Wal-Mart bribery scandal hurts consumers

Wednesday, May 2nd, 2012 By

Walmart 2011 shareholders meeting

Walmart International's 2011 shareholders meeting, before the bribery story broke. Image: Walmart stores/Flickr/CC BY

According to a recent New York Times article, Wal-Mart de Mexico — the Mexican branch of the box store giant — was caught offering more than $24 million in bribes to skirt zoning regulations and to unfairly give it an edge over the competition. Once they learned of it, the top executives at Wal-Mart Corporate hushed it up and even promoted some of the players. Such unethical behavior not only hurts fair competition, it costs consumers in the long run.

Viva Zapata

The bribery scandal occurred and was suppressed in 2005. However, thanks to whistle blower Sergio Cicero Zapata, it was finally brought to light, culminating in a New York Times article in late April. The day after the news broke, Wal-Mart’s stock nose-dived 4.7 percent on the New York Stock Exchange. Wal-Mart de Mexico’s shares plummeted 13 percent on the Mexican exchange. Both the Department of Justice and the Security and Exchange Commission have said they are looking into the matter.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act forbids bribery. Businesses that do so may be depriving consumers of the lower prices and better merchandise fostered by a competitive marketplace. By using bribes to remove the burden of scrutiny, these companies can raise prices at a whim or sell shoddy merchandise to cut costs.

By dodging government and industry regulations, corrupt businesses also weaken the effectiveness of programs designed to foster public health and strengthen market fairness. This can also have an impact on the consumer down the road when other measures need to be taken to clean up the messes that the regulations were in place to avoid in the first place.

For example, when Zapata blew the whistle on then-CEO Eduardo Castro-Wright, he said that Wal-Mart de Mexico used bribes partially to avoid environmental regulations. If those regulations, which are put in place to protect the public health, are circumvented, it downgrades the lifestyle of everyone in the community. Health and insurance rates can also increase, as well as taxpayers being forced to absorb the cost of any environmental cleanup that may result.

A lesson for other businesses

Some analysts hope Wal-Mart’s indiscretion will prompt other businesses that are on an ethical tightrope to reconsider before stepping down the path toward corrupt practices.

Paul Pellitier, a former Justice Department prosecutor, told the New York Times:

“The impact could be huge. Wal-Mart’s having lost billions in market capitalization over these last few days is going to make companies in close cases more likely to err on the side of promptly self-reporting.”

On trial in the public court

The actions of Wal-Mart executives in covering up the scandal, rather than conducting an independent investigation, show a lack of regard for its customers and for fair practices in the marketplace. Many may think twice before shopping at their neighborhood Wal-Mart store.

That is the real blow that Wal-Mart will have to face, apart from any legal ramifications that may result from federal investigations — the one to its reputation.

Sources

Daily Finance
New York Times
Huffington Post

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