguities of doing business
abroad. They argued that Corporate Investigations should focus more on quietly
“neutralizing” problems than on turning corrupt employees over to law
enforcement.
Wal-Mart’s leaders had just witnessed the downside of that
approach: in early 2005, the company went to the F.B.I. with evidence that the
disgraced former vice chairman, Mr. Coughlin, had embezzled hundreds of
thousands of dollars. The decision produced months of embarrassing publicity,
especially when Mr. Coughlin claimed he had used the money to pay off union
spies for Wal-Mart.
Meanwhile, Wal-Mart de Mexico executives were continuing to
complain to Bentonville about the investigation. The protests “just never let
up,” a person involved in the case said.
Another person familiar with the thinking of those
overseeing the investigation said Wal-Mart would have reacted “like a chicken
on a June bug” had the allegations concerned the United States Mexico
“It’s a Mexican issue; it’s better to let it be a Mexican
response,” the person said, describing the thinking of Wal-Mart executives.
In the midst of this debate, Ms. Munich submitted her
resignation, effective Feb. 1, 2006 .
In one of her final acts, she drafted a memo that argued for expanding the Mexico United States
“The bribery of government officials,” she noted dryly, “is
a criminal offense in Mexico
She also warned against allowing implicated executives to
interfere with the investigation. Wal-Mart de Mexico’s executives had already
tried to insert themselves in the case. Just before Christmas, records show,
Mr. Solórzano, the Wal-Mart de Mexico chief executive, held a video conference
with Mr. Mars, Mr. Senser and Mr. Stucky to discuss his team’s “hypothesis”
that Mr. Cicero had stolen gestor payments.
“Given the serious nature of the allegations, and the need
to preserve the integrity of the investigation,” Ms. Munich wrote, “it would
seem more prudent to develop a follow-up plan of action, independent of Walmex
management participation.”
The Chief Weighs In
Mr. Scott called a meeting for Feb. 3, 2006 , to discuss revamping Wal-Mart’s internal investigations
and to resolve the question of what to do about Mr. Cicero’s allegations.
In the days before the meeting, records show, Mr. Senser
ordered his staff to compile data showing the effectiveness of Corporate
Investigations. He assembled statistics showing that the unit had referred
relatively few cases to law enforcement agencies. He circulated copies of an e-mail
in which Mr. Rodríguezmacedo said he had been treated “very respectfully and
cordially” by Mr. Senser’s investigators.
Along with Mr. Scott, the meeting included Mr. Hyde, Mr.
Mars and Mr. Stucky, records show. The meeting brought the grievances against
Corporate Investigations into the open. Mr. Senser described the complaints in
Mr. Lewis’s performance evaluation, completed shortly after the meeting.
Wal-Mart’s leaders viewed Mr. Lewis’s investigators as “overly aggressive,” he
wrote. They did not care for Mr. Lewis’s “law enforcement approach,” and the
fact that Mr. Scott convened a meeting to express these concerns only
underscored “the importance placed on these topics by senior executives.”
By meeting’s end, Mr. Senser had been ordered to work with
Mr. Mars and others to develop a “modified protocol” for internal
investigations.
Mr. Scott said he wanted it done fast, and within 24 hours
Mr. Senser produced a new protocol, a highly bureaucratic process that gave
senior Wal-Mart executives — including executives at the business units being
investigated — more control over internal investigations. The policy included
multiple “case reviews.” It also required senior executives to conduct a
“cost-benefit analysis” before signing off on a full-blown investigation.
Under the new protocol, Mr. Lewis and his team would only
investigate “significant” allegations, like those involving potential crimes or
top executives. Lesser allegations would be left to the affected business unit
to investigate.
“This captures it, I think,” Mr. Hyde wrote when Mr. Senser
sent him the new protocol.
Four days after Mr. Scott’s meeting, with the new protocol
drafted, Wal-Mart’s leaders began to transfer control of the bribery
investigation to one of its earliest targets, Mr. Rodríguezmacedo.
Mr. Mars first sent Mr. Halter’s report to Mr.
Rodríguezmacedo. Then he arranged to ship Mr. Halter’s investigative files to
him as well. In an e-mail, he sought Mr. Senser’s advice on how to send the files in “a secure
manner.”
Mr. Senser recommended FedEx. “There is very good control
on those shipments, and while governments do compromise them if they are
looking for something in particular, there is no reason for them to think that
this shipment is out of the ordinary,” he wrote.
“The key,” he added, “is being careful about how you
communicate the details of the shipment to José Luis.” He advised Mr. Mars to
use encrypted e-mail.
Wal-Mart’s spokesman, Mr. Tovar, said the company could not
discuss Mr. Scott’s meeting or the decision to transfer the case to Mr.
Rodríguezmacedo. “At this point,” he said, “we don’t have a full explanation of
what happened. Unfortunately, we realize that until the investigation is
concluded, there will be some unanswered questions.”
Wal-Mart’s leaders, however, had clear guidance about the
propriety of letting a target of an investigation run it.
On the same day Mr. Senser was putting the finishing
touches on the new investigations protocol, Wal-Mart’s ethics office sent him a
booklet of “best practices” for internal investigations. It had been put
together by lawyers and executives who supervised investigations at Fortune 500
companies.
“Investigations should be conducted by individuals who do
not have any vested interest in the potential outcomes of the investigation,”
it said.
