vast mexico bribery case hushed up by wal-mart after top-level

VOL. CLXI . . No. 55,749 © 2012 The New York Times NEW YORK, SUNDAY, APRIL 22, 2012

U(D5E71D)x+=!/!/!=!$The propaganda apparatus that theCommunist leader Bo Xilai exploited toburnish his image before his purge hasnow been turned against him. PAGE 6

INTERNATIONAL 6-16

China’s Media Cudgel Nicholas D. Kristof PAGE 11

OPINION IN SUNDAY REVIEW

By DAVID BARSTOW

MEXICO CITY — In Septem-ber 2005, a senior Wal-Mart law-yer received an alarming e-mailfrom a former executive at thecompany’s largest foreign sub-sidiary, Wal-Mart de Mexico. Inthe e-mail and follow-up conver-sations, the former executive de-scribed how Wal-Mart de Mexicohad orchestrated a campaign ofbribery to win market domi-nance. In its rush to build stores,he said, the company had paidbribes to obtain permits in virtu-ally every corner of the country.

The former executive gavenames, dates and bribe amounts.He knew so much, he explained,because for years he had beenthe lawyer in charge of obtainingconstruction permits for Wal-Mart de Mexico.

Wal-Mart dispatched investi-gators to Mexico City, and withindays they unearthed evidence ofwidespread bribery. They founda paper trail of hundreds of sus-pect payments totaling morethan $24 million. They also founddocuments showing that Wal-Mart de Mexico’s top executivesnot only knew about the pay-ments, but had taken steps toconceal them from Wal-Mart’sheadquarters in Bentonville, Ark.In a confidential report to his su-periors, Wal-Mart’s lead investi-gator, a former F.B.I. special

agent, summed up their initialfindings this way: “There is rea-sonable suspicion to believe thatMexican and USA laws havebeen violated.”

The lead investigator recom-mended that Wal-Mart expandthe investigation.

Instead, an examination byThe New York Times found, Wal-Mart’s leaders shut it down.

Neither American nor Mexicanlaw enforcement officials werenotified. None of Wal-Mart deMexico’s leaders were disci-plined. Indeed, its chief execu-tive, Eduardo Castro-Wright,identified by the former execu-tive as the driving force behindyears of bribery, was promoted tovice chairman of Wal-Mart in2008. Until this article, the allega-tions and Wal-Mart’s investiga-tion had never been publicly dis-closed.

But The Times’s examinationuncovered a prolonged struggleat the highest levels of Wal-Mart,a struggle that pitted the compa-ny’s much publicized commit-ment to the highest moral andethical standards against its re-lentless pursuit of growth.

Under fire from labor critics,worried about press leaks andfacing a sagging stock price, Wal-

Vast Mexico Bribery CaseHushed Up by Wal-Mart

After Top-Level Struggle

An Internal Inquiry Was Shut Down, andthe Authorities Were Not Notified

JOSH HANER/THE NEW YORK TIMES

Shoppers in Mexico City. Expanding rapidly in the mid-2000’s,Wal-Mart de Mexico was the company’s brightest success story.

Continued on Page 8

By TIM ARANGO

KHANAQIN, Iraq — In Janu-ary, the dismembered body ofWisam Jumai, a Kurdish intelli-gence officer, was discovered in afield in Sadiyah, a small town innortheastern Iraq. Soon his fam-ily and friends, one after another,received text messages offering achoice: leave or be killed.

“Wisam has been killed,” readone message sent to a cousin.“Wait for your turn. If you wantyour life, leave Sadiyah.”

After Mr. Jumai’s killing, near-ly three dozen Kurdish familiesfled their homes and moved here,according to local officials, to thesanctuary of a city that is claimedby the government in Baghdadbut patrolled by Kurdish forces.Other Kurds from the area havecome here after being pushed outover property disputes that canbe traced to Saddam Hussein’spolicy in the 1970s of expellingKurds and resettling Arabs.

Whether by terrorism or judi-cial order, the continuing dis-placement of Iraq’s Kurdish mi-nority lays bare the unfinishedbusiness of reconciliation in thewake of the American military’swithdrawal, and it is a symptomof the rapidly deteriorating rela-tionship between the semiauton-omous Kurdish governmentbased in Erbil and the centralgovernment in Baghdad.

The schism, which is most im-mediately over sharing oil wealthbut is more deeply about histori-cal grievances and Kurdish aspi-rations for independence, raisesserious questions about the fu-ture of a unified Iraq. The crisis,American officials say, is farmore grave than the political ten-sions between the Shiite-domi-nated government of Prime Min-ister Nuri Kamal al-Maliki andthe country’s Sunni Arab minor-

In the Uprooting of Kurds, IraqTests a Fragile National Unity

Continued on Page 4

MAZEN MAHDI/EUROPEAN PRESSPHOTO AGENCY

Men and women fled tear gas near a site north of the capital where the body of a protester was found on Saturday. 4.More Unrest in Bahrain, and Questions Over a Death

By BROOKS BARNES

ORLANDO, Fla. — Marylandteachers were instructed to en-gage children by crouching andspeaking to them at eye level.Chevrolet dealers were taught tothink in theater metaphors: on-stage, where smiles greet poten-tial buyers, and offstage, wheresales representatives can takeout-of-sight cigarette breaks.

A Florida children’s hospitalwas advised to welcome patients

in an entertaining way, prompt-ing it to employ a ukulele-playinggreeter dressed in safari gear.

These personal service tipscame from the Disney Institute,the low-profile consulting divi-sion of the Walt Disney Company.Desperate for new ways to con-nect with consumers, an increas-ing array of industries and or-ganizations are paying Disney toteach them how to become, well,more like Disney.

Revenue from the Disney Insti-tute has doubled over the last

three years, according to Disney,powered in part by its aggressivepursuit of new business. Over thelast two years alone, 300 schoolsystems across the country havesought its advice.

Other clients range from verylarge entities — Häagen-Dazs In-ternational, United Airlines, thecountry of South Africa — tosmall ones: three Subway restau-rants in Maine, a Michigan hairsalon, a Boston youth-counselingcenter.

The Disney Institute recently

hired a network of field repre-sentatives to sign up clients andstarted dispatching its execu-tives to companies wanting help;before that, advice-seekers trav-eled to Walt Disney World hereor Disneyland in California.

“We’re putting our people onplanes all day every day, domes-tically and internationally,” saidJeff James, who runs Disney’sconsulting branch. “Some clientsare in great shape and want toimprove even further, and some

In Customer Service Consulting, Disney’s Small World Is Growing

Continued on Page 4

By JACKIE CALMES

WASHINGTON — Facing5,000 enthusiastic students atFlorida Atlantic University, Pres-ident Obama rolled up his sleevesand raised his voice to chastiseRepublicans for their spendingcuts and “broken-down theories,”evoking chants of “Four moreyears!”

And that was the nonpoliticalstop on Mr. Obama’s swing-stateitinerary for that day early thismonth. The president sand-wiched the 34-minute speech,billed as an official address on hisso-called Buffett Rule for a mini-mum tax rate for the wealthiestAmericans, amid three overtlypartisan fund-raisers that ac-counted for the bulk of his timealong the south Florida coast.

Mixing policy and politics, Mr.Obama is picking up the pace ofhis travel with that ultimate in-cumbent’s perk — unlimited useof Air Force One. The trips aremostly to about a dozen swingstates that will decide the elec-tion and to two reliably Demo-cratic states, New York and Cali-fornia, for campaign money.

And Mr. Obama is not the onlyfrequent flier with a re-electionagenda. Both Vice President Jo-seph R. Biden Jr. and the firstlady, Michelle Obama, are in-creasingly stumping around thecountry as the campaign seeks torepeat its fund-raising success of2008 and counter a building wave

Is That Trip‘Presidential’Or ‘Political’?

Continued on Page 19

By MIKE McINTIRE

Desperate for new revenue,Ohio lawmakers introduced legis-lation last year that would makeit easier to recover money frombusinesses that defraud the state.

It was quickly flagged at theWashington headquarters of theAmerican Legislative ExchangeCouncil, or ALEC, a business-backed group that views such“false claims” laws as encourag-ing frivolous lawsuits. ALEC’smembership includes not onlycorporations, but nearly 2,000state legislators across the coun-

try — including dozens whowould vote on the Ohio bill.

One of them, Bill Seitz, a promi-nent Republican state senator,wrote to a fellow senior lawmak-er to relay ALEC’s concernsabout “the recent upsurge” infalse-claims legislation nation-wide. “While this is understand-able, as states are broke, the con-sidered advice from our friendsat ALEC was that such legislationis not well taken and should notbe approved,” he said in a privatememorandum.

The legislation was reworkedto ease some of ALEC’s concerns,making it one of many bills the

group has influenced by mobiliz-ing its lawmaker members, avast majority of them Republi-cans.

Despite its generally low pro-file, ALEC has drawn scrutiny re-cently for promoting gun rightspolicies like the Stand YourGround law at the center of theTrayvon Martin shooting case inFlorida, as well as bills to weakenlabor unions and tighten voteridentification rules. Amid thecontroversies, several compa-nies, including Coca-Cola, Intuitand Kraft Foods, have left thegroup.

