The recent corruption scandal involving Walmart in Mexico has coincided with the last corruption ranking by Transparency International.
The giant American retailer, which also has stores in Brazil, Argentina, Chile and several Central American countries, has been accused of systematically paying bribes in Mexico that total more than $24 million over the course of several years. The bribes were used to get permission to build in places where it is illegal to do so.
There is ample evidence that Walmart was not forced to pay bribes to do business, but rather that the company actively encouraged corruption in the country by establishing an aggressive policy of offering bribes to Mexican officials who broke the laws and regulations of the country.
The case is being investigated in the United States and Mexico, and the company is facing several lawsuits from pension funds that have invested in the company’s stock. The eventual sentences and fines could have a major impact not just on Walmart but also on Mexico – the company is Mexico’s largest private employer, with 2,275 stores and 221,000 employees.
An internal investigation by Walmart of its 27 international subsidiaries seems to have revealed evidence of bribes by Walmart in Brazil as well as China and India.
Walmart is not unique. British bank HSBC helped launder money for Mexican drug cartels for years. And people still remember the case of IBM in Argentina 15 years ago, when IBM paid officials at the state-owned Banco Nacion a total of $37 million in exchange for a contract to renovate the bank’s computer systems.
All of these cases – and hundreds of others with less publicity – hurt not only the companies involved but also the image of the region. The last Transparency International report only ranked three Latin American countries – Chile, Uruguay and Costa Rica – above the world average for corruption. All of the other countries are perceived as having high corruption problems, and Venezuela is one of the worst of in the world, ranked 165 out of 176 countries.
Subverting the system
The development of a country depends on governments that establish and enforce rules and regulations that are the same for everyone, as well as a free-market system where all of the competitors play by the rules. When you can get an advantage by paying bribes, that system is subverted. And when the person who gets that advantage is Walmart, the victims are numerous, starting with their direct local competitors and including other potential international investors, who might think twice about investing in the market.
When a giant like HSBC is laundering drug money, it distorts the financial markets and subverts the democratic system.
The United States has taken a step in the right direction by legally punishing companies that commit bribery abroad. The situation would be even better if all countries adopted similar legislation.
The so-called multi-Latinos, the select club of Latin American multinationals, have the task of being agents of change, and should explicitly state a commitment to fight corruption in their statutes. These statutes should also include ethical standards to abide by when doing business throughout Latin America.
Latin American governments should establish an agreement to standardize corruption laws and penalties.
International development banks, like the World Bank and the Interamerican Development Bank, have taken a step in the right direction. Since a couple of years ago, any company that is guilty of corruption is barred from participating in projects financed by either bank.
The task sounds complicated and difficult, but it is worth it. Many studies have found a clear relationship between corruption, poverty and under-development – equal to the distortions produced in the way resources are distributed. It is obvious that corruption hurts countries where it takes place, and we need political will, both on the part of governments and business people, to get rid of this scourge.