Anti-corruption probe: Why we should feel sorry for Walmart
Walmart’s reporting to the US authorities of possible wrongdoing by its joint venture with BhartiBSE -0.91 % in India highlights the power of governance and law enforcement in America. Within our country, this company could have paid millions of dollars in bribes with no fallout whatsoever.
While the US’s Foreign Corrupt Practices Act (FCPA) is laudable and should in theory help curb corruption around the world where American companies do business, it will probably do the reverse. The likes of Walmart, the world’s largest retailer, will be at a distinct disadvantage against local rivals who will continue to bribe their way into reaching milestone number of stores.
In effect, this will stall foreign direct investment in retail, a move desired by politicians of various hues, giving them dual cause for celebration. Firstly, they would have protected the trader community and secondly, the “foreign hand” that sought to stop bribing will be shown its proper place.
The benefits to farmers from higher prices and lower perish of produce and to customers from more competitive rates and a wider range of products will be blocked by corruption in India.
Walmart may have voluntarily reported possible bribes in India, as the company has been under a probe by the US justice department following revelations in April that the company’s Mexican arm, Walmex, had greased palms to speed the granting of permits to open new stores. The US government has in the past couple of years gone after Americans firms that bribe abroad and the largest fines slapped under the FCPA have been during this period.
Walmart has to be more careful than others that have been in the same boat, as the justice department may want to make an example of the company, given its high profile. Self-revelation of bribes paid in India may have been spurred by a belief that it may be treated more leniently when it comes to determining the penalty.
Think of starting a tea stall on Tolstoy Marg in Delhi and visualise the process you would have to go through. In addition to getting a fetching kiosk, a sturdy boy to deliver the chai and wash the chatties, you would most certainly set aside a wad of notes to get approval to start the tea mart.
The India Conundrum
Walmart’s joint venture has set up 18 mega stores across India, and the US company is desirous of opening many more very rapidly because Walmart’s domestic sales have slacked while overseas units have shown a sharper growth in sales.
The India fallout for Walmart will probably be restricted to the cost of an internal investigation, which can be expensive. For Bharti, the risks lie in it having to pay compensation on the quantum of fine in case it has indemnified Walmart, as is often the case in foreign-local joint ventures.
The largest penalty, so far under the FCPA, has been by Siemens in Germany, which paid $800 million in 2008. KBR/Halliburton paid $600 million in the US in 2009. Any penalty of such a quantum may put Bharti in the dock, especially if their litigation insurance claim is rejected on grounds that there was wilful bribing through intermediaries. It may also limit Bharti in case of any future fund-raising in the US.
For Walmart, the global probe after the Mexico revelation couldn’t have come at a worst time. All of Friday, union-backed protesters held pickets outside Walmart stores around the country, demanding better pay and benefits.
That failed to reduce shopper traffic, though. The retailer said in a statement it sold 1.3 million televisions, 1.3 million dolls and 250,000 bicycles since its promotions began at 8 pm yesterday.
Such is the reach of Walmart even in troubled times. Imagine, what this company could do for Indian business and economic growth if it were to have a network as wide as it desires. Unfortunately, it can’t ever do that in India unless bribes are paid to secure some of the 50-odd permits that are needed to open each single store.
Business is slacking in honest America, while it’s booming in corrupt India. And that’s the real tragedy of the Walmart corruption story — the company is a victim in this country.
The writer, a former journalist, is founder of a financial firm that advises global private equity funds on real estate in India