Most of the attention has fo-cused on ALEC’s role in creatingmodel bills, drafted by lobbyistsand lawmakers, that broadly ad-vance a pro-business, sociallyconservative agenda. But a re-view of internal ALEC docu-ments shows that this is only onefacet of a sophisticated operationfor shaping public policy at astate-by-state level. The recordsoffer a glimpse of how special in-terests effectively turn ALEC’slawmaker members into stealthlobbyists, providing them withtalking points, signaling howthey should vote and collaborat-ing on bills affecting hundreds ofissues like school vouchers andtobacco taxes.

The documents — hundreds ofpages of minutes of private meet-ings, member e-mail alerts andcorrespondence — were obtainedby the watchdog group CommonCause and shared with The NewYork Times. Common Cause,which said it got some of the doc-uments from a whistle-blowerand others from public record re-

Nonprofit Acts as a Stealth Business Lobbyist


The United Nations Security Council ap-proved increasing the number of cease-fire monitors in Syria as an advanceteam toured Homs. PAGE 14

More Truce Monitors for Syria

BOB DAUGHERTY/ASSOCIATED PRESS

Charles W. Colson, in 1974, a political enforcer for PresidentRichard M. Nixon who turned to religion. Obituary, Page 22.

Charles W. Colson Dies at 80

Philip Humber, a former Met, threw the21st perfect game in major league histo-ry, retiring all 27 Seattle Mariners bat-ters in a 4-0 victory. PAGE 2

SPORTSSUNDAY

White Sox Pitcher Is PerfectUtah’s six-term senator survives a testfrom nine challengers at the RepublicanParty state convention, but must face asecond-round opponent. PAGE 18

NATIONAL 17-21

Orrin Hatch Faces Primary

Today, rain, becoming heavy, high56. Tonight, rain, flooding possible,very windy, low 50. Tomorrow, acouple of showers, breezy, high 59.Weather map appears on Page 20.

$6 beyond the greater New York metropolitan area. $5.00

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MEXICO CITY

In September 2005, a senior Wal-Mart lawyer received an alarming e-mail from a former executive at the company’s largest foreign

subsidiary, Wal-Mart de Mexico. In the e-mail and follow-up conversations, the former execu-tive described how Wal-Mart de Mexico had or-chestrated a campaign of bribery to win market dominance. In its rush to build stores, he said, the company had paid bribes to obtain permits in virtually every corner of the country.

The former executive gave names, dates and bribe amounts. He knew so much, he ex-plained, because for years he had been the law-yer in charge of obtaining construction permits for Wal-Mart de Mexico.

Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico’s top executives not only knew about the pay-ments, but had taken steps to conceal them from Wal-Mart’s headquarters in Bentonville, Ark. In a confidential report to his superiors, Wal-Mart’s lead investigator, a former F.B.I. special agent, summed up their initial findings this way: “There is reasonable suspicion to be-lieve that Mexican and USA laws have been vio-lated.”

The lead investigator recommended that Wal-Mart expand the investigation.

Instead, an examination by The new York Times found, Wal-Mart’s leaders shut it down.

neither American nor Mexican law enforce-ment officials were notified. none of Wal-Mart de Mexico’s leaders were disciplined. Indeed, its chief executive, Eduardo Castro-Wright, identified by the former executive as the driv-ing force behind years of bribery, was promoted to vice chairman of Wal-Mart in 2008. Until this article, the allegations and Wal-Mart’s investi-gation had never been publicly disclosed.

But The Times’s examination uncovered a prolonged struggle at the highest levels of Wal-Mart, a struggle that pitted the company’s much publicized commitment to the highest moral and ethical standards against its relent-less pursuit of growth.

Under fire from labor critics, worried about press leaks and facing a sagging stock price, Wal-Mart’s leaders recognized that the allega-

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tions could have devastating consequences, documents and interviews show. Wal-Mart de Mexico was the company’s brightest success story, pitched to investors as a model for future growth. (Today, one in five Wal-Mart stores is in Mexico.) Confronted with evidence of corrup-tion in Mexico, top Wal-Mart executives focused more on damage control than on rooting out wrongdoing.

In one meeting where the bribery case was discussed, H. Lee Scott Jr., then Wal-Mart’s chief executive, rebuked internal investiga-tors for being overly aggressive. Days later, records show, Wal-Mart’s top lawyer arranged to ship the internal investigators’ files on the case to Mexico City. Primary responsibility for the investigation was then given to the general counsel of Wal-Mart de Mexico — a remarkable choice since the same general counsel was al-leged to have authorized bribes.

The general counsel promptly exonerated his fellow Wal-Mart de Mexico executives.

When Wal-Mart’s director of corporate investigations — a former top F.B.I. official — read the general counsel’s report, his appraisal was scathing. “Truly lacking,” he wrote in an e-mail to his boss.

The report was nonetheless accepted by Wal-Mart’s leaders as the last word on the mat-ter.

In December, after learning of The Times’s reporting in Mexico, Wal-Mart informed the Justice Department that it had begun an inter-nal investigation into possible violations of the Foreign Corrupt Practices Act, a federal law that makes it a crime for American corporations and their subsidiaries to bribe foreign officials. Wal-Mart said the company had learned of pos-sible problems with how it obtained permits, but stressed that the issues were limited to “dis-crete” cases.

“We do not believe that these matters will have a material adverse effect on our business,” the company said in a filing with the Securities and Exchange Commission.

But The Times’s examination found credible evidence that bribery played a persistent and significant role in Wal-Mart’s rapid growth in Mexico, where Wal-Mart now employs 209,000 people, making it the country’s largest private employer.

A Wal-Mart spokesman confirmed that the

company’s Mexico operations — and its han-dling of the 2005 case — were now a major focus of its inquiry.

“If these allegations are true, it is not a re-flection of who we are or what we stand for,” the spokesman, David W. Tovar, said. “We are deeply concerned by these allegations and are working aggressively to determine what hap-pened.”

In the meantime, Mr. Tovar said, Wal-Mart is taking steps in Mexico to strengthen compli-ance with the Foreign Corrupt Practices Act. “We do not and will not tolerate noncompliance with F.C.P.A. anywhere or at any level of the company,” he said.

The Times laid out this article’s findings to Wal-Mart weeks ago. The company said it shared the findings with many of the executives named here, including Mr. Scott, now on Wal-Mart’s board, and Mr. Castro-Wright, who is re-tiring in July. Both men declined to comment, Mr. Tovar said.

The Times obtained hundreds of inter-nal company documents tracing the evolution of Wal-Mart’s 2005 Mexico investigation. The documents show Wal-Mart’s leadership imme-diately recognized the seriousness of the allega-tions. Working in secrecy, a small group of ex-ecutives, including several current members of Wal-Mart’s senior management, kept close tabs on the inquiry.

Michael T. Duke, Wal-Mart’s current chief executive, was also kept informed. At the time, Mr. Duke had just been put in charge of Wal-Mart International, making him responsible for all foreign subsidiaries. “You’ll want to read this,” a top Wal-Mart lawyer wrote in an Oct. 15, 2005, e-mail to Mr. Duke that gave a detailed de-scription of the former executive’s allegations.

The Times examination included more than 15 hours of interviews with the former execu-tive, Sergio Cicero Zapata, who resigned from Wal-Mart de Mexico in 2004 after nearly a de-cade in the company’s real estate department.

In the interviews, Mr. Cicero recounted how he had helped organize years of payoffs. He described personally dispatching two trusted outside lawyers to deliver envelopes of cash to government officials. They targeted mayors and city council members, obscure urban plan-ners, low-level bureaucrats who issued permits — anyone with the power to thwart Wal-Mart’s

growth. The bribes, he said, bought zoning ap-provals, reductions in environmental impact fees and the allegiance of neighborhood leaders.

He called it working “the dark side of the moon.”

The Times also reviewed thousands of government documents related to permit re-quests for stores across Mexico. The examina-tion found many instances where permits were given within weeks or even days of Wal-Mart de Mexico’s payments to the two lawyers. Again and again, The Times found, legal and bureau-cratic obstacles melted away after payments were made.

The Times conducted extensive interviews with participants in Wal-Mart’s investigation. They spoke on the condition that they not be identified discussing matters Wal-Mart has long shielded. These people said the investigation left little doubt Mr. Cicero’s allegations were cred-ible. (“not even a close call,” one person said.)

But, they said, the more investigators cor-roborated his assertions, the more resistance they encountered inside Wal-Mart. Some of it

came from powerful executives implicated in the corruption, records and interviews show. Other top executives voiced concern about the possible legal and reputational harm.

In the end, people involved in the investiga-tion said, Wal-Mart’s leaders found a bloodless-ly bureaucratic way to bury the matter. But in handing the investigation off to one of its main targets, they disregarded the advice of one of Wal-Mart’s top lawyers, the same lawyer first contacted by Mr. Cicero.

“The wisdom of assigning any investiga-tive role to management of the business unit being investigated escapes me,” Maritza I. Munich, then general counsel of Wal-Mart In-ternational, wrote in an e-mail to top Wal-Mart executives.

The investigation, she urged, should be completed using “professional, independent in-vestigative resources.”

