Cashier at Wal Mart - Plateros store located in Mexico City. (Photo credit: Wikipedia)
As shock waves stemming from Wal-Mart's corruption case began to ripple across Mexico, the government on Thursday approved the nation's first anti-corruption law. The move appeared orchestrated to coincide with the Mexico comptroller's office announcement 24 hours earlier that it will investigate the widening bribery case, caving into international and local anti-corruption officials and politician's pressure that it must get to the bottom of it.
The ordeal has sent Walmart de Mexico's shares plummeting in recent days. On Thursday, the share closed at 28.7 pesos, down from a 52-week high of 35 pesos.
"The government is very worried and they are going to investigate this," said Pedro Hernandez, a partner at PWC Mexico's M&A practice. Hernandez said it's pivotal for Mexico to probe the case and punish its regional government officials and Walmart, if they are found guilty. Failing to do so will scare foreign investors away from the country, which is already suffering from heavy drug-related crime, he noted.
Mexico is expected to benefit from investors´ growing interest in the high-performing emerging markets as the world continues to rile under a stinging recession. According to Hernandez, the government expects to attract $19.8 billion in foreign direct investment this year, a huge jump from 2011's $14.6 billion.
"But if something goes wrong with Walmart, if they don't pursue this case, all of this could fall down," Hernandez warned.
Big Fines For “Mordidas”
The new anti-corruption law will levy fines ranging from 10 thousand pesos to 2 million pesos in minimum salaries to foreigners or Mexican citizens that engage in corruption or bribes linked to public work contracts. Under the new law, public servants will also be forced to report any illegal actions or omissions they are aware of and could be sanctioned under the legislation. If not, they themselves will be punished, the Senate said in a statement.
The comptroller´s office said it had begun checking the federal paperwork and permits of Walmart de Mexico, also known as Walmex, which was granted permission to open stores at a break-neck pace in Mexico, where it now runs over 2,000 outlets.
The anti-corruption law came as President Calderon yesterday said he was “indignant” about Walmart´s alleged crimes. “The company has certainly generated many jobs in Mexico and done good things, but what's not right is doing business on the basis of bribes," he was quoted as saying.
Walmart is already under investigation by the SEC and the US Department of Justice over its potential breach of the Foreign Corrupt Practices Act (FCPA), which bans US businesses from bribing foreign officials. The case centers on the alleged bribery of regional government officials by Walmart de Mexico executives to obtain permits to open stores at a much faster pace than competitors. According to a New York Times article, Walmart US executives covered up the$24 million in alleged bribes in Mexico, which helped Walmex pursue a meteoric expansion.
Walmex officials did not return phone calls but the Mexican press quoted spokespeople as saying the company had not received notice of a Mexican probe. In the US, Wal-Mart has said it is conducting its own investigation of the case.
“Anxious for investment”
Luis Vite, managing partner of PWC Mexico´s financial consulting, said Mexico is “anxious” to attract foreign investment and to do so it must show it's building a major front to tackle corruption in the country where bribes or “mordidas” are part of every day life, permeating the entire social hierarchy.
“Corruption is the biggest issue investors take into account before deciding to invest in a country so any effort countries are making to combat it is is crucial,” Vite said. He added the new anti-corruption law shows Mexico has become more serious about fighting corruption. Regarding the Wal-Mart ordeal, he said investors expect the government to investigate and impose any sanctions and remedies required against the public officials or Wal-Mart executives involved in the case, if such a case and wrongdoing is indeed established. “This will look good for Mexico,” he said. “The Wal-Mart case is ground breaking and what the government is doing is good so far.”
