U.S. Probes Possible Wal-Mart Misconduct in Brazil
November 24 2015 - 8:30PM
Dow Jones News
A U.S. investigation into potential foreign bribery by Wal-Mart
Stores Inc. has unearthed evidence of possible misconduct by the
retailer in Brazil, after investigators found little to support the
sweeping allegations involving Mexico that initially prompted the
probe, according to documents and people familiar with the
matter.
Federal prosecutors are examining $500,000 in payments that they
believe ultimately went to an individual hired to obtain government
permits the company needed to build two stores in Brasí lia,
Brazil's capital, between 2009 and 2012, an investigative document
shows.
Lawyers from the Justice Department and the Securities and
Exchange Commission, along with agents from the Federal Bureau of
Investigation and the Internal Revenue Service, traveled to Brazil
earlier this month to interview witnesses with the help of
Brazilian prosecutors, the people said.
Prosecutors are examining whether senior employees at Wal-Mart
in Brazil at the time knew of and approved of the suspected
payments, the people said. The investigation into the Brazil
allegations is at an early stage and it isn't clear if anyone will
be charged.
"As we've said from the beginning, we are cooperating fully with
the government in this matter and can't comment further on that
process," said Wal-Mart spokesman Greg Hitt. "For Wal-Mart,
compliance with the U.S. Foreign Corrupt Practices Act and other
anticorruption laws is a key priority."
A Justice Department spokesman declined to comment.
The payments add a new line of inquiry to a long-running
investigation looking into Wal-Mart operations in Mexico. The Wall
Street Journal reported last month that the investigation had found
little in the way of major offenses in Mexico, but had found
evidence of widespread but small-payment bribery in India.
If prosecutors are also able to prove bribery by Wal-Mart in
Brazil, it could turn the case against the company into a
multinational action and prompt a larger penalty. Still, the
offenses would fall short of the broader pattern of bribery in
Mexico that was initially suspected.
Prosecutors are also trying to determine if they have enough
evidence to prove senior employees at Wal-Mart Brazil committed any
crimes, the people said.
The government has evidence of employees at Wal-Mart discussing
the hiring of the individual—a woman believed to have previously
held a government position—to obtain the permits, according to a
written request for assistance that Justice Department officials
sent their Brazilian counterparts. Prosecutors also have evidence
that Wal-Mart made the payments indirectly through other
contractors, the document says.
The request, dated Jan. 6 of this year, also suggests Wal-Mart
was concerned about delays in getting the store permits. The woman
they hired had a reputation of being able to speedily obtain the
permits "as if by magic," the document says, and she charged
roughly 10 times what other intermediaries received.
Still, it isn't clear prosecutors have proof the money was used
specifically as a bribe.
Wal-Mart first said in securities filings in 2011 that it is
investigating allegations of potential foreign bribery violations,
adding in 2012 that the investigation had spread to foreign markets
including Brazil. Since then, the retailer has spent more than $700
million on an internal probe of the allegations and related
compliance improvements.
Wal-Mart entered Brazil in 1995, initially failing to gain
ground with U.S.-style superstores. The retailer's market share
increased after acquiring two established local chains in the
mid-2000s, but it has struggled to become the country's dominant
retailer.
After the acquisitions, Wal-Mart expanded quickly in Brazil,
nearly doubling its stores there from 299 to 558 between 2006 and
2012, according to financial filings. In 2013, store growth
stalled. Many Brazilian shoppers have remained unmoved by
Wal-Mart's "Every Day Low Price" message and the company has
strained to leverage its size to squeeze profit out of its supply
chain. Brazil accounts for about 3% of the company's total revenue,
according to an estimate from Morgan Stanley.
Overall, Wal-Mart's international sales have been flat or fallen
in recent years, hit by the strong dollar and weak sales in the
U.K., China and Brazil. Business in Mexico and Canada has
strengthened recently. Sales in U.S. stores that have been open for
at least 12 months inched up 1.5% in the most recent quarter, the
fifth straight quarterly gain after a long stretch of declines.
Justice Department officials have said recently that improved
cooperation with foreign prosecutors is enhancing their access to
witnesses and information overseas, particularly in bribery cases.
The Wal-Mart Brazil investigation appears to highlight that
shift.
Brazil has recently undertaken its own anticorruption push.
State-run oil giant Petró leo Brasileiro is confronting fallout
from a far-reaching corruption scandal, and the company wrote off
some $17 billion in losses from graft and overvalued assets earlier
this year.
Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Sarah
Nassauer at sarah.nassauer@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 24, 2015 20:15 ET (01:15 GMT)
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