The Allegations EmergeOn Sept. 21, 2005, Mr. Cicero sent an e-mail

to Ms. Munich telling her he had information

8 N INTERNATIONALTHE NEW YORK TIMES SUNDAY, APRIL 22, 2012

Mart’s leaders recognized that the alle-gations could have devastating conse-quences, documents and interviewsshow. Wal-Mart de Mexico was the com-pany’s brightest success story, pitchedto investors as a model for futuregrowth. (Today, one in five Wal-Martstores is in Mexico.) Confronted withevidence of corruption in Mexico, topWal-Mart executives focused more ondamage control than on rooting outwrongdoing.

In one meeting where the briberycase was discussed, H. Lee Scott Jr.,then Wal-Mart’s chief executive, re-buked internal investigators for beingoverly aggressive. Days later, recordsshow, Wal-Mart’s top lawyer arrangedto ship the internal investigators’ fileson the case to Mexico City. Primary re-sponsibility for the investigation wasthen given to the general counsel ofWal-Mart de Mexico — a remarkablechoice since the same general counselwas alleged to have authorized bribes.

The general counsel promptly exon-erated his fellow Wal-Mart de Mexicoexecutives.

When Wal-Mart’s director of corpo-rate investigations — a former top F.B.I.official — read the general counsel’s re-port, his appraisal was scathing. “Trulylacking,” he wrote in an e-mail to hisboss.

The report was nonetheless acceptedby Wal-Mart’s leaders as the last wordon the matter.

In December, after learning of TheTimes’s reporting in Mexico, Wal-Martinformed the Justice Department that ithad begun an internal investigation intopossible violations of the Foreign Cor-rupt Practices Act, a federal law thatmakes it a crime for American corpora-tions and their subsidiaries to bribe for-eign officials. Wal-Mart said the compa-ny had learned of possible problemswith how it obtained permits, butstressed that the issues were limited to“discrete” cases.

“We do not believe that these matterswill have a material adverse effect onour business,” the company said in a fil-ing with the Securities and ExchangeCommission.

But The Times’s examination foundcredible evidence that bribery played apersistent and significant role in Wal-Mart’s rapid growth in Mexico, whereWal-Mart now employs 209,000 people,making it the country’s largest privateemployer.

A Wal-Mart spokesman confirmedthat the company’s Mexico operations— and its handling of the 2005 case —were now a major focus of its inquiry.

“If these allegations are true, it is nota reflection of who we are or what westand for,” the spokesman, David W.Tovar, said. “We are deeply concernedby these allegations and are workingaggressively to determine what hap-pened.”

In the meantime, Mr. Tovar said, Wal-Mart is taking steps in Mexico tostrengthen compliance with the ForeignCorrupt Practices Act. “We do not andwill not tolerate noncompliance withF.C.P.A. anywhere or at any level of thecompany,” he said.

The Times laid out this article’s find-ings to Wal-Mart weeks ago. The com-pany said it shared the findings withmany of the executives named here, in-cluding Mr. Scott, now on Wal-Mart’sboard, and Mr. Castro-Wright, who is re-tiring in July. Both men declined to com-ment, Mr. Tovar said.

The Times obtained hundreds of in-ternal company documents tracing theevolution of Wal-Mart’s 2005 Mexico in-vestigation. The documents show Wal-Mart’s leadership immediately recog-nized the seriousness of the allegations.Working in secrecy, a small group of ex-ecutives, including several currentmembers of Wal-Mart’s senior manage-

ment, kept close tabs on the inquiry.Michael T. Duke, Wal-Mart’s current

chief executive, was also kept informed.At the time, Mr. Duke had just been putin charge of Wal-Mart International,making him responsible for all foreignsubsidiaries. “You’ll want to read this,”a top Wal-Mart lawyer wrote in an Oct.15, 2005, e-mail to Mr. Duke that gave adetailed description of the former exec-utive’s allegations.

The Times examination includedmore than 15 hours of interviews withthe former executive, Sergio CiceroZapata, who resigned from Wal-Mart deMexico in 2004 after nearly a decade inthe company’s real estate department.

In the interviews, Mr. Cicero recount-ed how he had helped organize years ofpayoffs. He described personally dis-patching two trusted outside lawyers todeliver envelopes of cash to govern-ment officials. They targeted mayorsand city council members, obscure ur-ban planners, low-level bureaucratswho issued permits — anyone with thepower to thwart Wal-Mart’s growth.The bribes, he said, bought zoning ap-provals, reductions in environmentalimpact fees and the allegiance of neigh-borhood leaders.

He called it working “the dark side ofthe moon.”

The Times also reviewed thousandsof government documents related topermit requests for stores across Mex-ico. The examination found many in-stances where permits were given with-in weeks or even days of Wal-Mart deMexico’s payments to the two lawyers.Again and again, The Times found, legaland bureaucratic obstacles meltedaway after payments were made.

The Times conducted extensive in-terviews with participants in Wal-Mart’s investigation. They spoke on thecondition that they not be identified dis-cussing matters Wal-Mart has longshielded. These people said the investi-gation left little doubt Mr. Cicero’s alle-gations were credible. (“Not even aclose call,” one person said.)

But, they said, the more investigatorscorroborated his assertions, the moreresistance they encountered inside Wal-Mart. Some of it came from powerful ex-ecutives implicated in the corruption,records and interviews show. Other topexecutives voiced concern about thepossible legal and reputational harm.

In the end, people involved in the in-vestigation said, Wal-Mart’s leadersfound a bloodlessly bureaucratic way tobury the matter. But in handing the in-vestigation off to one of its main targets,they disregarded the advice of one ofWal-Mart’s top lawyers, the same law-

yer first contacted by Mr. Cicero. “The wisdom of assigning any in-

vestigative role to management of thebusiness unit being investigated es-capes me,” Maritza I. Munich, then gen-eral counsel of Wal-Mart International,wrote in an e-mail to top Wal-Mart exec-utives.

The investigation, she urged, shouldbe completed using “professional, inde-pendent investigative resources.”

The Allegations EmergeOn Sept. 21, 2005, Mr. Cicero sent an

e-mail to Ms. Munich telling her he hadinformation about “irregularities” au-thorized “by the highest levels” at Wal-Mart de Mexico. “I hope to meet yousoon,” he wrote.

Ms. Munich was familiar with thechallenges of avoiding corruption inLatin America. Before joining Wal-Martin 2003, she had spent 12 years in Mex-ico and elsewhere in Latin America as alawyer for Procter & Gamble.

At Wal-Mart in 2004, she pushed theboard to adopt a strict anticorruptionpolicy that prohibited all employeesfrom “offering anything of value to agovernment official on behalf of Wal-Mart.” It required every employee to re-port the first sign of corruption, and itbound Wal-Mart’s agents to the sameexacting standards.

Ms. Munich reacted quickly to Mr.Cicero’s e-mail. Within days, she hiredJuan Francisco Torres-Landa, a promi-nent Harvard-trained lawyer in MexicoCity, to debrief Mr. Cicero. The two menmet three times in October 2005, withMs. Munich flying in from Bentonvillefor the third debriefing.

During hours of questioning, Mr. Tor-res-Landa’s notes show, Mr. Cicero de-scribed how Wal-Mart de Mexico hadperfected the art of bribery, then hiddenit all with fraudulent accounting. Mr.Cicero implicated many of Wal-Mart deMexico’s leaders, including its boardchairman, its general counsel, its chiefauditor and its top real estate executive.

But the person most responsible, hetold Mr. Torres-Landa, was the compa-ny’s ambitious chief executive, EduardoCastro-Wright, a native of Ecuador whowas recruited from Honeywell in 2001 tobecome Wal-Mart’s chief operating offi-cer in Mexico.

Mr. Cicero said that while bribes wereoccasionally paid before Mr. Castro-Wright’s arrival, their use soared afterMr. Castro-Wright ascended to the topjob in 2002. Mr. Cicero described howWal-Mart de Mexico’s leaders had set“very aggressive growth goals,” whichrequired opening new stores “in record

times.” Wal-Mart de Mexico executives,he said, were under pressure to do“whatever was necessary” to obtainpermits.

In an interview with The Times, Mr.Cicero said Mr. Castro-Wright had en-couraged the payments for a specificstrategic purpose. The idea, he said,was to build hundreds of new stores sofast that competitors would not havetime to react. Bribes, he explained, ac-celerated growth. They got zoning mapschanged. They made environmental ob-jections vanish. Permits that typicallytook months to process magically mate-rialized in days. “What we were buyingwas time,” he said.

Wal-Mart de Mexico’s stunninggrowth made Mr. Castro-Wright a risingstar in Bentonville. In early 2005, whenhe was promoted to a senior position inthe United States, Mr. Duke would citehis “outstanding results” in Mexico.

Mr. Cicero’s allegations were all the

more startling because he implicatedhimself. He spent hours explaining toMr. Torres-Landa the mechanics of howhe had helped funnel bribes throughtrusted fixers, known as “gestores.”

Gestores (pronounced hes-TORE-ehs) are a fixture in Mexico’s byzantinebureaucracies, and some are entirely le-gitimate. Ordinary citizens routinelypay gestores to stand in line for them atthe driver’s license office. Companieshire them as quasi-lobbyists to getthings done as painlessly as possible.

But often gestores play starring rolesin Mexico’s endless loop of public cor-ruption scandals. They operate in theshadows, dangling payoffs to officials ofevery rank. It was this type of gestorthat Wal-Mart de Mexico deployed, Mr.Cicero said.

