What We Can Learn from Walmart's Extensive Bribery in Mexico

Today, <a href="http://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-brib…; target="”_blank”">the
New York <i>Times</i> ran a length investigatory report</a> on Walmart's
extensive bribery of local Mexican officials intended to rush
through permits and zoning approvals, reduce environmental impact
fees, and gain the allegiance of these officials.<br>
<br>
<b>The Independence of Investigators</b><br>
The report raises a few important local government ethics issues.
One is the independence of investigators. A preliminary
investigation was done by Walmart's home investigation unit, but
when it recommended an extensive investigation, Walmart executives
turned the investigation over to Walmart de Mexico executives implicated in the bribery
scheme. This was despite advice from Walmart International's general
counsel that, “The wisdom of assigning any investigative role to
management of the business unit being investigated escapes me.”<br>
<br>

When it comes down to it, there is very little difference between
self-investigation and cover-up. If allegations are true, those
charged with investigating the allegations don't have to investigate
them at all. They know what happened. If the allegations are false,
an investigation stating they are false won't be believed by
anybody.<br>
<br>
This goes for governments just as much as businesses. At least
corporate ethics recognizes this, while local governments, on the
whole, do not. According to the article, a best practices booklet
put together by investigation personnel at top corporations says,
“Investigations should be conducted by individuals who do not have
any vested interest in the potential outcomes of the
investigation.” I would add that the investigations should also not be
conducted by individuals whose appointing authority has a vested
interest in the potential outcome of any investigation. In other
words, high-level officials or executives should not be selecting
ethics commission members or special investigators, nor should they
have any contact with them except in a formal interview.<br>
<br>
<b>Jurisdiction over Applicants</b><br>
The second important local government ethics issue here is
jurisdiction of ethics programs over applicants such as Walmart. I
realize that the allegations here involve bribes, but bribes are
nothing more than gifts that can be proven to have a quid pro quo.
One problem with most ethics programs is that those who make gifts
to government officials are not responsible for them, unless they
can be proven to be bribes (and often not even then). Not only is
there little incentive not to make such gifts, but this also means
that applicants are not made part of the ethics program. They get no
training, make no disclosures, and are not expected to seek advice or report possible ethics violations, such an official's gift request.<br>
<br>
Government officials certainly have the higher obligations, but
there is no reason to leave applicants out of an ethics program.
Their participation can
make it far easier to bring ethics proceedings against them and, therefore, far more likely
that they will not tempt officials into ethical misconduct or give
in to unethical officials demanding money for action.<br>
<br>
<b>Confidential Information</b><br>
It's worth noting that Walmart not only paid to speed up permits and the like, but also to purchase confidential information. Confidential information provisions are too often thought to be about confidentiality, when they are really about misuse of office to benefit oneself and others. One reason is that it is hard to prove that confidential information has been sold or has been given to someone to help her business, with the implication that something will be done in return in the future. I feel strongly that it is not a government ethics policy to prohibit the disclosing of confidential information, and that, in fact, it is sometimes valuable to do this (e.g., when closed session and attorney-client confidentiality rules are used to hide information that should be public). What must be prohibited is an official disclosing information selectively to help himself and others.<br>
<br>
<b>Gifts to Governments</b><br>
There is a belief even in the government ethics community that gifts
to officials are wrong, but gifts to governments are okay. It turns
out that a lot of the gifts given by Walmart in Mexico were to
governments ($16 million between 2003 and 2005), rather than to
officials. They were made to facilitate the obtaining of licenses
and permits, and often were made at the same time as the bribes.<br>
<br>
It is important to remember that money given to governments is not
always used to benefit its citizens. And even when it is, it still
benefits high-level officials by keeping down tax increases, which
makes re-election much easier.<br>
<br>
<b>The Importance of Government Ethics</b><br>
Let's assume that Mexican local governments had independent ethics
programs. Considering that Walmart built hundreds of stores, it is
likely that some of these ethics programs would have investigated
and prosecuted some of Walmart's gifts. News of these prosecutions
would have led ethics programs in other cities where Walmart was
building stores to investigate whether gifts were being made there,
as well. Walmart could not have ignored the allegations and
effectively ended the investigation in order to protect its
reputation. It would have had to stop making the bribes.<br>
<br>
It would have not only meant less bribery in Mexico, but in the long
run would have been better for Walmart's reputation. It will now
deservedly be dragged through the mud, with the careers of many
executives ended, and some possibly going to prison.<br>
<br>
Effective local government ethics programs are good for applicants
and contractors, in the long run. And they are even good for
government officials. When will they come to recognize this?<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
203-859-1959