Jan. 15, 2013 (TSR) – Walmart is investigating its Indian joint venture for possible violations of the US anti-corruption law it is governed by. ET narrates the inside story of how things came to pass in India for the world’s largest retailer.

When Walmart dispatched Greta Jacobs to India in April 2011, the staff at the Bharti Walmart office in Gurgaon assumed her to be one of the usual legion of visitors from the retailer’s global operations. However, the assignment Jacobs undertook over the weeks had far-reaching consequences on Walmart’s India operations, including a substantial overhaul of the way it operated.

Jacobs, the Mexico City-based assistant director for compliance and legal risks for Walmart Mexico, spent the next four summer months trying to understand the functioning of the 50:50 joint venture between Walmart and Bharti Enterprises in India. She quizzed employees, suppliers and intermediaries, and did spot checks. She stayed at the Marriott Courtyard Hotel in Gurgaon, a stone’s throw from Bharti Walmart’s India office, and took breaks to travel to Agra, Goa and Jaipur.

“Don’t focus on FDI in the belief that it will solve all problems. There is no shortage of entrepreneurs in India. So look at what is foreign investment bringing that Indian entrepreneurs cannot bring. Walmart certainly brings greater capacity in bribery, it was their source of success in Mexico. You don’t want to bring that in, you already have enough of that. I have studied Walmart’s supply chain in other countries. They have not worked. Foreign investment may use their monopsony power (a large buyer controlling a large proportion of the market and driving prices down) to bring Chinese goods that reduce the prices that Indian suppliers can get and thereby increase inequality, or increase dependence on foreign goods.”

– Joseph Stieglitz, Columbia University Professor and Nobel Prize for Economics in 2001 in Bangalore on Monday, January 9, 2013, organized by the Azim Premji Foundation, talking about Walmart’s expertise in bribery and how money given to fathers need not benefit children.


A team of four Walmart executives promptly followed Jacobs. For about a week, they repeated the drill at Bharti Walmart. Both Jacobs and the subsequent team flagged one disturbing observation about Bharti Walmart’s employees and the entities they dealt with: their knowledge and compliance of an American anti-corruption law that Walmart is governed by needed to be looked into.

Prominent among those entities were 24 small-to-medium ‘consultants’ Bharti Walmart used to obtain the licences required to operate retail stores in India. Today, several of those dealings are at the centre of a company investigation on whether money changed hands in a way that violated the US Foreign Corrupt Practices Act (FCPA), which prohibits American corporations and citizens from bribing government officials wherever they operate or reside.

This is the inside story of how things came to a pass in Walmart’s fledgling Indian operations: where it is conducting a full-blown internal investigation, where it has suspended five officials while the probe is on, where it has stopped dealing with the 24 ‘consultants’ and where it has put its expansion on hold. The India story is based on interviews with three people with direct knowledge of the situation. They asked not to be named due to the sensitivity of the matter.

ET corroborated their narration with Walmart’s consultants, suppliers and vendors, who too declined to speak on record for similar reasons. This is how it all unravelled in Walmart India, which is best understood by first examining what is alleged to have happened in Walmart Mexico.

India Fallout

In April 2012, the New York Times reported that Walmart Mexico allegedly spent millions of dollars bribing local government officials to, among other things, change zoning maps, reduce environmental impact fees, secure the allegiance of neighbourhood leaders and expand faster in the lucrative country. The world’s largest retailer, with revenues of $444 billion in 2012, is now facing legal action in the US and Mexico, and also shareholder lawsuits.

Mexico Mess

Mexico is Walmart’s largest foreign subsidiary, accounting for about one-fifth of its 10,000 stores globally, employing 209,000 people and earning about $6.5 billion in profit in 2011. Between 2008 and 2012, Walmart Mexico doubled its store count to cross 2,000. NYT, which first reported corruption in Walmart Mexico in April 2012 , was scathing of the company’s governance in a subsequent report dated December 17.

It said: “…Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business…it was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited…” Robert Carroll, an analyst at UBS, estimates in a report that Walmart might have to pay a fine of $4.5 billion to $9 billion if its alleged indiscretions in Mexico are proved. He cites previous regulatory actions where defaulting companies paid 1-2 per cent of their annual revenues, led by the $1.6 billion paid by Siemens.

Bharti Walmart severs ties with licence facilitators, Retailers Association of India says stores require up to 51 permissions

Bharti Walmart and Bharti Retail have severed ties with around two dozen consultants who had helped them secure licences for operating cash and carry and retail stores, as they review their business practices after the world’s largest retailer acknowledged it was probing potential violation of American anti-bribery laws in India and other countries.

“You and your agents must stop any and all current and planned work on behalf of Bharti Retail,” said Viresh Dayal, chief commercial officer for Bharti Retail in a letter written to a ‘contractor’ whose services have been discontinued till further notice.

The retail companies have also said they would exercise their right to audit the financial documents of these consultants and accounting firm KPMG would contact them to audit their books, said two persons with knowledge of the development.

The consultants have also been asked to provide status of various projects they undertook for the companies before December 31, 2012 and to list their outstanding balances with Bharti Walmart and Bharti Retail. Bharti Walmart, a 50:50 JV between Walmart and Bharti Enterprises, operates wholesale stores under Best Price brand name. Bharti Retail, a wholly owned company of the Bharti Group, runs Easyday retail outlets.

A Bharti Walmart spokesperson said the firm does not discuss its business partnerships and declined to comment on the specific issue of disengaging with the consultants. Bharti Retail, too, declined comment. But the two persons mentioned earlier said both the companies had been using a common set of small to midsized consultants that helped them with licences throughout the country According to the Retailers Association of India, branded stores require up to 51 different permissions.

These include trade licence, fire safety clearance, police clearance, and permission to display signboards and install chillers. Retailers require making rounds of as many as 32 government agencies, including the Municipal Corporation, labour commissioner, transport department, and pollution board. Retailers in the past have told ET that they have found it almost impossible to obtain these clearances without greasing palms. “It is very likely that most retailers pay money to get licences,” says a retail analyst with a foreign consultancy firm, on condition of anonymity.

The move to disengage with the consultants is the latest in a series of initiatives undertaken by Walmart in India as part of an anti-corruption programme. KPMG, which is working with the Bentonville retailer across markets to ensure compliance with US anti-bribery laws, has conducted due diligence of dozens of Bharti Walmart vendors in India.

The audit firm has categorised these suppliers across three colour codes – green for those vendors that are considered safe for Bharti Walmart to do business with, red for those who need to be disengaged, and amber for those who have been given six months to shape up and comply with prescribed standards. As part of this overall process, KPMG is making landlords of Best Price Modern Wholesale and Easyday stores sign undertakings that they have and will not indulge in corrupt practices.

Bharti Walmart and Bharti Retail have suspended five officials including their chief financial officer Pankaj Madan as part of this drive. Walmart Stores announced sweeping global anti-corruption measures after a major bribery scandal in its Mexico unit surfaced last year. The company said it was probing India, China and Brazil among other countries for possible violations of US Foreign Corrupt Practices Act. This Act makes it illegal for American companies and their subsidiaries to bribe government officials in countries where they operate.

First published in Economic Times, India.


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