Wal-Mart’s Mexican Bribe Scandal: Laughable

by Jim Woods | April 25, 2012 8:59 am

Wal-Mart’s Mexican Bribe Scandal: Laughable

After reading the wordy piece in The New York Times[1] about how Wal-Mart (NYSE:WMT[2]) allegedly orchestrated a campaign of bribery to win market dominance in Mexico, I couldn’t help but be reminded of the classic 1980s’ comedy, Back to School. The film, which stars the late, great Rodney Dangerfield, tells the hilarious story of a successful middle-age businessman who returns to college as a freshman to help his struggling son get along better.

My favorite scene is when Dangerfield’s character attends his first business class. The professor begins outlining the costs involved in building a factory, and he cites building and material cost, architect fees, etc. But Rodney knows the professor has, “left out a bunch of stuff.” Here’s the money quote from the film that I think is applicable to the Wal-Mart scandal:

“First of all you’re going to have to grease the local politicians for the sudden zoning problems that always come up. Then there’s the kickbacks to the carpenters, and if you plan on using any cement in this building, I’m sure the Teamsters would like to have a little chat with ya, and that’ll cost ya. Oh and don’t forget a little something for the building inspectors. Then there’s long term costs such as waste disposal. I don’t know if you’re familiar with who runs that business but I assure you it’s not the boy scouts.”

It seems like even comedians know that when it comes to doing business in the real world, bribes are often par for the course.

Now, I am not saying Wal-Mart is guilty of paying bribes. What I am saying is, would it really surprise anyone to find out that Mexican officials are willing to expedite permits and allow speedier construction of new stores in exchange for payola?

Anyone who doesn’t realize this has their head in the global business sand.

Of course, it’s not just Mexico where paying bribes is one way to make sure things get done. Throughout the world, and particularly in emerging-market countries, paying money to government officials on various levels is considered simply part of the cost of doing business.

I’ve heard from many close business associates who do business in places such as China, Russia, Vietnam and Haiti. They’ve all told me that in addition to the normal cost of doing business like hiring employees, operating factories, etc., that part of the cost of doing business is making sure the local politicians are kept “happy” with perks. Quite often, those perks come in the form of cold hard cash.

Now, this may not be the way things ought to be, but it is the way things are in many parts of the world.

According to data and investigative services firm James Mintz Group, since the passing in 1977 of the Foreign Corrupt Practices Act (FCPA), which is the U.S. law that makes paying bribes to officials in foreign countries a crime, there have been more than 200 bribery cases in about 80 countries[3]. Mintz has calculated that over the past 35 years, more than $4 billion in fines have been levied under the FCPA.

Last year, Tyson Foods (NYSE:TSN[4]) agreed to pay a $4 million criminal penalty to resolve an investigation into improper payments by company representatives to government-employed inspection veterinarians in Mexico. In 2010, industrial giant ABB (NYSE:ABB[5]) doled out nearly $19 million in FCPA-related fines for paying bribes to officials at Comisión Federal de Electricidad, a Mexican state-owned utility company.

If Wal-Mart is found culpable of similar FCPA violations, it certainly wouldn’t be an isolated case of bribes paid to officials in the Mexican government.

Perhaps the best way to look at this whole Wal-Mart episode is to realize that the world is not an idyllic place where merit rules and where everything is fair and balanced. Rather, the world is a place where money talks, and where a well-placed bribe is essential to getting things done.

Wal-Mart shares have been punished to the tune of about 7.5% since the story about the Mexican bribes hit newsstands last Sunday, and there could be very well be more selling to come as the scandal unfolds. But ask yourself this wider question: Is the threat of lost market cap and the paying out of millions in FCPA fines enough to deter companies from doing what’s necessary in order to get things done in other countries?

If your answer is “yes,” then I’m laughing at you right now.

At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.

Endnotes:
  1. The New York Times: http://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html
  2. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  3. there have been more than 200 bribery cases in about 80 countries: http://fcpamap.com/
  4. TSN: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSN
  5. ABB: http://studio-5.financialcontent.com/investplace/quote?Symbol=ABB

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