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Is Walmart Too Big, Powerful, Influential to Obey the Law?

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This week's reports from the New York Times about Walmart's practices in Mexico are breathtaking. The Times found "credible evidence that bribery played a persistent and significant role in Walmart's rapid growth in Mexico." The Times interviewed an executive of Walmart's Mexican subsidiary who "bought zoning approvals and reductions in environmental impact fees." According to the New York Times, when lawyers for Walmart discovered this activity and informed senior management, then Walmart CEO Lee Scott ordered Walmart's internal investigative protocols revised to give the targets of internal investigations more control over those same investigations. The specific reports about conduct in Mexico were ignored, the executives involved were promoted and a senior in-house lawyer who objected subsequently left Walmart. The apparent result was that Walmart grew dramatically in Mexico at the expense of its Mexican competitors, leading to Mexico becoming Walmart's second largest market after the United States. The executive identified in Walmart's in-house investigator's notes as "most responsible" was promoted to head of all U.S. Walmart stores.

Under the Foreign Corrupt Practices Act, it is a crime for a U.S. company to bribe an official of a foreign government -- just as it is a crime to bribe an official of the United States government. It is also a crime in Mexico to bribe an official of the Mexican government. And bear in mind that the Times story does not describe the acts of isolated individuals -- it describes conduct and elaborate efforts to suppress the results of internal investigation of that conduct involving multiple top executives over a period of years. In other words, the New York Times story describes "credible evidence" of criminal activity and the willful neglect of criminal activity involving individuals at the highest levels of one of America's largest corporations.

Nothing like this has happened since the collapse of Enron and Worldcom in 2002. And Walmart is of course a more important company than either Enron or Worldcom. Walmart is the largest private employer in the United States. And in the days since the Times story appeared, the Washington Post has reported that Walmart has participated in an aggressive lobbying campaign to weaken the Foreign Corrupt Practices Act which makes bribing foreign officials a crime.

Breathtaking, yes. Yet not a total surprise to Walmart employees in the U.S. or Mexico. Walmart workers know that Walmart is indifferent to the law -- that is the lesson of a trail of employee harassment and fired union activists in the U.S. and Canada. And in Mexico, employees work under protection contracts with company-controlled "unions" that ensure the company will maintain low wages and prevent workers from organizing a legitimate union.

But this story has a number of other lessons that all Americans need to understand, lessons about even more than Walmart.

First, the Walmart episode shows the utter futility of expecting large corporations, their boards and their law firms to police themselves. Over the last 10 years, Walmart has spent many millions of dollars trying to persuade investors and policy makers that it is a responsible corporate actor -- with internal checks on improper behavior. The Times report reveals all of this as so many fairy stories -- behind which is a strategy for corporate growth that appears to have relied on bribery.

Second, this episode reveals the tragic folly of NAFTA. When NAFTA was passed in 1994, many in Mexico hoped NAFTA would lead to their country shedding a legacy of public corruption and becoming more like the United States in terms of rule of law. This expectation was right in that it flowed from an understanding that a free trade agreement means economic and legal integration. But it naively assumed that rule of law would win out. Instead, NAFTA has been a race to the bottom in every respect -- including rule of law. U.S. firms like Walmart did not want a North America where the rule of law applied to big corporations -- they wanted a legal system that was for sale both in Mexico and the United States. And so far that's what it appears they got.

Third, who were the losers in Walmart's Mexican business-as-bribery strategy? It appears the losers were Mexicans -- Mexican retailers who could not outbid Walmart, Mexican citizens who saw their environmental laws ignored. The inevitable next question is: Are we too going to be losers in that the rule of law will be undermined in the United States when we decide Walmart is too big, too powerful, too influential to have to obey the law?

That question is now before the bodies responsible for enforcing the Foreign Corrupt Practices Act -- the Securities and Exchange Commission and the Justice Department -- and ultimately the courts. The federal statute book is clear -- it is a crime for a U.S. corporation to bribe an official of a foreign government. The U.S. code is also clear that it is illegal to fire a worker for trying to form a union. Walmart has gotten away with violating our labor laws en masse for decades. Will they be able to similarly ignore our criminal laws and get away with it? If they do, we will know that NAFTA has succeeded not only in lowering living standards on both sides of the border, but in destroying the rule of law.