Mr. Cicero told Mr. Torres-Landa itwas his job to recruit the gestores. Heworked closely with them, sharingstrategies on whom to bribe. He also ap-proved Wal-Mart de Mexico’s payments

to the gestores. Each payment coveredthe bribe and the gestor’s fee, typically6 percent of the bribe.

It was all carefully monitored througha system of secret codes known only toa handful of Wal-Mart de Mexico execu-tives.

The gestores submitted invoices withbrief, vaguely worded descriptions oftheir services. But the real story, Mr.Cicero said, was told in codes written onthe invoices. The codes identified thespecific “irregular act” performed, Mr.Cicero explained to Mr. Torres-Landa.One code, for example, indicated a bribeto speed up a permit. Others describedbribes to obtain confidential informa-tion or eliminate fines.

Each month, Mr. Castro-Wright andother top Wal-Mart de Mexico execu-tives “received a detailed schedule of allof the payments performed,” he said, ac-cording to the lawyer’s notes. Wal-Martde Mexico then “purified” the bribes inaccounting records as simple legal fees.

They also took care to keep Benton-ville in the dark. “Dirty clothes arewashed at home,” Mr. Cicero said.

Mr. Torres-Landa explored Mr. Cic-ero’s motives for coming forward.

Mr. Cicero said he resigned in Sep-tember 2004 because he felt underap-preciated. He described the “pressureand stress” of participating in years ofcorruption, of contending with “greedy”officials who jacked up bribe demands.

As he told The Times, “I thought I de-served a medal at least.”

The breaking point came in early2004, when he was passed over for thejob of general counsel of Wal-Mart deMexico. This snub, Mr. Torres-Landawrote, “generated significant angerwith respect to the lack of recognitionfor his work.” Mr. Cicero said he beganto assemble a record of bribes he hadhelped orchestrate to “protect him incase of any complaint or investigation,”Mr. Torres-Landa wrote.

“We did not detect on his part any ex-press statement about wishing to sellthe information,” the lawyer added.

According to people involved in Wal-Mart’s investigation, Mr. Cicero’s ac-count of criminality at the top of Wal-Mart’s most important foreign subsid-iary was impossible to dismiss. He hadclearly been in a position to witness theevents he described. Nor was this thefirst indication of corruption at Wal-Mart de Mexico under Mr. Castro-Wright. A confidential investigation,conducted for Wal-Mart in 2003 by KrollInc., a leading investigation firm, dis-covered that Wal-Mart de Mexico hadsystematically increased its sales byhelping favored high-volume customersevade sales taxes.

A draft of Kroll’s report, obtained byThe Times, concluded that top Wal-Mart de Mexico executives had failed toenforce their own anticorruption pol-icies, ignored internal audits that raisedred flags and even disregarded localpress accounts asserting that Wal-Martde Mexico was “carrying out a taxfraud.” (The company ultimately paid$34.3 million in back taxes.)

Wal-Mart then asked Kroll to evalu-ate Wal-Mart de Mexico’s internal auditand antifraud units. Kroll wrote anotherreport that branded the units “ineffec-tive.” Many employees accused ofwrongdoing were not even questioned;some “received a promotion shortly af-ter the suspicions of fraudulent activi-ties had surfaced.”

None of these findings, though, hadslowed Mr. Castro-Wright’s rise.

Just days before Mr. Cicero’s first de-briefing, Mr. Castro-Wright was pro-moted again. He was put in charge of allWal-Mart stores in the United States,one of the most prominent jobs in thecompany. He also joined Wal-Mart’s ex-ecutive committee, the company’s innersanctum of leadership.

The Initial ResponseMs. Munich sent detailed memos de-

scribing Mr. Cicero’s debriefings to Wal-Mart’s senior management. These ex-


A Walmart store in Mexico City. Wal-Mart’s goal in Mexico was to build hundreds of stores so fast that rivals could not react, a former executive said.

Vast Mexican Bribery Case Hushed Up by Wal-Mart

SUSANA GONZALEZ/BLOOMBERG NEWS

A Sam’s Club store in Mexico City. Wal-Mart is Mexico’s largest private employer, with 209,000 employees.

‘The wisdom ofassigning any

investigative role tomanagement of thebusiness unit being

investigated escapes me.’

Alejandra Xanic von Bertrab and JamesC. McKinley Jr. contributed reportingfrom Mexico City.

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about “irregularities” authorized “by the high-est levels” at Wal-Mart de Mexico. “I hope to meet you soon,” he wrote.

Ms. Munich was familiar with the challeng-es of avoiding corruption in Latin America. Be-fore joining Wal-Mart in 2003, she had spent 12 years in Mexico and elsewhere in Latin Ameri-ca as a lawyer for Procter & Gamble.

At Wal-Mart in 2004, she pushed the board to adopt a strict anticorruption policy that pro-hibited all employees from “offering anything of value to a government official on behalf of Wal-Mart.” It required every employee to report the first sign of corruption, and it bound Wal-Mart’s agents to the same exacting standards.

Ms. Munich reacted quickly to Mr. Cicero’s e-mail. Within days, she hired Juan Francisco Torres-Landa, a prominent Harvard-trained lawyer in Mexico City, to debrief Mr. Cicero. The two men met three times in October 2005, with Ms. Munich flying in from Ben-tonville for the third debriefing.

During hours of question-ing, Mr. Torres-Landa’s notes show, Mr. Cicero described how Wal-Mart de Mexico had per-fected the art of bribery, then hidden it all with fraudulent ac-counting. Mr. Cicero implicated many of Wal-Mart de Mexico’s leaders, including its board chairman, its general counsel, its chief auditor and its top real estate executive.

But the person most responsible, he told Mr. Torres-Landa, was the company’s ambi-tious chief executive, Eduardo Castro-Wright, a native of Ecuador who was recruited from Hon-eywell in 2001 to become Wal-Mart’s chief oper-ating officer in Mexico.

Mr. Cicero said that while bribes were oc-casionally paid before Mr. Castro-Wright’s ar-rival, their use soared after Mr. Castro-Wright ascended to the top job in 2002. Mr. Cicero de-scribed how Wal-Mart de Mexico’s leaders had set “very aggressive growth goals,” which re-quired opening new stores “in record times.” Wal-Mart de Mexico executives, he said, were under pressure to do “whatever was neces-sary” to obtain permits.

In an interview with The Times, Mr. Cicero said Mr. Castro-Wright had encouraged the pay-ments for a specific strategic purpose. The idea,

he said, was to build hundreds of new stores so fast that competitors would not have time to re-act. Bribes, he explained, accelerated growth. They got zoning maps changed. They made environmental objections vanish. Permits that typically took months to process magically ma-terialized in days. “What we were buying was time,” he said.

Wal-Mart de Mexico’s stunning growth made Mr. Castro-Wright a rising star in Benton-ville. In early 2005, when he was promoted to a senior position in the United States, Mr. Duke would cite his “outstanding results” in Mexico.

Mr. Cicero’s allegations were all the more startling because he implicated himself. He spent hours explaining to Mr. Torres-Landa the mechanics of how he had helped funnel bribes through trusted fixers, known as “gestores.”

Gestores (pronounced hes-TORE-ehs) are a fixture in Mexico’s byzantine bureaucracies,

and some are entirely legiti-mate. Ordinary citizens routine-ly pay gestores to stand in line for them at the driver’s license office. Companies hire them as quasi-lobbyists to get things done as painlessly as possible.

But often gestores play starring roles in Mexico’s end-less loop of public corruption scandals. They operate in the shadows, dangling payoffs to

officials of every rank. It was this type of gestor that Wal-Mart de Mexico deployed, Mr. Cicero said.

Mr. Cicero told Mr. Torres-Landa it was his job to recruit the gestores. He worked closely with them, sharing strategies on whom to bribe. He also approved Wal-Mart de Mexico’s pay-ments to the gestores. Each payment covered the bribe and the gestor’s fee, typically 6 per-cent of the bribe.

It was all carefully monitored through a system of secret codes known only to a handful of Wal-Mart de Mexico executives.

The gestores submitted invoices with brief, vaguely worded descriptions of their services. But the real story, Mr. Cicero said, was told in codes written on the invoices. The codes iden-tified the specific “irregular act” performed, Mr. Cicero explained to Mr. Torres-Landa. One code, for example, indicated a bribe to speed up





































































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a permit. Others described bribes to obtain con-fidential information or eliminate fines.

Each month, Mr. Castro-Wright and other top Wal-Mart de Mexico executives “received a detailed schedule of all of the payments per-formed,” he said, according to the lawyer’s notes. Wal-Mart de Mexico then “purified” the bribes in accounting records as simple legal fees.

They also took care to keep Bentonville in the dark. “Dirty clothes are washed at home,” Mr. Cicero said.

Mr. Torres-Landa explored Mr. Cicero’s mo-tives for coming forward.

Mr. Cicero said he resigned in September 2004 because he felt underappreciated. He de-scribed the “pressure and stress” of participat-ing in years of corruption, of contending with “greedy” officials who jacked up bribe demands.

As he told The Times, “I thought I deserved a medal at least.”

The breaking point came in early 2004, when he was passed over for the job of general counsel of Wal-Mart de Mexico. This snub, Mr. Torres-Landa wrote, “generated significant an-

ger with respect to the lack of recognition for his work.” Mr. Cicero said he began to assemble a record of bribes he had helped orchestrate to “protect him in case of any complaint or investi-gation,” Mr. Torres-Landa wrote.

