News and Analysis: April 16 - 22

1 - WALMART HIDES FRAUD IN MEXICO
2 - RACIST SHERIFF LOSING FRIENDS, MAY FACE TRIAL
3 - CALDERON CRITICIZES ARGENTINE ENERGY POLICY
4 - GENERAL ACOSTA CHAPARRO KILLED
5 - RUIZ ORTIZ CHARGED IN FINLAND
6 - EIGHT MURDERED IN CHERAN

A former WalMart de Mexico executive, Sergio Cicero Zapata, in charge of WalMart’s real estate department for ten years until 2004, sent emails to a senior WalMart lawyer in September of 2005 documenting a US$24 million bribery campaign that helped WalMart become the largest retailer in Mexico.  Many of the bribes involved construction permits, reductions in environmental impact fees, avoidance of fines, access to confidential information, and payments to neighborhood leaders in exchange for political support.  Within days, WalMart investigators, sent from the US, discovered a paper trail documenting the bribes along with extensive participation by WalMart de Mexico executives.  The lead investigator- a former FBI agent -reported, “There is reasonable suspicion to believe that Mexican and USA laws have been violated.”  But instead of following the investigation to its conclusion, WalMart turned it over to their Mexican general consul, the same person who authorized many of the bribes. 

This turns out to be common practice for WalMart when faced with internal ethics problems.  He quickly exonerated his fellow executives and submitted a final report that the original investigator characterized as “truly lacking.”  The initial findings were never reported to US or Mexican officials.  Instead, WalMart promoted the central figure in the bribery scheme, former chief executive Eduardo Castro-Wright, to vice-chairman of WalMart in 2008.  

The New York Times revealed the entire sordid affair this week in a 7,600 word article.  After learning of the pending report – nearly seven years after their initial investigation – WalMart informed the US Justice Department that it had begun an internal investigation into possible violations of the Foreign Corrupt Practices Act (FCPA), a federal statute that prohibits US corporations and their subsidiaries from bribing foreign officials.  And this wasn’t the only violation.  A 2003 report by Kroll Inc., a leading investigative firm, found WalMart de Mexico had systematically increased sales by helping some of its leading clients evade sales taxes.  The company ultimately paid US$34.3 million in back taxes.  In a further investigation, Kroll found WalMart’s internal auditing and anti-fraud units “ineffective.”  And internal documents showed similar fraud throughout WalMart’s Asia operations.  Late this week, when confronted with the New York Times investigation, WalMart spokesman David Tovar disingenuously claimed, “Many of the alleged activities in the New York Times article are more than six years old.  If these allegations are true, it is not a reflection of who we are or what we stand for…  Acting with integrity is the essence of our corporate culture.”  

The article does not touch on Banco WalMart, a Mexican invention that allows WalMart retail outlets to function as banks without the government oversight required of its competitors.  Banco WalMart recently signed up its millionth account.  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, US regulators don’t oversee its Mexican subsidiary.

WalMart’s unprecedented growth, fueled by corruption and bribery, made it Mexico’s largest retailer, forcing many small and medium sized competitors out of business, while also making WalMart de Mexico the rising star of an international monolith.  Today, one in five WalMart stores is located in Mexico where the company employs 209,000 people at 2,099 retail outlets, making it the country’s largest employer.  WalMart de Mexico accounts for 8% of WalMart’s annual net sales and more than a quarter of all Latin American company sales.  WalMart de Mexico controls 62% of the country’s retail food market.  In recent meetings with President Felipe Calderon, WalMart Chief Executive Mike Duke said their Mexican business is an example to be emulated at the global level by other WalMart divisions.

The business press quickly came to the defense of a favorite investment option.  The day before the scandal broke, Dow Jones touted WalMart de Mexico as “a high growth emerging market play in which WalMart owns 69% that offers solid returns without venturing too far from the US…  Walmex enjoys space for faster unit expansion than WalMart stores in the US, as well as greater support from the Mexican government, which has a fiscal interest in the success of the retailer.”  With the NYT report, we now more fully understand the Dow Jones analysis.  Forbes called for WalMart to negotiate a quick legal settlement with the US Department of Justice “to get the bad publicity behind it.”  And Business Insider touted a common refrain in the corporate community: “it is preposterous to think that Walmart could ever condone breaking laws, regardless of how common this might be in the regions in which it is doing business.”  While the business press might try to exonerate WalMart while blaming Mexico, watch for WalMart to serve up several sacrificial lambs with Latino surnames in coming weeks in its efforts to “get the bad publicity behind it.”

