What does the Walmex corruption scandal mean for Banco Walmart?

By Felix Salmon
April 21, 2012
David Barstow's explosive 7,600-word investigation of corruption at Walmart is required reading this weekend.

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David Barstow’s explosive 7,600-word investigation of corruption at Wal-Mart is required reading this weekend. I’m not going to attempt to summarize the whole thing, but basically Eduardo Castro-Wright, currently Wal-Mart’s vice-chairman, oversaw a culture of bribery when he was CEO of Walmex. And when a key player in that bribery scheme blew the whistle, Walmart in Bentonville buried the investigation, and didn’t report anything to the authorities in either Mexico or the US.

All of this looks like a slam-dunk case under Foreign Corrupt Practices Act, and I’m quite sure that multiple extremely senior heads are going to roll in the wake of this NYT exposé. As always in such cases, the crime was bad; the cover-up was worse.

One name, however, is conspicuous by its absence in Barstow’s report: Banco Wal-Mart, the huge bank which is a wholly-owned subsidiary of Walmex. It’s a serious player in the Mexican banking industry — it opened its millionth account over a year ago — and thanks to a quirk of international banking-regulation protocols, it lacks a lot of the regulation that its competitors have.

Banks like Banco Wal-Mart which are subsidiaries of foreign corporations are meant to be regulated by the bank regulators in the parent’s country. But because regulators in the US have consistently refused to allow Wal-Mart to become a bank here, bank regulators in the US don’t regulate Wal-Mart at all — let alone its Mexican subsidiary. (There is a Wal-Mart-branded prepaid debit card, but that’s run by Green Dot, not Wal-Mart.)

Barstow’s report shows that corruption is marbled throughout Walmart’s international operations, not only in Mexico but also in Asia, where reports of bribery were coming in to Bentonville HQ at the rate of five per month just from Asia alone. There’s nothing in the NYT which suggests that Banco Wal-mart was doing anything suspect at all — but at the same time, all parts of Castro-Wright’s empire should be under suspicion now, given the kind of illegal activity which peaked under his leadership. And Banco Wal-mart was one of the jewels in Castro-Wright’s crown.

All US corporations are held to high standards under the FCPA, but banks are even more important, given the way in which they’re regularly used by criminals for money laundering. After reading the NYT this weekend, I have no faith at all that Wal-mart has done an effective job of ensuring that Banco Walmart is corruption-free. And given its regulatory status, I also have no faith at all that if there were corruption at the bank, its regulators would have found it.

If I were the Mexican banking authorities, then, I’d start asking some very pointed questions indeed in the wake of this news — and I might even start thinking about revoking Banco Walmart’s license entirely. Certainly there’s no indication at all that Wal-Mart cares about stamping out corruption in Mexico — quite the opposite. And if a foreign-owned bank is operating in your country, you want to be sure that its parent is particularly assiduous in such matters.

I’ve historically supported the idea that Wal-mart should get a banking license: I think, in principle, that such a bank would provide healthy competition for existing banks, and that it would help to reduce the rolls of the unbanked. But in the wake of this news, the chances of Wal-Mart getting such a license are surely more remote than ever. And the Mexican authorities must be wondering whether US banking regulators didn’t have the right idea after all.


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Yes Wal-Mart need heal and I do mean fo rreal: Why do we the American People allow this retail giant to get away with all this mess and still we keep buying as if we have made Wal-Mart a god beside God and answers to no one? Why do we permit this? Why? Please follow the yellow brick road until you find Bostongbr on you tube:

http://www.youtube.com/watch?v=qP2CGblHb g8&feature=plcp&context=C44e2d6bVDvjVQa1 PpcFNTBiftdI94l0NgHxUrMksPTQpqaGj6SxY%3D

Posted by kingkufu | Report as abusive

Tommy Mars and Tommy Hyde are going to skate free. They should be disbarred. B4 this occurred the Co. implemented the “red book” investigation procedure. Started up a “compliance” department and hired lots of GIs in the wake of the Tom Coughlin embezzlement.

WMT faced a huge scandal re. their retail optometry biz. But the internal investigation found it was not material (when you sell billions of dollars worth of products, it takes a lot to make something material.) So state medicaids all over the country over paid for eye glasses for kids and adults an WMT did nothing to self report.

Posted by Anonymous | Report as abusive

they are operating like bond villians … what the @#$% is going on ??? I just read this brilliant piece at
http://half-bridge.blogspot.com/2012/04/ citigroup-what-led-to-law-suit.html
about Citi group’s scandal
and I was like WOW !! there is no stopping the greediness
financial crisis or no financial crisis

Posted by justinekahn | Report as abusive

If you think that Obama’s AG, Eric Place-Holder is going to go after Wal Mart executives under the Foreign Corrupt Practices Act, then you probably think there are pending indictments against BofA, Citi, JPM, et., al. Or that Jon Corzine is gonna serve hard time in Florence, Colorado.