“We did not detect on his part any express statement about wishing to sell the informa-tion,” the lawyer added.

According to people involved in Wal-Mart’s investigation, Mr. Cicero’s account of criminal-ity at the top of Wal-Mart’s most important for-eign subsidiary was impossible to dismiss. He had clearly been in a position to witness the events he described. nor was this the first in-dication of corruption at Wal-Mart de Mexico under Mr. Castro-Wright. A confidential investi-gation, conducted for Wal-Mart in 2003 by Kroll Inc., a leading investigation firm, discovered that Wal-Mart de Mexico had systematically increased its sales by helping favored high-vol-ume customers evade sales taxes.

A draft of Kroll’s report, obtained by The Times, concluded that top Wal-Mart de Mexico executives had failed to enforce their own an-ticorruption policies, ignored internal audits





































































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that raised red flags and even disregarded lo-cal press accounts asserting that Wal-Mart de Mexico was “carrying out a tax fraud.” (The company ultimately paid $34.3 million in back taxes.)

Wal-Mart then asked Kroll to evaluate Wal-Mart de Mexico’s internal audit and antifraud units. Kroll wrote another report that brand-ed the units “ineffective.” Many employees accused of wrongdoing were not even ques-tioned; some “received a promotion shortly af-ter the suspicions of fraudulent activities had surfaced.”

none of these findings, though, had slowed Mr. Castro-Wright’s rise.

Just days before Mr. Cicero’s first debrief-ing, Mr. Castro-Wright was promoted again. He was put in charge of all Wal-Mart stores in the United States, one of the most prominent jobs in the company. He also joined Wal-Mart’s execu-tive committee, the company’s inner sanctum of leadership.

The Initial ResponseMs. Munich sent detailed memos describing

Mr. Cicero’s debriefings to Wal-Mart’s senior management. These executives, records show, included Thomas A. Mars, Wal-Mart’s general counsel and a former director of the Arkansas State Police; Thomas D. Hyde, Wal-Mart’s ex-ecutive vice president and corporate secretary; Michael Fung, Wal-Mart’s top internal audi-tor; Craig Herkert, the chief executive for Wal-Mart’s operations in Latin America; and Lee Stucky, a confidant of Lee Scott’s and chief ad-ministrative officer of Wal-Mart International.

Wal-Mart typically hired outside law firms to lead internal investigations into allegations of significant wrongdoing. It did so earlier in 2005, for example, when Thomas M. Coughlin, then vice chairman of Wal-Mart, was accused of pad-ding his expense accounts and misappropriat-ing Wal-Mart gift cards.

At first, Wal-Mart took the same approach with Mr. Cicero’s allegations. It turned to Willk-ie Farr & Gallagher, a law firm with extensive experience in Foreign Corrupt Practices Act cases.

The firm’s “investigation work plan” called for tracing all payments to anyone who had helped Wal-Mart de Mexico obtain permits for the previous five years. The firm said it would

scrutinize “any and all payments” to govern-ment officials and interview every person who might know about payoffs, including “implicat-ed members” of Wal-Mart de Mexico’s board.

In short, Willkie Farr recommended the kind of independent, spare-no-expense investi-gation major corporations routinely undertake when confronted with allegations of serious wrongdoing by top executives.

Wal-Mart’s leaders rejected this approach. Instead, records show, they decided Wal-Mart’s lawyers would supervise a far more limited “preliminary inquiry” by in-house investiga-tors.

The inquiry, a confidential memo explained, would take two weeks, not the four months Willkie Farr proposed. Rather than examining years of permits, the team would look at a few specific stores. Interviews would be done “only when absolutely essential to establishing the bona fides” of Mr. Cicero. However, if the in-quiry found a “likelihood” that laws had been violated, the company would then consider con-ducting a “full investigation.”

The decision gave Wal-Mart’s senior man-agement direct control over the investigation. It also meant new responsibility for the company’s tiny and troubled Corporate Investigations unit.

The unit was ill-equipped to take on a major corruption investigation, let alone one in Mex-ico. It had fewer than 70 employees, and most were assigned to chasing shoplifting rings and corrupt vendors. Just four people were specifi-cally dedicated to investigating corporate fraud, a number Joseph R. Lewis, Wal-Mart’s director of corporate investigations, described in a con-fidential memo as “wholly inadequate for an or-ganization the size of Wal-Mart.”

But Mr. Lewis and his boss, Kenneth H. Senser, vice president for global security, avia-tion and travel, were working to strengthen the unit. Months before Mr. Cicero surfaced, they won approval to hire four “special investiga-tors” who, according to their job descriptions, would be assigned the “most significant and complex fraud matters.” Mr. Scott, the chief ex-ecutive, also agreed that Corporate Investiga-tions would handle all allegations of misconduct by senior executives.

And yet in the fall of 2005, as Wal-Mart be-gan to grapple with Mr. Cicero’s allegations, two cases called into question Corporate Investiga-

Ø N 9INTERNATIONALTHE NEW YORK TIMES SUNDAY, APRIL 22, 2012

ecutives, records show, included Thom-as A. Mars, Wal-Mart’s general counseland a former director of the ArkansasState Police; Thomas D. Hyde, Wal-Mart’s executive vice president andcorporate secretary; Michael Fung,Wal-Mart’s top internal auditor; CraigHerkert, the chief executive for Wal-Mart’s operations in Latin America;and Lee Stucky, a confidant of LeeScott’s and chief administrative officerof Wal-Mart International.

Wal-Mart typically hired outside lawfirms to lead internal investigations intoallegations of significant wrongdoing. Itdid so earlier in 2005, for example, whenThomas M. Coughlin, then vice chair-man of Wal-Mart, was accused of pad-ding his expense accounts and misap-propriating Wal-Mart gift cards.

At first, Wal-Mart took the same ap-proach with Mr. Cicero’s allegations. Itturned to Willkie Farr & Gallagher, alaw firm with extensive experience inForeign Corrupt Practices Act cases.

The firm’s “investigation work plan”called for tracing all payments to any-one who had helped Wal-Mart de Mex-ico obtain permits for the previous fiveyears. The firm said it would scrutinize“any and all payments” to governmentofficials and interview every personwho might know about payoffs, includ-ing “implicated members” of Wal-Martde Mexico’s board.

In short, Willkie Farr recommendedthe kind of independent, spare-no-ex-pense investigation major corporationsroutinely undertake when confrontedwith allegations of serious wrongdoingby top executives.

Wal-Mart’s leaders rejected this ap-proach. Instead, records show, they de-cided Wal-Mart’s lawyers would super-vise a far more limited “preliminary in-quiry” by in-house investigators.

The inquiry, a confidential memo ex-plained, would take two weeks, not thefour months Willkie Farr proposed.Rather than examining years of per-mits, the team would look at a few spe-cific stores. Interviews would be done“only when absolutely essential to es-tablishing the bona fides” of Mr. Cicero.However, if the inquiry found a “likeli-hood” that laws had been violated, thecompany would then consider conduct-ing a “full investigation.”

The decision gave Wal-Mart’s seniormanagement direct control over the in-vestigation. It also meant new responsi-bility for the company’s tiny and trou-bled Corporate Investigations unit.

The unit was ill-equipped to take on amajor corruption investigation, let aloneone in Mexico. It had fewer than 70 em-ployees, and most were assigned tochasing shoplifting rings and corruptvendors. Just four people were specifi-cally dedicated to investigating corpo-rate fraud, a number Joseph R. Lewis,Wal-Mart’s director of corporate inves-tigations, described in a confidentialmemo as “wholly inadequate for an or-ganization the size of Wal-Mart.”

But Mr. Lewis and his boss, KennethH. Senser, vice president for global se-curity, aviation and travel, were work-ing to strengthen the unit. Months be-fore Mr. Cicero surfaced, they won ap-proval to hire four “special investiga-tors” who, according to their job de-scriptions, would be assigned the “mostsignificant and complex fraud matters.”Mr. Scott, the chief executive, alsoagreed that Corporate Investigationswould handle all allegations of mis-conduct by senior executives.

And yet in the fall of 2005, as Wal-Mart began to grapple with Mr. Cicero’sallegations, two cases called into ques-tion Corporate Investigations’ inde-pendence and role.

In October, Wal-Mart’s vice chair-man, John B. Menzer, intervened in aninternal investigation into a senior vicepresident who reported to him. Accord-ing to internal records, Mr. Menzer toldMr. Senser he did not want CorporateInvestigations to handle the case “dueto concerns about the impact such an in-vestigation would have.” One of the sen-ior vice president’s subordinates, hesaid, “would be better suited to conductthis inquiry.” Soon after, records show,the subordinate cleared his boss.

The other case involved the presidentof Wal-Mart Puerto Rico. A whistle-blower had accused the president andother executives of mistreating employ-ees. Although Corporate Investigationswas supposed to investigate all allega-tions against senior executives, thepresident had instead assigned an un-derling to look into the complaints —but to steer clear of those against him.

Ms. Munich objected. In an e-mail toWal-Mart executives, she complainedthat the investigation was “at the di-rection of the same company officerwho is the target of several of the allega-tions.”

“We are in need of clear guidelinesabout how to handle these issues goingforward,” she warned.

