How safe are Wal-Mart's factories?

Updated 3:50 p.m. ET

Wal-Mart (WMT), which has been dogged this year by allegations of bribing foreign officials, now stands accused of putting profits above worker safety before last month's deadly fire at a garment factory in Bangladesh.

According to Bloomberg News, Wal-Mart rejected an industry proposal in 2011 that would require retailers to pay to help suppliers in Bangladesh upgrade factories. Wal-Mart dismissed the idea as being impractical, arguing "we are talking about 4,500 factories, and in most cases very extensive and costly modifications would need to be undertaken to some factories," according to minutes from a retailer meeting obtained by Bloomberg News.

More than 100 people died last month in a fire at a Bangladesh factory that produced apparel for Wal-Mart, Walt Disney (DIS) and Sears Holdings (SHLD). All three companies have distanced themselves from the factory, however, saying the work there was done without approval. Wal-Mart said it knew of safety issues at the factory before the fire and decided to stop doing business there, the Associated Press reports.

"The fire incident is indeed tragic and unfortunate," said Shafiqul Islam, a counselor at the Bangladesh Embassy in Washington D.C., in an email to MSN Money. "However, to prevent such incidents in future, numerous actions are being taken by the government as well as the industry. We hope things will be much better in the coming days."

The timing of these accusations as Wal-Mart heads into the busy holiday season could not be worse. Wal-Mart is facing increased scrutiny over the way it treats its employees, and unions are making their biggest push to organize the chain in years. Consumers may start to wonder about the real cost of Wal-Mart's low prices.

Shares of Wal-Mart, which have surged almost 27% in the past year, were flat Wednesday. A company spokesperson could not be reached for comment on the report.

The Bloomberg report raises the possibility that Wal-Mart may be sued under the Alien Tort Claims Act, a law that activists have used to target U.S. companies for their actions overseas. Coca-Cola (KO), Ford (F) and Unocal (UCL) are among the companies that have been sued under the law. These cases tend to linger for years and have the potential to be costly. 

Bangladesh, the second-largest garment exporter behind China, is one of the poorest countries in the world. According to the CIA World Factbook, more than 30% of the country's population lives below the poverty line. The garment industry is one of the few avenues that offer people any hope of steady employment. These jobs are coveted, even though more than 700 workers have died in fires at Bangladesh since 2005.

Media reports about the Nov. 24 fire paint a horrific picture of conditions the Tazreen Fashion Ltd factory, located near Bangladesh's capital city of Dhaka. The owner of the facility wasn't aware that it lacked fire exits, according to the Associated Press. Workers who were unable to escape from the flames were burned alive. Others jumped to their deaths. The fire was apparently caused by an electric short circuit, a common problem, according to the International Labor Rights Forum. The Tazreen tragedy proves that voluntary efforts to ensure worker safety in the garment industry have failed, the group said.

Victims of the fire are receiving compensation, according to the Daily Star, an English language paper in Bangladesh. The government there seems to think that factory fires may be the work of arsonists. "The prime minister called upon all to help hunt down those instigating workers to set fire to garment factories," the paper says.  The basis of these suspicions is unclear.

--Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter@jdberr.

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