Walmart through third party made improper payments to govt officials in India

Before every big occurrence, there comes a warning. One such warning came to US-based retail behemoth Walmart before its entry in India in early 2007.

A warning from a real estate employee, that it received a “wink and nod” in India when he “brought up transparency and clean transactions relative to the FCPA, that Walmart chose not pay heed to.

And now Walmart, along with its Brazilian subsidiary, have jointly been found liable for a criminal penalty of $137 million in violating the Foreign Corrupt Practices Act (FCPA) in India and other countries including China and Brazil.

“Walmart profited from rapid international expansion, but in doing so chose not to take necessary steps to avoid corruption,” said Assistant Attorney General Brain A Benczkowski announcing the penalty.

He further added that senior Walmart employees knew of failures of its anti-corruption-related internal controls involving foreign subsidiaries, and yet Walmart failed for years to implement sufficient controls comporting with U.S. criminal laws.

In early 2007,  due to foreign direct investment (FDI) restrictions, Walmart proposed that retail operations initially be franchised to India Partner with a wholesale business structured as a joint venture majority owned by Walmart.

The retail major gave responsibility to obtain all licenses, permits, certifications, and zoning for retail stores in India, to India Partner, revealed an investigation conducted by the Department of Justice and the Securities and Exchange Commission (SEC).
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For two years, from 2009 to 2011, Walmart through third-party intermediaries (TPIs) made improper payments to government officials in order to obtain store operating permits and licenses, outlined SEC document.

All these transactions were falsely recorded in Walmart’s joint venture’s books with descriptions like “misc fees,” “miscellaneous,” “professional fees,” “incidental” and “government fee.”

Earlier in April, Walmart had also started an internal probe to look into Flipkart’s regulatory and compliance lapses while setting up fulfillment centres in India.

The online retail major had put many projects of Flipkart on hold after the report surfaced that government officials have been paid off to arrange for required permits. Though, when Entrackr had reached out to Flipkart, it denied and said the report is baseless.

Last year in May, Walmart had acquired 77% stake in Flipkart for a whopping $16 billion.