The Inquiry BeginsRonald Halter, one of Wal-Mart’s new

“special investigators,” was assigned tolead the preliminary inquiry into Mr.Cicero’s allegations. Mr. Halter hadbeen with Wal-Mart only a few months,but he was a seasoned criminal in-vestigator. He had spent 21 years in theF.B.I., and he spoke Spanish.

He also had help. Bob Ainley, a seniorauditor, was sent to Mexico along withseveral Spanish-speaking auditors.

On Nov. 12, 2005, Mr. Halter’s teamgot to work at Wal-Mart de Mexico’scorporate headquarters in Mexico City.The team gained access to a database ofWal-Mart de Mexico payments and be-gan searching the payment descriptionfield for the word “gestoria.”

By day’s end, they had found 441 ges-

tor payments. Each was a potentialbribe, and yet they had searched backonly to 2003.

Mr. Cicero had said his main gestoreswere Pablo Alegria Con Alonso and JoseManuel Aguirre Juarez, obscure MexicoCity lawyers with small practices whowere friends of his from law school.

Sure enough, Mr. Halter’s team foundthat nearly half the payments were toMr. Alegria and Mr. Aguirre. These twolawyers alone, records showed, had re-ceived $8.5 million in payments.Records showed Wal-Mart de Mexicoroutinely paid its gestores tens of thou-sands of dollars per permit. (In in-terviews, both lawyers declined to dis-cuss the corruption allegations, citingconfidentiality agreements with Wal-Mart.)

“One very interesting postscript,” Mr.Halter wrote in an e-mail to his boss,Mr. Lewis. “All payments to these indi-viduals and all large sums of $ paid outof this account stopped abruptly in2005.” Mr. Halter said the “only thing wecan find” that changed was that Mr.Castro-Wright left Wal-Mart de Mexicofor the United States.

Mr. Halter’s team confirmed detail af-ter detail from Mr. Cicero’s debriefings.Mr. Cicero had given specifics — names,dates, bribe amounts — for several newstores. In almost every case, investiga-tors found documents confirming majorelements of his account. And just as Mr.Cicero had described, investigatorsfound mysterious codes at the bottom of

invoices from the gestores.“The documentation didn’t look any-

thing like what you would find in legiti-mate billing records from a legitimatelaw firm,” a person involved in the in-vestigation said in an interview.

Mr. Lewis sent a terse progress re-port to his boss, Mr. Senser: “FYI. It isnot looking good.”

Hours later, Mr. Halter’s team foundclear confirmation that Mr. Castro-Wright and other top executives at Wal-Mart de Mexico were well aware of thegestor payments.

In March 2004, the team discovered,the executives had been sent an in-ternal Wal-Mart de Mexico audit thatraised red flags about the gestor pay-ments. The audit documented how Wal-Mart de Mexico’s two primary gestoreshad been paid millions to make “facili-tating payments” for new store permitsall over Mexico.

The audit did not delve into how themoney had been used to “facilitate” per-mits. But it showed the payments risingrapidly, roughly in line with Wal-Martde Mexico’s accelerating growth. Theaudit recommended notifying Benton-ville of the payments.

The recommendation, recordsshowed, was removed by Wal-Mart deMexico’s chief auditor, whom Mr. Cicerohad identified as one of the executiveswho knew about the bribes. The authorof the gestor audit, meanwhile, “wasfired not long after the audit was com-pleted,” Mr. Halter wrote.

Mr. Ainley arranged to meet the firedauditor at his hotel. The auditor de-scribed other examples of Wal-Mart deMexico’s leaders withholding from Ben-tonville information about suspect pay-ments to government officials.

The auditor singled out José LuisRodríguezmacedo Rivera, the generalcounsel of Wal-Mart de Mexico.

Mr. Rodríguezmacedo, he said, took“significant information out” of an auditof Wal-Mart de Mexico’s compliancewith the Foreign Corrupt Practices Act.The original audit had described howWal-Mart de Mexico gave gift cards togovernment officials in towns where itwas building stores. “These were onlygiven out until the construction wascomplete,” Mr. Ainley wrote. “At whichtime the payments ceased.”

These details were scrubbed from thefinal version sent to Bentonville.

Investigators were struck by Mr. Cas-tro-Wright’s response to the gestor au-dit. It had been shown to him immedi-ately, Wal-Mart de Mexico’s chief au-ditor had told them. Yet rather than ex-pressing alarm, he had appeared wor-ried about becoming too dependent ontoo few gestores. In an e-mail, Mr.Rodríguezmacedo told Mr. Cicero towrite up a plan to “diversify” the ges-tores used to “facilitate” permits.

“Eduardo Castro wants us to imple-ment this plan as soon as possible,” hewrote.

Mr. Cicero did as directed. The plan,which authorized paying gestores up to$280,000 to “facilitate” a single permit,was approved with a minor change. Mr.Rodríguezmacedo did not want the planto mention “gestores.” He wanted themcalled “external service providers.”

Mr. Halter’s team made one last dis-covery — a finding that suggested thecorruption might be far more extensivethan even Mr. Cicero had described.

In going through Wal-Mart de Mex-ico’s database of payments, investiga-tors noticed the company was makinghefty “contributions” and “donations”directly to governments all over Mexico— nearly $16 million in all since 2003.

“Some of the payments descriptionsindicate that the donation is being madefor the issuance of a license,” Mr. Ainleywrote in one report back to Bentonville.

They also found a document in whicha Wal-Mart de Mexico real estate execu-tive had openly acknowledged that“these payments were performed to fa-cilitate obtaining the licenses or per-mits” for new stores. Sometimes, Mr.

Cicero told The Times, donations wereused hand-in-hand with gestor pay-ments to get permits.

Deflecting BlameWhen Mr. Halter’s team was ready to

interview executives at Wal-Mart deMexico, the first target was Mr. Rodrí-guezmacedo.

Before joining Wal-Mart de Mexico inJanuary 2004, Mr. Rodríguezmacedohad been a lawyer for Citigroup in Mex-ico. Urbane and smooth, with impecca-ble English, he quickly won fans in Ben-tonville. When Wal-Mart invited execu-tives from its foreign subsidiaries forseveral days of discussion about the finepoints of the Foreign Corrupt PracticesAct, Mr. Rodríguezmacedo was asked tolead one of the sessions.

It was called “Overcoming Chal-lenges in Government Dealings.”

Yet Mr. Cicero had identified him as aparticipant in the bribery scheme. In hisdebriefings, Mr. Cicero described howMr. Rodríguezmacedo had passed alongspecific payoff instructions from Mr.Castro-Wright. In an interview with TheTimes, Mr. Cicero said he and Mr.Rodríguezmacedo had discussed theuse of gestores shortly after Mr. Rodrí-guezmacedo was hired. “He said, ‘Don’tworry. Keep it on its way.’”

Mr. Rodríguezmacedo declined tocomment; on Friday Wal-Mart dis-closed that he had been reassigned andis no longer Wal-Mart de Mexico’s gen-eral counsel.

Mr. Halter’s team hoped Mr. Rodrí-guezmacedo would shed light on howtwo outside lawyers came to be paid$8.5 million to “facilitate” permits. Mr.Rodríguezmacedo responded with eva-sive hostility, records and interviewsshow. When investigators asked him forthe gestores’ billing records, he said hedid not have time to track them down.They got similar receptions from otherexecutives.

Only after investigators complainedto higher authorities were the execu-tives more forthcoming. Led by Mr.Rodríguezmacedo, they responded withan attack on Mr. Cicero’s credibility.

The gestor audit, they told investiga-tors, had raised doubts about Mr. Cic-ero, since he had approved most of thepayments. They began to suspect hewas somehow benefiting, so they askedKroll to investigate. It was then, they as-serted, that Kroll discovered Mr. Cic-ero’s wife was a law partner of one ofthe gestores.

Mr. Cicero was fired, they said, be-cause he had failed to disclose that fact.They produced a copy of a “prelimi-nary” report from Kroll and e-mailsshowing the undisclosed conflict hadbeen reported to Bentonville.

Based on this behavior, Mr. Rodrí-guezmacedo argued, the gestor pay-ments were in all likelihood a “ruse” byMr. Cicero to defraud Wal-Mart de Mex-ico. Mr. Cicero and the gestores, he con-tended, probably kept every last peso ofthe “facilitating payments.”

Simply put, bribes could not havebeen paid if the money was stolen first.

It was an argument that gave Wal-Mart ample justification to end the in-quiry. But investigators were skeptical,records and interviews show.

Even if Mr. Rodríguezmacedo’s ac-count were true, it did not explain whyWal-Mart de Mexico’s executives hadauthorized gestor payments in the firstplace, or why they made “donations” toget permits, or why they rewrote auditsto keep Bentonville in the dark.

Investigators also wondered why atrained lawyer who had gotten awaywith stealing a small fortune from Wal-Mart would now deliberately draw thecompany’s full attention by implicatinghimself in a series of fictional bribes.And if Wal-Mart de Mexico’s executivestruly believed they had been victimized,why hadn’t they taken legal actionagainst Mr. Cicero, much less reportedthe “theft” to Bentonville?

There was another problem: Docu-ments contradicted most of the execu-tives’ assertions about Mr. Cicero.