Sure a few sacrificial heads will roll in Bentonville — while their pockets are being stuffed with millions in going-away presents, courtesy of Wal Mart’s shoppers.

There are 2 standards of justice — one for the plebians and another for the elites. Corporations don’t go to jail, much less experience Texas-style capital punishment.

Corporations are social parasites. Period.

Felix, you need to read Glenn Greenwald’s “With Liberty and Justice for Some”.

Posted by upstater | Report as abusive

Thanks for the link, Justine Kline and for the info, Anonymous and for the story, Felix.

Posted by breezinthru | Report as abusive

I agree with upstater, and have a challenge for Anonymous….start digging into General Electric Corp’s GE Energy and Financial (executives) email in Mexico, Brazil, Colombia, Peru, Argentina and Chile…and Walmart will look like an infant. These guys have perfected the practice to an art form. Look no further than the years of email trails detailing dealmaking between GE’s top brass and CFE’s, PEMEX’s, PBR’s, EPM’s, PP’s, YPF’s and ENDESA’s highrollers and you’ll find tons of “Golden Parachutists” pointing to nowhere else than their Good Enough paymaster. Scratch deeper and you’ll find info on GE Business Unit Presidents, CFO’s and GM’s riding their “Integrity” train all the way to the bank. Walmart’s just the new kid on the block.

Posted by Laughingatus | Report as abusive

Well, the main risk to Wal-Mart in China is that someone that they’ve bribed will be purged as a result of a political scandal. Then Wal-Mart will be seen as an accomplice and left out in the cold, politically, just as the person that they bribed will be. It is only a matter of time before bribes backfire. All it takes is for the recipient to either be found out or demand or use the bribes as leverage to demand even more money.

Posted by sinophotos | Report as abusive

This leads to the following little list:

Companies we still love to hate:

Companies we are learning to hate:

Recovering companies we used to hate:

Posted by samadamsthedog | Report as abusive

Wal-Mart, Sam Walton and his heirs, and the gluttonous mentality that has made this company one of the most disgusting, and also most pervasive and influential stores of all time. They storm into communities and devastate everything in their path. They do not have to follow any rules, because they are the ones stuffing the cash into the politicians pockets. They walk with impunity where ever they go. They have, though, become so bloated with their own greed, that the seems are slowly splitting apart. I never shop there, for no other reason that I feel inhuman when I walk through the door. It has always been the case that when a company is too ruthless and determined to grab the almighty dollar, they loose their way. They don’t understand that there is an equal and opposite effect on people when you steal from, poison, and degrade the same people you’re trying to profit from. Wal-Mart… a bank? Ha. They only know how to save themselves.

Posted by timhackett | Report as abusive

On the slim chance that FS ever reads any the posts on his blog, I’ll admit to not reading the Barstow piece. Still, this line from FS is puzzling in it apparent credulity –

“If I were the Mexican banking authorities, then, I’d start asking some very pointed questions indeed in the wake of this news….”

Why would they do that – they were on the receiving-end of the money spigot, weren’t they?

Posted by MrRFox | Report as abusive

Nothing like being force-fed “capitalism” by corrupt politicians. Oh that’s right, that’s the Walmart model here in the States too ..

Posted by Woltmann | Report as abusive

Is this why India’s ruling (looting) elites are so anxious to introduce Foreign Direct Investment in Multi Brand Retail?

Posted by Suchindranath | Report as abusive

The irony, of course, is that Banco Walmart’s license won’t be revoked. Instead, the price of the bribe for maintaining will increase.

Posted by stevewaldman | Report as abusive

The irony, of course, is that Banco Walmart’s license won’t be revoked. Instead, the price of the bribe for maintaining it will increase.

Posted by stevewaldman | Report as abusive

Looking into the reports further, there may be less here than it might appear. Most of it seems to be extortion by local officials and “facilitating payments”, which are legal under FCPA; check that out here – http://en.wikipedia.org/wiki/Facilitatin g_payment

Anyone who’s done business overseas knows what this dilemma is like. So do the people who wrote the FCPA. Some of it may have crossed into the prohibited sphere, but IDK.

Posted by MrRFox | Report as abusive

MrRFox, it may be that all these millions of dollars in payments were legitimate. Wouldn’t it be nice if Walmart had done an investigation to find out, rather than, I don’t know, handing the investigation off to its target?

