Walmart-Bharti JV obtained licences by making improper payments: US SEC

The United States Securities and Exchange Commission has observed that Walmart’s earlier joint venture retail operations in India, with Bharti Enterprises, routed improper payments to government officials through third-party intermediaries to obtain store operating permits and licences between 2009 and 2011. These improper payments were then recorded in the India joint venture’s books as “misc fees”, “miscellaneous”, “professional fees”, “incidental”, and “government fee”.

The SEC disclosed this while entering into an agreement with Walmart to settle allegations of bribery in India and other countries, including China, Brazil and Mexico, for $282 million. Walmart had initially entered India through a joint venture with Sunil Mittal-backed Bharti Enterprises because FDI rules do not allow foreign players to own 100 per cent stake in a retail venture. Around November 2006, prior to the formation of the India joint venture, a Walmart real estate employee wrote to a Walmart executive that he had received a “wink and nod” when he “brought up transparency and clean transactions relative to the US Foreign Corrupt Practices Act” with a Bharti employee.

“The India partner employee also admitted that “speed payments” were used in the past by India partner. Walmart did not sufficiently address the Walmart real estate employee’s warning prior to forming India joint venture,” the SEC said.

In or around August 2007, Walmart and Bharti executed franchise and joint venture agreements. Walmart tasked its partner with obtaining all licences, permits, certifications, and zoning for retail stores in India. Between March 2009 and January 2011, Walmart’s internal audit team in India conducted at least three reviews of the India business. “All of those reviews identified certain weaknesses in anti-corruption related internal accounting controls that required remediation, which were not immediately addressed,” the SEC said.

In July 2011, an anonymous source sent an email to Walmart executives alleging, among other things, that a couple of employees of the India venture were involved in a scheme to make improper payments to government officials to obtain store-operating permits and licences.

Although one executive requested that Walmart investigators examine the allegations, Walmart did not conduct an inquiry at that time. “Despite the audit reports discussing control deficiencies and the anonymous email alleging improper payments to government officials, Walmart did not begin to implement and maintain a system of sufficient internal accounting controls related to anti-corruption to address corruption concerns in India until... around April 2011,” the SEC said.

Responding to the settlement, a Bharti spokesperson said, “As a responsible corporate, we have always been and remain compliant with all regulations and the laws of the land. Since we were neither involved nor aware of these proceedings, we would not be able to offer any comment.”

“We’re pleased to resolve this matter,” said Walmart President and CEO Doug McMillon. “We’ve enhanced our policies, procedures and systems and invested... resources globally into ethics and compliance, and now have a strong Global Anti-Corruption Compliance Programme.”

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