After scandal, what's next for Wal-Mart?

The company faces a slew of legal and commercial repercussions in the wake of a report alleging that its Mexican unit paid $24 million in bribes to local officials.

By TheWeek.com Apr 24, 2012 5:18PM
Walmart © Bloomberg/Getty ImagesWal-Mart (WMT) is reeling from a New York Times report outlining a massive bribery scheme that allegedly allowed the company to grease its way to the top spot in Mexico's retail industry.

Worse still, the report alleges that top executives in the U.S. covered up the bribes when a whistleblower brought them to light in 2005, instead of coming clean to U.S. and Mexican authorities. Some of the executives involved have since risen to the top of the Wal-Mart ladder, including CEO Michael Duke, who in 2005 was named the head of Wal-Mart's international divisions.

Here, a look at what Wal-Mart faces in the future:

1. U.S. authorities will go after Wal-Mart aggressively

The Justice Department may treat the Wal-Mart scandal as "a prominent case to demonstrate the need for vigorous enforcement of the Foreign Corrupt Practices Act," which prohibits U.S. corporations from bribing foreign officials, says Peter J. Henning at The New York Times. The government encourages American companies to disclose possible violations of the law, and rewards their honesty by reducing fines and dropping criminal charges. If the Justice Department finds that Wal-Mart did cover up the scheme, it could come down even harder on the retailer.

2. The investigation could spread to other countries
Wal-Mart "faces an uphill battle to convince U.S. regulators that its problems are confined to Mexico," say Jessica Wohl and Carlyn Kolker at Reuters. Wal-Mart has major operations in Brazil and China, and is banking on emerging markets in India and Africa to boost its profits in the coming decades. A wide-ranging global investigation, which could last as long as four years, will likely hamper its overseas growth.

3. Executives could face dismissal and even prison

Wal-Mart will likely face "pressure from shareholders to take action against any executives who didn't act on the bribery allegations sooner,"say David Welch and Thom Weidlich at Bloomberg News. Indeed, cleaning house could be a prerequisite for any out-of-court settlement with the U.S. authorities. And experts aren't ruling out "potential jail time for Wal-Mart executives," says Roland Jones at MSNBC.

4. Congress will get involved
Reps. Elijah Cummings (D-Md.) and Henry Waxman (D-Calif.) have already announced that they are launching an investigation into the scandal, requesting a face-to-face meeting with CEO Duke and other Wal-Mart officials so that they "can respond to these allegations."

5. Wal-Mart's stock is being hammered… 

Wal-Mart's share price fell by 5 percent the day after the story broke, as investors weighed the numerous factors that could hurt Wal-Mart in the future, such as large legal fees and stunted international growth.

6. …And so is its reputation

Perhaps most damaging of all is the public-relations hit the company is taking. This is a "huge black eye" for Wal-Mart, "which prides itself on its reputation for integrity and transparency," says Henry Blodget at Business Insider. The report undermines a years-long "campaign to improve its reputation as a good corporate citizen by changing its practices in such areas as labor relations," says Ben W. Heneman Jr. at The Atlantic.

7. Still, Wal-Mart could fight back with legal technicalities

The retail giant could argue that the bribes were "facilitating payments," which, for example, are made to speed up the approval of permits, says Nathan Vardi at Forbes, and that such payments are technically legal under the Foreign Corrupt Practices Act (FCPA). Because the alleged bribery scheme unfolded in the mid-2000s, Wal-Mart could also foil the Justice Department's efforts to prosecute, by invoking the FCPA's five-year statute of limitations.

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