Wal-Mart Caught in Mexican Bribery Scandal

A man rides his bike past a Walmart store in Mexico City, Mexico, on April 23. According to reports, Wal-Mart de Mexico orchestrated a campaign of bribery to win market dominance by paying bribes to obtain permits in parts of the country. (Daniel Aguilar/Getty Images)

NEW YORK—Wal-Mart Stores Inc., the world’s biggest retailer by sales, is mired in a bribery scandal after reports surfaced over the weekend that the company’s Mexican subsidiary engaged in several bribery schemes and sought to cover its tracks.

The New York Times first broke the news on Sunday. If proven true, the allegations would indicate that Wal-Mart, at one time the world’s biggest company by market capitalization, violated the Foreign Corrupt Practices Act as a publicly listed company. The law prohibits U.S.-based companies from bribing foreign officials to secure or expand business.

As of Monday, the company is facing a federal criminal probe from the Department of Justice.

According to the report, Wal-Mart’s Mexican arm bribed officials who oversaw its expansion plans in Mexico.

Also, despite an internal investigation uncovering the possibility of fraud, Wal-Mart’s headquarters failed to alert U.S. regulators and other authorities.

Wal-Mart has been growing rapidly south of the U.S. border, and now pundits are wondering whether some of that success was gained after bribing officials.

“If these allegations are true, it is not a reflection of who we are or what we stand for,” said David Tovar, Wal-Mart vice president of corporate communications, in a statement. “Many of the alleged activities in The New York Times article are more than six years old.” The company said that it would cooperate with any federal investigation.

While in certain nations, bribery is commonplace and expected—companies have argued in the past that the prohibition of bribery put them at a disadvantage versus local competitors—but several high-profile companies have been fined for the practice. Last year, pharmaceutical and supplies manufacturer Johnson & Johnson paid $70 million to settle charges that it made illicit bribes to European doctors.

The allegations “will be used against the company by activists and competitors when it attempts to open stores in the U.S. and abroad and could make it more difficult to attract management talent in international markets,” said Wayne Hood, analyst at BMO Capital Markets, on CNBC on Monday.

Shares of Wal-Mart (NYSE: WMT) fell in New York trading on Monday, dropping 4.7 percent, or $2.91, to $59.54 per share. The Bentonville, Ark.-based company reported $447 billion in annual revenues in the last fiscal year.