The transfer appeared to violate even the “modified
protocol” for investigations. Under the new protocol, Corporate Investigations
was still supposed to handle “significant” allegations — including those
involving potential crimes and senior executives. When Mr. Senser asked his
deputies to list all investigations that met this threshold, they came up with
31 cases.
At the top of the list: Mexico
After the meeting with Mr. Scott, Mr. Senser had told Mr.
Lewis in his performance evaluation that his “highest priority” should be to
eliminate “the perceptions that investigators are being too aggressive.” He
wanted Mr. Lewis to “earn the trust of” his “clients” — Wal-Mart’s leaders. He
wanted him to head off “adversarial interactions.”
Mr. Senser now applied the same advice to himself.
Even as Mr. Halter’s files were being shipped to Mr.
Rodríguezmacedo, Mr. Stucky made plans to fly to Mexico
“It is better if we do not make this trip to Mexico City
Ten days after Mr. Stucky flew to Mexico
Wall Street analysts, it said, viewed him as a “very strong
candidate” to succeed Mr. Scott.
Case Closed
For those who had investigated Mr. Cicero’s allegations,
the preliminary inquiry had been just that — preliminary. In memos and
meetings, they had argued that their findings clearly justified a full-blown
investigation. Mr. Castro-Wright’s precise role had yet to be determined. Mr.
Halter had never been permitted to question him, nor had Mr. Castro-Wright’s
computer files been examined, records and interviews show.
At the very least, a complete investigation would take
months.
Mr. Rodríguezmacedo, the man now in charge, saw it
differently. He wrapped up the case in a few weeks, with little additional
investigation.
“There is no evidence or clear indication,” his report concluded, “of bribes paid to Mexican government
authorities with the purpose of wrongfully securing any licenses or permits.”
That conclusion, his report explained, was largely based on
the denials of his fellow executives. Not one “mentioned having ordered or
given bribes to government authorities,” he wrote.
His report, six pages long, neglected to note that he had
been implicated in the same criminal conduct.
That was not the only omission. While his report conceded
that Wal-Mart de Mexico executives had authorized years of payments to
gestores, it never explained what these executives expected the gestores to do
with the millions of dollars they received to “facilitate” permits.
He was also silent on the evidence that Wal-Mart de Mexico
had doled out donations to get permits. Nor did he address evidence that he and
other executives had suppressed or rewritten audits that would have alerted
Bentonville to improper payments.
Instead, the bulk of Mr. Rodríguezmacedo’s report attacked
the integrity of his accuser.
Mr. Cicero, he wrote, made Wal-Mart de Mexico’s executives
think they would “run the risk of having permits denied if the gestores were
not used.” But this was merely a ruse: In all likelihood, he argued, Wal-Mart
de Mexico paid millions for “services never rendered.” The gestores simply
pocketed the money, he suggested, and Mr. Cicero “may have benefited,” too.
But he offered no direct proof. Indeed, as his report made
clear, it was less an allegation than a hypothesis built on two highly
circumstantial pillars.
First, he said he had consulted with Jesús Zamora-Pierce, a
“prestigious independent counsel” who had written books on fraud. Mr. Zamora,
he wrote, “feels the conduct displayed by Sergio Cicero is typical of someone
engaging in fraud. It is not uncommon in Mexico
Second, he said he had done a statistical analysis that
found Wal-Mart de Mexico won permits even faster after Mr. Cicero left. The
validity of his analysis was impossible to assess; he did not include his
statistics in the report.
In building a case against Mr. Cicero, Mr.
Rodríguezmacedo’s report included several false statements. He described Mr.
Cicero’s “dismissal” when records showed he had resigned. He also wrote that
Kroll’s investigation of Mr. Cicero concluded that he “had a considerable
increase in his standard of living during the time in which payments were made
to the gestores.” Kroll’s report made no such assertion, people involved in the
investigation said.
His report promised a series of corrective steps aimed at
putting the entire matter to rest. Wal-Mart de Mexico would no longer use
gestores. There would be a renewed commitment to Wal-Mart’s anticorruption
policy. He did not recommend any disciplinary action against his colleagues.
There was, however, one person he hoped to punish. Wal-Mart
de Mexico, he wrote, would scour Mr. Cicero’s records and determine “if any
legal action may be taken against him.”
Mr. Rodríguezmacedo submitted a draft of his report to
Bentonville. In an e-mail, Mr. Lewis told his superiors that he found the
report “lacking.” It was not clear what evidence supported the report’s
conclusions, he wrote. “More importantly,” he wrote, “if one agrees that Sergio
defrauded the company and I am one of them, the question becomes, how was he
able to get away with almost $10 million and why was nothing done after it was
discovered?”
Mr. Rodríguezmacedo responded by adding a paragraph to the
end of his report: They had decided not to pursue “criminal actions” against
Mr. Cicero because “we did not have strong case.”
“At the risk of being cynical,” Mr. Lewis wrote in response, “that report is exactly the same as
the previous which I indicated was truly lacking.”
But it was enough for Wal-Mart. Mr. Rodríguezmacedo was
told by executives in Bentonville on May 10, 2006 , to put his report “into final form, thus concluding this
investigation.”
No one told Mr. Cicero. All he knew was that after months
of e-mails, phone calls and meetings, Wal-Mart’s interest seemed to suddenly
fade. His phone calls and e-mails went unanswered.
“I thought nobody cares about this,” he said. “So I left it
behind.”
