US House Committee Getting Tough with Walmart

The top-ranking Democratic members of two House committees have sent a letter to Michael Duke, CEO of Wal-Mart Stores Inc. (NYSE: WMT), offering the company one last chance to comply with requests for information related to the bribery allegations that were leveled against Walmart and its Mexican subsidiary Walmex in April. If the allegations are proved to be true, Walmart faces prosecution under the Foreign Corrupt Practices Act and could face a fine of up to $5 billion.

From the Congressmen’s letter:

[W]e have learned that Wal-Mart’s concerns about potential violations of the Foreign Corrupt Practices Act are not limited to operations in Mexico, but are global in nature. … In addition, we have obtained internal company documents, including internal audit reports, from other sources suggesting that Wal-Mart may have had compliance issues relating not only to bribery, but also to “questionable financial behavior” including tax evasion and money laundering in Mexico.

Walmart has met with both the SEC and the Justice Department to discuss the bribery allegations.

The Congressmen chide Walmart for failing to produce a “single” requested document and refusing the committee any contact with company officials. The letter ends with a not-so-veiled threat:

We would like to give you an opportunity to respond to allegations against your company before releasing any investigative report and before making public any documents we have obtained as part of the investigation. For these reasons, we ask that you comply with our previous requests for documents and briefings by August 28, 2012.

How badly Walmart wants to kill the release of the documents the committee has will determine the company’s response to the letter. Walmart’s shares have been posting new highs since the bribery charges were first revealed, so shareholders appear to believe that Walmart will be able to defend itself or that the potential fine is just not that big a deal to the world’s largest retailer.

A statement from Walmex is cited by Reuters:

If such an investigation over these matters was initiated, and Walmex was notified, Walmex will cooperate with the authorities.

From that response, Walmex and Walmart clearly believe that the companies can stonewall Congress — and especially the House’s minority Democrats. The SEC and the Justice Department, however, are another story. This could get interesting.

Mexican-traded shares of Wal-Mart de Mexico SAB De CV are down about -5.3%, but Walmart’s US-traded shares are up about 0.5% at $74.41 in a 52-week range of $49.94-$75.24.

The Congressmen’s letter is available here.

Paul Ausick