Wal-Mart Spends $439M Investigating Foreign Bribery Charges
In April 2012, The New York Times reported that Wal-Mart Stores (NYSE:WMT) paid $24 million in alleged bribes in Mexico, and in addition, made $16 million in “donations” to Mexican local governments as late as 2005 to speed store expansions. Those are significant figures, but now, two years later, it is becoming clear that the retailer is paying a much higher price for its earlier payouts. According to Bloomberg, Wal-Mart disclosed in its annual report filed on March 21 that it spent $439 million in the past two years to investigate its foreign bribery charges, reflecting one of the most expensive probes in U.S. history.
That $439 million breaks down into $282 million spent in the fiscal year that ended January 31 and $157 million the previous year. What’s worse, expenses are still expected to rise. Bloomberg reported that last month Wal-Mart predicted its FCPA probe and compliance costs will eventually total somewhere between $200 million to $240 million for fiscal 2015.
Thus, it is clear that although publicity surrounding Wal-Mart’s escapades in Mexico has seemed to die down, the company’s problems regarding the allegations are far from over. In its report Wednesday, Bloomberg broke down Wal-Mart’s Mexico timeline: In November 2011, Wal-Mart disclosed possible violations in Mexico to the U.S. Justice Department and Securities and Exchange Commission. Six months later, The Times reported broke the story that the retailer paid $24 million in alleged bribes in Mexico. The news went viral, and once other countries’ governments got word of the news, many decided to open their own investigations. That’s how the probe expanded to other countries, including China, India and Brazil, in 2012.
Now, Wal-Mart is still in the thick of investigations in the U.S. as investigators are determining whether the Bentonville, Arkansas-based company violated the Foreign Corrupt Practices Act, which, according to Bloomberg, bans payments by companies or their agents to foreign governments to obtain or retain business. Mexican authorities also are getting in on the fun, conducting their own investigations, while meanwhile, over in Arkansas, Wal-Mart executives are reported to be evaluating the retailer’s global anti-corruption compliance programs.
Wal-Mart spokespeople have stayed relatively quiet about the ongoing investigations and the overall damages the retailer is expected to incur, but Bloomberg reported that David Tovar, a spokesman, maintained in an email Wednesday, ”We are working aggressively to enhance our global compliance program and are committed to having a strong and effective program in every market in which we operate.”
Earlier this month, on March 21, Wal-Mart’s annual filing included the statement from the company’s executives: ”While we believe that it is probable that we will incur a loss from these matters, given the ongoing nature and complexity of the review, inquiries and investigations, we cannot reasonably estimate any loss or range of loss that may arise from these matters.”
It’s certainly not a good time for Wal-Mart to suffer unexpected expenses, as its business in the U.S. is facing flattened demand, and it’s not performing favorably in all of its global locations, either. However, the bribery investigation is something Wal-Mart can’t avoid, especially now that it’s hurting the company’s reputation across the globe. According to Bloomberg, Wal-Mart’s most recent earnings missed analysts’ expectations, and the company said its fourth-quarter net income fell 21 percent to $4.43 billion, or $1.36 a share, from $5.61 billion, or $1.67, a year earlier. The expenses incurred from the investigation are not helping.