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Bribery Accusations Hurt Wal-Mart's Stock Price

RENEE MONTAGNE, HOST:

A bribery scandal has hit Wal-Mart hard. Its stock dropped nearly five percent yesterday on news that Wal-Mart officials in Mexico allegedly signed off on upwards of $20 million in suspect payments. The payments reportedly were aimed at helping Wal-Mart open up more of its big-box stores in Mexico. The New York Times broke the story over the weekend.

And as NPR's Chris Arnold reports, Wal-Mart could face serious legal liability here in the U.S.

CHRIS ARNOLD, BYLINE: Today, one in five Wal-Mart stores are in Mexico. The company employs 200,000 people there. And if The New York Times story is right, the company greased the gears for that growth by paying bribes. What's perhaps worse, top executives in the U.S., including the current and former CEOs, allegedly knew about this and covered it up.

CHARLES ELSON: What a mess. And how did a company as respected and process-oriented as Wal-Mart end up in this controversy?

ARNOLD: Charles Elson directs the Center for Corporate Governance at the University of Delaware. He says for more than 30 years there's been a powerful anti-corruption law on the books in the U.S. It's called the Foreign Corrupt Practices Act, or FCPA. And every major U.S. company operating abroad is intimately familiar with the rules. That's because running afoul of this law can be very bad.

ELSON: Once you trigger that law, the law is pretty draconian in its penalties, and you know, that's why you have these massive compliance structures set up.

ARNOLD: Elson says companies spend a lot of money on consultants and internal procedures to make sure that they don't get on the wrong side of this FCPA corruption law.

ELSON: It's a trap that can be very, very hazardous to those who fall into it.

ARNOLD: And it would appear that Wal-Mart has fallen into it, though the company says it is aggressively investigating this matter. Wal-Mart vice president David Tovar read a statement.

DAVID TOVAR: We take compliance with the U.S. Foreign Corrupt Practices Act very seriously and are committed to having a strong and effective global anti-corruption program in every country in which we operate. We will not tolerate noncompliance with FCPA anywhere or at any level of the company.

ARNOLD: Still, after top Wal-Mart executives were informed of these allegedly improper payments back in 2005, they allegedly scuttled an internal investigation by turning control of it over to the very executives in Mexico who were accused of being involved in the wrong-doing. But the supposed bribes paid by Wal-Mart in Mexico are now getting a much closer look. David Tovar...

TOVAR: We have met voluntarily with the U.S. Department of Justice and the Securities and Exchange Commission to self-disclose the ongoing investigation on this matter.

ARNOLD: Wal-Mart says it will continue to update the Department of Justice about its internal investigation.

Richard Cassin is a lawyer who represents companies in these types of cases. He says in order to avoid prosecution, companies often end up cleaning house. That is, they get rid of employees who engaged in the bribery or in its cover-up. He says a dramatic recent case involved the electronics maker Siemens.

RICHARD CASSIN: Siemens ultimately replaced all senior management and most of its board of directors. Because they were found to be culpable.

ARNOLD: It's, of course, too early to say what will happen at Wal-Mart. There(ph) many of the payments appear to have been aimed at getting building permits more quickly.

And actually there is a grey area there in U.S. law. Companies are permitted to make what are called facilitating payments, quote-unquote, to avoid getting something like a building permit stuck on a minor bureaucrat's desk. But Charles Elson says that can be a sticky wicket to try to go through.

ELSON: When you cross the line from the payment which is acceptable, to a bribe, that's where you have your problems.

ARNOLD: What is the difference, though, between a facilitating payment and a bribe? I mean a bribe is a payment that facilitates something, right?

ELSON: Well, that's why I say - that's why it's such a sticky wicket.

ARNOLD: Legal experts say lately the Justice Department has been making that wicket even stickier. That is, it's been showing less tolerance for companies to make under the table payments of any kind. For Wal-Mart, they expect the investigation and likely eventual settlement to take about two years to run its course.

Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.