Records showed Mr. Cicero had notbeen fired, but had resigned with sever-ance benefits and a $25,000 bonus. Infact, in a 2004 e-mail to Ms. Munich, Mr.Rodríguezmacedo himself describedhow he had “negotiated” Mr. Cicero’s“departure.” The same e-mail said Mr.Cicero had not even been confrontedabout the supposed undisclosed conflictinvolving his wife. (Mr. Cicero flatly de-nied that his wife had ever worked witheither gestor.) The e-mail also assuredMs. Munich there was no hint of finan-cial wrongdoing. “We see it merely asan undisclosed conflict of interest,” Mr.Rodríguezmacedo wrote.

There were other discrepancies. Mr. Rodríguezmacedo said the com-

pany had stopped using gestores afterMr. Cicero’s departure. Yet even as Mr.Cicero was being debriefed in October2005, Wal-Mart de Mexico real estateexecutives made a request to pay a ges-tor $14,000 to get a construction permit,records showed.

The persistent questions and docu-ment requests from Mr. Halter’s teamprovoked a backlash from Wal-Mart deMexico’s executives. After a week ofwork, records and interviews show, Mr.Halter and other members of the teamwere summoned by Eduardo F. Solór-zano Morales, then chief executive ofWal-Mart de Mexico.

Mr. Solórzano angrily chastised theinvestigators for being too secretive andaccusatory. He took offense that his ex-ecutives were being told at the start ofinterviews that they had the right not toanswer questions — as if they were be-ing read their rights.

“It was like, ‘You shut up. I’m goingto talk,’” a person said of Mr. Solórzano.“It was, ‘This is my home, my backyard.You are out of here.’”

Mr. Lewis viewed the complaints asan effort to sidetrack his investigators.“I find this ludicrous and a copout forthe larger concerns about what hasbeen going on,” he wrote.

Nevertheless, Mr. Herkert, the chiefexecutive for Latin America, was noti-

‘The documentationdidn’t look anything likewhat you would find in

legitimate billingrecords.’

Continued on Following Page

More excerpts of documents relatedto Wal-Mart’s inquiry into bribes in

Mexico, a detailed list of the playersinvolved and reader comments. nytimes.com/world

ONLINE: THE WAL-MART FILES

Turmoil at Wal-Mart: The Players

APRIL L. BROWN/ASSOCIATED PRESS

Eduardo Castro-Wright

Sergio Cicero Zapata, a former executive atWal-Mart de Mexico, told Wal-Mart lawyersthat top executives, including Mr. Castro-Wright and Mr. Rodríguezmacedo, supportedthe use of bribes to secure permits for newstores. The executives, he said, waved off legaland ethical concerns with a simple argument:“The goal justifies the means.”

This group of senior Wal-Mart lawyers and executives helped direct thecompany’s initial investigation into Mr. Cicero’s allegations. In November2005 they dispatched a team of investigators to Mexico City and con-ferred daily, sometimes even hourly, on what the team was finding. Be-cause of the potentially destructive impact of the allegations, it was con-sidered Wal-Mart’s most sensitive and closely guarded internal inquiry.

DANNY JOHNSTON/ASSOCIATED PRESS

Michael T. Duke

Mr. Cicero’s allegations and Wal-Mart’s subsequent investigation set off aprolonged struggle at the highest reaches of the company. Wal-Mart’sleaders — including those above — debated how the company shouldrespond. In the end, after a pivotal meeting led by Mr. Scott, control ofthe investigation was handed to one of its initial targets, Mr. Rodríguez-macedo, who quickly exonerated fellow Wal-Mart de Mexico executives.

TIM RUE/BLOOMBERG NEWS

H. Lee Scott Jr.

José Luis Rodríguezmacedo

The Leadership in Mexico

Directing the Investigation

The Men at the Top

Thomas A. Mars Maritza I.Munich

Michael Fung Joseph R. LewisKenneth H.Senser

John B. Menzer Thomas D. Hyde Lee Stucky Craig Herkert

C M Y K Nxxx,2012-04-22,A,009,Bs-BK,E2

tions’ independence and role.In October, Wal-Mart’s vice chairman, John

B. Menzer, intervened in an internal investiga-tion into a senior vice president who reported to him. According to internal records, Mr. Men-zer told Mr. Senser he did not want Corporate Investigations to handle the case “due to con-cerns about the impact such an investigation would have.” One of the senior vice president’s subordinates, he said, “would be better suited to conduct this inquiry.” Soon after, records show, the subordinate cleared his boss.

The other case involved the president of Wal-Mart Puerto Rico. A whistle-blower had ac-cused the president and other executives of mistreating em-ployees. Although Corporate Investigations was supposed to investigate all allegations against senior executives, the president had instead assigned an underling to look into the complaints — but to steer clear of those against him.

Ms. Munich objected. In an e-mail to Wal-Mart executives, she complained that the investigation was “at the direction of the same company officer who is the target of several of the allegations.”

“We are in need of clear guidelines about how to handle these issues going forward,” she warned.

The Inquiry BeginsRonald Halter, one of Wal-Mart’s new “spe-

cial investigators,” was assigned to lead the pre-liminary inquiry into Mr. Cicero’s allegations. Mr. Halter had been with Wal-Mart only a few months, but he was a seasoned criminal investi-gator. He had spent 21 years in the F.B.I., and he spoke Spanish.

He also had help. Bob Ainley, a senior audi-tor, was sent to Mexico along with several Span-ish-speaking auditors.

On nov. 12, 2005, Mr. Halter’s team got to work at Wal-Mart de Mexico’s corporate head-quarters in Mexico City. The team gained access to a database of Wal-Mart de Mexico payments and began searching the payment description field for the word “gestoria.”

By day’s end, they had found 441 gestor payments. Each was a potential bribe, and yet

they had searched back only to 2003.Mr. Cicero had said his main gestores were

Pablo Alegria Con Alonso and Jose Manuel Agu-irre Juarez, obscure Mexico City lawyers with small practices who were friends of his from law school.

Sure enough, Mr. Halter’s team found that nearly half the payments were to Mr. Alegria and Mr. Aguirre. These two lawyers alone, re-cords showed, had received $8.5 million in pay-ments. Records showed Wal-Mart de Mexico routinely paid its gestores tens of thousands of dollars per permit. (In interviews, both lawyers declined to discuss the corruption allegations,

citing confidentiality agree-ments with Wal-Mart.)

“One very interesting post-script,” Mr. Halter wrote in an e-mail to his boss, Mr. Lewis. “All payments to these individuals and all large sums of $ paid out of this account stopped abrupt-ly in 2005.” Mr. Halter said the “only thing we can find” that changed was that Mr. Castro-

Wright left Wal-Mart de Mexico for the United States.

Mr. Halter’s team confirmed detail after de-tail from Mr. Cicero’s debriefings. Mr. Cicero had given specifics — names, dates, bribe amounts — for several new stores. In almost every case, investigators found documents confirming ma-jor elements of his account. And just as Mr. Ci-cero had described, investigators found myste-rious codes at the bottom of invoices from the gestores.

“The documentation didn’t look anything like what you would find in legitimate billing re-cords from a legitimate law firm,” a person in-volved in the investigation said in an interview.

Mr. Lewis sent a terse progress report to his boss, Mr. Senser: “FYI. It is not looking good.”

Hours later, Mr. Halter’s team found clear confirmation that Mr. Castro-Wright and other top executives at Wal-Mart de Mexico were well aware of the gestor payments.

In March 2004, the team discovered, the ex-ecutives had been sent an internal Wal-Mart de Mexico audit that raised red flags about the ges-tor payments. The audit documented how Wal-Mart de Mexico’s two primary gestores had been paid millions to make “facilitating pay-

Ø N 9INTERNATIONALTHE NEW YORK TIMES SUNDAY, APRIL 22, 2012

ecutives, records show, included Thom-as A. Mars, Wal-Mart’s general counseland a former director of the ArkansasState Police; Thomas D. Hyde, Wal-Mart’s executive vice president andcorporate secretary; Michael Fung,Wal-Mart’s top internal auditor; CraigHerkert, the chief executive for Wal-Mart’s operations in Latin America;and Lee Stucky, a confidant of LeeScott’s and chief administrative officerof Wal-Mart International.

Wal-Mart typically hired outside lawfirms to lead internal investigations intoallegations of significant wrongdoing. Itdid so earlier in 2005, for example, whenThomas M. Coughlin, then vice chair-man of Wal-Mart, was accused of pad-ding his expense accounts and misap-propriating Wal-Mart gift cards.

At first, Wal-Mart took the same ap-proach with Mr. Cicero’s allegations. Itturned to Willkie Farr & Gallagher, alaw firm with extensive experience inForeign Corrupt Practices Act cases.

The firm’s “investigation work plan”called for tracing all payments to any-one who had helped Wal-Mart de Mex-ico obtain permits for the previous fiveyears. The firm said it would scrutinize“any and all payments” to governmentofficials and interview every personwho might know about payoffs, includ-ing “implicated members” of Wal-Martde Mexico’s board.

In short, Willkie Farr recommendedthe kind of independent, spare-no-ex-pense investigation major corporationsroutinely undertake when confrontedwith allegations of serious wrongdoingby top executives.

Wal-Mart’s leaders rejected this ap-proach. Instead, records show, they de-cided Wal-Mart’s lawyers would super-vise a far more limited “preliminary in-quiry” by in-house investigators.