Posted by dylanthurston | Report as abusive

Dylan – IDK. There’s no “right” way to handle something like this. Having been there, you do what you have to or you don’t get water or electricity or your business license or something else. The local citizen-business guys have to do it too, and look on it as routine. The law gives you the green light to handle it, but nobody’s proud of doing it or wants to put it on the public record and endure what WMT is going through right now.

WMT is upset about these disclosures, for sure – but the guys on the receiving-end of the payments are more angry than WMT, and they have no one to take it out on but WMT’s local operation. ‘April is the cruelest month’ – for Bentonville at least.

Sounds like there were hundreds of payments – $24Mil split like 300 ways – it’s still a lot of cash, but it doesn’t seem like we’re talking Lockheed or Bofors type stuff here.

Once you decide to sweep it under, who’s better positioned than the guy who ran the op to do that? Someone earlier said the cover-up is worse than the crime (or non-crime) itself – a true, if not exactly an original, expression.

Posted by MrRFox | Report as abusive

@MrRFox, I can’t believe my eyes! You have continually preached the importance of moral rectitude over expediency. Why a change of heart on this one?

Posted by TFF | Report as abusive

Maybe that’s why I’m on my high horse about ethics now. Not exactly because I broke any laws in the past – that didn’t happen – but something essentially unsavory did, even though it was legal, routine and required. I almost want to say it’s better not to do business at all than do it that way – but that wouldn’t be truthful.

Posted by MrRFox | Report as abusive

Yeah, I understand that dilemma…

Posted by TFF | Report as abusive

Not to mention that non-regulation allows Banco Walmart usury practices. The annual cost fee (named CAT in Mexico that includes the annual interest rate plus the annual fee, before an added 16% VAT) of their credits cards is of 54.05% (http://e-portalif.condusef.gob.mx/tarje tas/compara_2009.php). If we take into account that in Mexico they advertise themselves as a bank for the unbanked, poorest social groups, credit-related problems become obvious.

Posted by mabashi | Report as abusive

Wal-Mart is the top member of the World-Gang. We allow all these mega corporate atrocities because we are stupid.
We have allowed our government to become the best money can buy. Both political parties are nothing more than mega corporate cronies. We have become salaried slaves.

The most damaging aspect to our economy, and every other country’s, and the basis for our strength, is the proliferation of multinational corporations which do not care about which country will benefit from their enterprises, if any.
This in turn is steadily leveling off the economic gap between poor and wealthy nations. However another not so obvious direct effect of the multinational corporations is that the gap between the rich & the poor is widening in every country, which means that these mega corporations are becoming economically independent from any country while making their profits from the countries that are the most profitable for them.
Simply put, mega corporations are becoming their own countries.
Some of today’s mega corporations worth is already more than that of many small countries.

Posted by GMavros | Report as abusive

Another example of “Too Big To Fail”, they can do what they like and no one is going to say anything.

Besides, Americans need to mindlessly consume with abandon and Wal-Mart is a happy place for them. That’s a freedom Americans take very, very seriously. In fact the bill of rights should probably be amended to clearly state this above all else first.

An army of obese people who load up their Wal-mart carts with crap and burden the healthcare system would be out with pitchforks if you messed with Wal-mart. How much of Wal-marts profits are due to welfare again???

Posted by TheUSofA | Report as abusive

I actually feel sorry for Walmart. I had a Mexican friend back in the 70s, and he would always amaze me with his stories of being pulled over by a cop and being told to pay a bribe, then going home to get the money. Another story was his working at a construction site as an intern and being told to stop making a fuss about the concrete trucks bringing in loads of rocks, sand and water rather than usable concrete. He told me that story after the big earthquake down there. That was in the 70s before the Pemex money started coming in.

Mexico was and is amazingly corrupt. No one who does business there has never paid a bribe, even if they paid it through some agent, for example, a driver or lawyer. One might hope that a force as powerful as Walmart would manage to sail the Mexican sea without making payoffs, but that would be wishful thinking. In Mexico, bribery is a way of life, and Walmart really had no choice other than not to expand into Mexico.

Posted by Kaleberg | Report as abusive

At least we here in the US aren’t the only people having to endure the Blight of Bentonville. They are becoming an international plague of Biblical proportion ..

Posted by Woltmann | Report as abusive

@Kaleberg -

This – v v – happens today in a lot of places -

” I had a Mexican friend back in the 70s, and he would always amaze me with his stories of being pulled over by a cop and being told to pay a bribe,….”

This – v v – was the thought and hope -

“One might hope that a force as powerful as Walmart would manage to sail the Mexican sea without making payoffs….”

That was wishful thinking. Still is. This – v v – is the part that is pertinent today –

“Walmart really had no choice other than not to expand into Mexico….”

