Wal-Mart is accused of having paid out over US $24 million in bribes to Mexican officials in order to acquire the over 2,000 stores located in Mexico. If true, Wal-Mart has violated the U.S. anti-bribery law, the Foreign Corrupt Practices Act (FCPA), which makes it illegal for U.S. persons to offer business bribes. A bribe is any offer to pay, promise to pay, or actual payment of money or anything of value to a foreign official to secure or retain a business opportunity.
The United State is one of thirty-nine countries which has signed the OECD Anti-Bribery Convention and adopted the Anti-Bribery Recommendations. The 39 signatory countries include Mexico, which reportedly has had a much more muted response than has the United States to these allegations of corruption within its borders. So, monitoring and enforcement of these anti-bribery laws differs across countries, with the United States and the United Kingdom being among the most aggressive.
For individuals and companies found guilty of violating the U.S. anti-bribery law, the penalties can include huge fines and imprisonment. The allegations alone can cause serious harm to one’s reputation, even for a giant such as Wal-Mart. An Internet search for Wal-Mart now finds the company’s name linked to this bribery scandal, and vice versa, for the foreseeable future. Wal-Mart Stores, Inc. lost $10 billion of its market value the day after the story appeared in print, and is being sued by its investors. The company faces hundreds of millions of dollars in fines and possible jail time for its top executives.
Bribery carries even bigger consequences for countries and their inhabitants. Transparency International (TI) is a global NGO devoted to exposing and addressing the costs of corruption. TI reported in its Global Corruption Report 2009 that almost two out of five business executives polled have been asked to pay a bribe when dealing with public institutions. Corruption also is reflected in nepotism or reliance on personal and family relationships to determine or influence the award of contracts.
Bribes raise the cost to citizens of the public projects that create roads, bridges, schools, hospitals, and other needed infrastructure. Nepotism raises the likelihood that contracts could be awarded to unscrupulous characters, leading to such problems as the collapse of poorly constructed infrastructure or the sale of unsafe medicines. The more corrupt countries also tend to be less fiscally viable. See the cost of a bribe in Greece, a country whose debt ratio of 120% of Gross Domestic Product (GDP) triggered the crisis in the euro zone.
TI has created a Corruption Perceptions Index which measures public perception of the extent of corruption — bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and the effectiveness of public sector anti-corruption efforts — within a given country. Perceptions are used because corruption is a hidden activity which can be difficult to measure while perceptions have proved to be a reliable estimate of corruption. The Index shows that the problem of corruption is endemic in many countries. Only 49 out of the 183 countries ranked scored between five and ten points, (10 being “very clean” and 0 being “very corrupt”) on the Index.
Large corporations, such as Wal-Mart, have an important role to play in either undermining or supporting corruption where it exists. The payment of US$24 million in bribes is the equivalent of pocket change to a multinational conglomerate such as Wal-Mart. However, such payments support the culture of corruption within that country. Companies that either cannot or refuse to pay such bribes lose out on the business opportunities. And the culture of corruption extends to average citizens who can even less afford such payments. It is estimated that one-fifth of the income of poor Mexican families is spent on paying petty bribes.
The anti-bribery laws in the United States and other countries recognize these connections between business and the continued culture of corruption, and this is why Wal-Mart is in such big trouble.