2 - RACIST SHERIFF LOSING FRIENDS, MAY FACE TRIAL
Maricopa County Sheriff Joe Arpaio, famous for his racist attacks on Latino immigrants, may face a federal criminal trial without support from some powerful allies who are also facing legal problems.  A federal grand jury, now in its third year, is investigating Arpaio for abuse of power in going after political opponents, while a parallel Department of Justice civil rights case is looking into charges that his deputies routinely targeted Latinos for arrest in an effort to deport undocumented immigrants.  Meanwhile, two of Arpaio’s closest allies, former Maricopa County attorney Andrew Thomas and assistant prosecutor Lisa Aubuchon, were both disbarred and may face criminal charges for intimidating and smearing Arpaio’s political opponents.  And former Senate President Russell Pearce, Arpaio’s closest ally in the state legislature, was ousted from office six months ago by voters upset over passage of Arizona’s draconian immigration law.  Pearce previously served as Arpaio’s chief deputy and is credited with inventing the infamous “tent cities” that housed thousands of county inmates in the middle of the desert.  Arpaio is even losing support within his own office.  Former chief deputy David Hendershott was fired last year for his role in an Arpaio campaign finance scandal that is the subject of another federal investigation.  Arpaio is up for re-election this year, and despite all the brewing scandals, he may win another term in this conservative Arizona county.

3 - CALDERON CRITICIZES ARGENTINE ENERGY POLICY
President Felipe Calderon criticized Argentine President Cristina Fernandez de Kirchner this week for nationalizing YPF, the country’s leading energy company.  The Spanish transnational Repsol holds a controlling share in YPF, and Mexico’s national petroleum monopoly PEMEX owns 10% of Repsol.  Fernandez assumed control of 51% of YPF, leaving Repsol with a small minority share.  Compensation, if paid, would likely be delayed many years.  Calderon accused Fernandez of taking “a step that is not going to do anybody any good.”  Calderon is likely mistaken.  Already Brazil’s state-run oil company Petrobras committed to increase their investments in Argentina.  All of this will likely leave PEMEX with egg on its face for purchasing shares that will certainly be declining in value in coming months, and will leave Mexico defending Spain in a disagreement with Argentina, a potential ally in Latin America.  On the other hand, it should surprise no one to find Calderon on the side of a powerful international corporation and an historic colonial power.

Less than a decade ago, Argentina exported oil and natural gas, but now the government spends billions of dollars each year to import fuel.  Repsol’s management of YPF is largely responsible for the dramatic reversal.  Two months ago, Repsol announced the discovery of 23 billion barrels of shale oil and gas, but threatened to sit on the reserves unless Argentina liberalized its energy policies.  Fernandez stood up to the threat and nationalized the company, which should resolve the country’s energy shortfall over the short to medium term.  She accused Repsol of draining YPF of resources since gaining control in the 1990s and under-investing in energy production.  Argentine petroleum production declined 22% from 2000 to 2010 while demand increased by 40%, leaving Fernandez with few options for stimulating economic growth.

4 - GENERAL ACOSTA CHAPARRO KILLED
Retired General Mario Arturo Acosta Chaparro, a notorious torturer during Mexico’s Dirty War and a convicted affiliate of drug cartels, died after being shot three times on Friday in Mexico City.  The General survived an earlier attack in 2010.  In 2000 he was convicted of ties to the Juarez cartel and sentenced to 16 years in prison, though he served only five.  Acosta Chaparro received military training at the School of the Americas and at Fort Bragg from 1969-1971, including counter-insurgency training.  Apparently it was here that he learned the torture techniques that he would later apply to hundreds of political prisoners in the 70s and 80s.  Acosta Chaparro was perhaps the last living member of a notorious gang of military and police known as the Brigada Blanca, involved in disappearances and extrajudicial executions that gave Mexico’s “Dirty War” its name.

5 - RUIZ ORTIZ CHARGED IN FINLAND
The family of activist Jyri Jaakkola, assassinated in April 2010 along with Oaxacan activist Beatriz Carino, charged former Oaxaca Governor Ulises Ruiz Ortiz this week with murder in a Finnish court.  Jaakkola and Carino were part of a caravan supporting the community of San Juan Copala when they were attacked by paramilitaries affiliated with the Union de Bienestar Social de la Region Triqui (Ubisort), a group financed by Ruiz.

6 - EIGHT MURDERED IN CHERAN
Paramilitaries affiliated with illegal loggers and organized crime murdered eight residents and wounded two others from the autonomous community Cheran in the state of Michoacan on Wednesday.  Cheran residents began a prolonged struggle last year to rid the community of corrupt police, illegal loggers and cartel members affiliated with the drug cartel La Familia.  The Purepecha indigenous community expelled police and set up roadblocks in an effort to control corruption and environmental damage.  Illegal logging, often supported by corrupt government officials, has destroyed about 80% of the region’s pine forests.