Nobody is forced to shop at Walmart – people choose to do so because of the perceived value for money spent that Walmart offers. And WMT isn’t forced to operate everywhere – they also choose. Are Mexicans worse off because they have Walmarts to choose from? Don’t think so. Is WMT worse off being in Mexico and China? Dunno – maybe.

Posted by MrRFox | Report as abusive

Yes, Wal-Mart (and many other corporations) engage in some pretty abhorrent business practices, but bribery is a comparatively minor one.

Anyone who has done business abroad knows that paying bribes is pretty much standard operating procedure in most second and third world countries, in that government officials view accumulating wealth through bribes as being a major perk of their positions, and the culture generally does not view extortion/bribery as being morally wrong.

And let’s not pretend that we are saints here in the USA….just look at our current campaign finance system, which is basically legalized bribery. Corporations and individuals do not simply give thousands/millions of dollars to candidates every election simply out of the goodness of their hearts. They expect to get something in return.

Posted by mfw13 | Report as abusive

mfw13 wrote –

“Yes, Wal-Mart (and many other corporations) engage in some pretty abhorrent business practices, but bribery is a comparatively minor one.”

Damn right – compared to the kind of stuff Unocal was mixed-up in over in Burma, WMT’s mischief looks as trivial as the antics of The Little Rascals.

This is the part that Americans have a hard time getting their heads around -

“… government officials view accumulating wealth through bribes as being a major perk of their positions, and the culture generally does not view extortion/bribery as being morally wrong.”

The principle of “equality before the law” is bedrock American thinking, and it’s what makes corruption morally wrong. The general populations of the 2nd and 3rd worlds don’t accept the principle; thus they see no moral trespass in extortion or bribery.

Since Citizens United was decided, I’m hearing that it’s now open season for pols to shakedown corporations with impunity. Fact is, corporate America is quickly learning to hate that decision almost as much as the US left does.

Posted by MrRFox | Report as abusive

I’m reading a great book by Bill Moyer called
“Corporations are Not People’. It is a very well written book and should be a must read by everyone. Not all corporations are bad, but many are nothing more than extreme greed gone wild, and Wal-Mart is one of them. We need, on an international scale, to regulate these behemoths not allowing them to take over the world with their greed, employee oppression, and their agenda to limit “free trade” to just the few and destroy all other empoyers. They are truly evil in every sense of the word. Banco Wal-Mart should not be able to exist since it will start a disastrous revolutition in banking that bring the world to its knees. We need to do everything to stop the unregulated greed by these corporations and if not then we must take the drastic step of dissolving the entity called corporations. We created them and we may need to dissolve them if we cannot tame them.

Posted by JLWR | Report as abusive

MrRFox, your logic is specious from end to end. Tell me – which corporations are regretting Citizens’ United? You rank up there with “Thank You for Smoking!”

And thanks for your pontification on the civilizing benefits of Wal-Mart for the beknighted Mexican people. What the hell do you know about it? What was wrong with their existing retail players? YOu don’t know – you’re just reflexively defending Wal-Mart with no facts.

And no, the Mexican people (and the Indian people) don’t just accept corruption. They hate corruption. But once instituted, it is insanely difficult to root out. That’s why the Foreign Corrupt Practices Act is so important – so we Americans don’t contribute to corruption.

Shame on you for your fact-free corporate shilling.

Posted by Dollared | Report as abusive

@Dollared – you wrote -

“What was wrong with their (Mexico’s) existing retail players? YOu don’t know – you’re just reflexively defending Wal-Mart with no facts.”

Really, Dollared, Mexican consumers appear to be choosing Walmart in preference to other retailers, don’t they? That fact – implicit in sales figures – kind of speaks for itself. Are you actually doing the people of Mexico a favor by advocating that the Walmart option be taken away from them? Clearly, you seem to think so, but it’s the consumers who should have the right to decide for themselves, isn’t it?

When the people of Mexico resolve to change the way people in authority conduct themselves, it will change. We in the US face the same challenge. Neither appears to be making much headway.

Posted by MrRFox | Report as abusive

Am I the only one who’s noticed that every great economic fiasco is preceded by a great lack of government oversight of the financial sector?

Posted by borisjimbo | Report as abusive

What do you mean by “it lacks a lot of the regulation that its competitors have”??? It is regulated by the Mexican authorities as a “Insitucion de Banca Multiple” (see http://www.cnbv.gob.mx/Paginas/PES.aspx) just like HSBC, Santander, American Express and all its competitors.

If you meant by US regulatiors, that would probably not apply to other non-American banks in Mexico either (HSBC, BBVA, Scotiabank, RBS, et al.)

Posted by DanielDF | Report as abusive