The inquiry, a confidential memo ex-plained, would take two weeks, not thefour months Willkie Farr proposed.Rather than examining years of per-mits, the team would look at a few spe-cific stores. Interviews would be done“only when absolutely essential to es-tablishing the bona fides” of Mr. Cicero.However, if the inquiry found a “likeli-hood” that laws had been violated, thecompany would then consider conduct-ing a “full investigation.”

The decision gave Wal-Mart’s seniormanagement direct control over the in-vestigation. It also meant new responsi-bility for the company’s tiny and trou-bled Corporate Investigations unit.

The unit was ill-equipped to take on amajor corruption investigation, let aloneone in Mexico. It had fewer than 70 em-ployees, and most were assigned tochasing shoplifting rings and corruptvendors. Just four people were specifi-cally dedicated to investigating corpo-rate fraud, a number Joseph R. Lewis,Wal-Mart’s director of corporate inves-tigations, described in a confidentialmemo as “wholly inadequate for an or-ganization the size of Wal-Mart.”

But Mr. Lewis and his boss, KennethH. Senser, vice president for global se-curity, aviation and travel, were work-ing to strengthen the unit. Months be-fore Mr. Cicero surfaced, they won ap-proval to hire four “special investiga-tors” who, according to their job de-scriptions, would be assigned the “mostsignificant and complex fraud matters.”Mr. Scott, the chief executive, alsoagreed that Corporate Investigationswould handle all allegations of mis-conduct by senior executives.

And yet in the fall of 2005, as Wal-Mart began to grapple with Mr. Cicero’sallegations, two cases called into ques-tion Corporate Investigations’ inde-pendence and role.

In October, Wal-Mart’s vice chair-man, John B. Menzer, intervened in aninternal investigation into a senior vicepresident who reported to him. Accord-ing to internal records, Mr. Menzer toldMr. Senser he did not want CorporateInvestigations to handle the case “dueto concerns about the impact such an in-vestigation would have.” One of the sen-ior vice president’s subordinates, hesaid, “would be better suited to conductthis inquiry.” Soon after, records show,the subordinate cleared his boss.

The other case involved the presidentof Wal-Mart Puerto Rico. A whistle-blower had accused the president andother executives of mistreating employ-ees. Although Corporate Investigationswas supposed to investigate all allega-tions against senior executives, thepresident had instead assigned an un-derling to look into the complaints —but to steer clear of those against him.

Ms. Munich objected. In an e-mail toWal-Mart executives, she complainedthat the investigation was “at the di-rection of the same company officerwho is the target of several of the allega-tions.”

“We are in need of clear guidelinesabout how to handle these issues goingforward,” she warned.

The Inquiry BeginsRonald Halter, one of Wal-Mart’s new

“special investigators,” was assigned tolead the preliminary inquiry into Mr.Cicero’s allegations. Mr. Halter hadbeen with Wal-Mart only a few months,but he was a seasoned criminal in-vestigator. He had spent 21 years in theF.B.I., and he spoke Spanish.

He also had help. Bob Ainley, a seniorauditor, was sent to Mexico along withseveral Spanish-speaking auditors.

On Nov. 12, 2005, Mr. Halter’s teamgot to work at Wal-Mart de Mexico’scorporate headquarters in Mexico City.The team gained access to a database ofWal-Mart de Mexico payments and be-gan searching the payment descriptionfield for the word “gestoria.”

By day’s end, they had found 441 ges-

tor payments. Each was a potentialbribe, and yet they had searched backonly to 2003.

Mr. Cicero had said his main gestoreswere Pablo Alegria Con Alonso and JoseManuel Aguirre Juarez, obscure MexicoCity lawyers with small practices whowere friends of his from law school.

Sure enough, Mr. Halter’s team foundthat nearly half the payments were toMr. Alegria and Mr. Aguirre. These twolawyers alone, records showed, had re-ceived $8.5 million in payments.Records showed Wal-Mart de Mexicoroutinely paid its gestores tens of thou-sands of dollars per permit. (In in-terviews, both lawyers declined to dis-cuss the corruption allegations, citingconfidentiality agreements with Wal-Mart.)

“One very interesting postscript,” Mr.Halter wrote in an e-mail to his boss,Mr. Lewis. “All payments to these indi-viduals and all large sums of $ paid outof this account stopped abruptly in2005.” Mr. Halter said the “only thing wecan find” that changed was that Mr.Castro-Wright left Wal-Mart de Mexicofor the United States.

Mr. Halter’s team confirmed detail af-ter detail from Mr. Cicero’s debriefings.Mr. Cicero had given specifics — names,dates, bribe amounts — for several newstores. In almost every case, investiga-tors found documents confirming majorelements of his account. And just as Mr.Cicero had described, investigatorsfound mysterious codes at the bottom of

invoices from the gestores.“The documentation didn’t look any-

thing like what you would find in legiti-mate billing records from a legitimatelaw firm,” a person involved in the in-vestigation said in an interview.

Mr. Lewis sent a terse progress re-port to his boss, Mr. Senser: “FYI. It isnot looking good.”

Hours later, Mr. Halter’s team foundclear confirmation that Mr. Castro-Wright and other top executives at Wal-Mart de Mexico were well aware of thegestor payments.

In March 2004, the team discovered,the executives had been sent an in-ternal Wal-Mart de Mexico audit thatraised red flags about the gestor pay-ments. The audit documented how Wal-Mart de Mexico’s two primary gestoreshad been paid millions to make “facili-tating payments” for new store permitsall over Mexico.

The audit did not delve into how themoney had been used to “facilitate” per-mits. But it showed the payments risingrapidly, roughly in line with Wal-Martde Mexico’s accelerating growth. Theaudit recommended notifying Benton-ville of the payments.

The recommendation, recordsshowed, was removed by Wal-Mart deMexico’s chief auditor, whom Mr. Cicerohad identified as one of the executiveswho knew about the bribes. The authorof the gestor audit, meanwhile, “wasfired not long after the audit was com-pleted,” Mr. Halter wrote.

Mr. Ainley arranged to meet the firedauditor at his hotel. The auditor de-scribed other examples of Wal-Mart deMexico’s leaders withholding from Ben-tonville information about suspect pay-ments to government officials.

The auditor singled out José LuisRodríguezmacedo Rivera, the generalcounsel of Wal-Mart de Mexico.

Mr. Rodríguezmacedo, he said, took“significant information out” of an auditof Wal-Mart de Mexico’s compliancewith the Foreign Corrupt Practices Act.The original audit had described howWal-Mart de Mexico gave gift cards togovernment officials in towns where itwas building stores. “These were onlygiven out until the construction wascomplete,” Mr. Ainley wrote. “At whichtime the payments ceased.”

These details were scrubbed from thefinal version sent to Bentonville.

Investigators were struck by Mr. Cas-tro-Wright’s response to the gestor au-dit. It had been shown to him immedi-ately, Wal-Mart de Mexico’s chief au-ditor had told them. Yet rather than ex-pressing alarm, he had appeared wor-ried about becoming too dependent ontoo few gestores. In an e-mail, Mr.Rodríguezmacedo told Mr. Cicero towrite up a plan to “diversify” the ges-tores used to “facilitate” permits.

“Eduardo Castro wants us to imple-ment this plan as soon as possible,” hewrote.

Mr. Cicero did as directed. The plan,which authorized paying gestores up to$280,000 to “facilitate” a single permit,was approved with a minor change. Mr.Rodríguezmacedo did not want the planto mention “gestores.” He wanted themcalled “external service providers.”

Mr. Halter’s team made one last dis-covery — a finding that suggested thecorruption might be far more extensivethan even Mr. Cicero had described.

In going through Wal-Mart de Mex-ico’s database of payments, investiga-tors noticed the company was makinghefty “contributions” and “donations”directly to governments all over Mexico— nearly $16 million in all since 2003.

“Some of the payments descriptionsindicate that the donation is being madefor the issuance of a license,” Mr. Ainleywrote in one report back to Bentonville.

They also found a document in whicha Wal-Mart de Mexico real estate execu-tive had openly acknowledged that“these payments were performed to fa-cilitate obtaining the licenses or per-mits” for new stores. Sometimes, Mr.

Cicero told The Times, donations wereused hand-in-hand with gestor pay-ments to get permits.

Deflecting BlameWhen Mr. Halter’s team was ready to

interview executives at Wal-Mart deMexico, the first target was Mr. Rodrí-guezmacedo.

Before joining Wal-Mart de Mexico inJanuary 2004, Mr. Rodríguezmacedohad been a lawyer for Citigroup in Mex-ico. Urbane and smooth, with impecca-ble English, he quickly won fans in Ben-tonville. When Wal-Mart invited execu-tives from its foreign subsidiaries forseveral days of discussion about the finepoints of the Foreign Corrupt PracticesAct, Mr. Rodríguezmacedo was asked tolead one of the sessions.

It was called “Overcoming Chal-lenges in Government Dealings.”

Yet Mr. Cicero had identified him as aparticipant in the bribery scheme. In hisdebriefings, Mr. Cicero described howMr. Rodríguezmacedo had passed alongspecific payoff instructions from Mr.Castro-Wright. In an interview with TheTimes, Mr. Cicero said he and Mr.Rodríguezmacedo had discussed theuse of gestores shortly after Mr. Rodrí-guezmacedo was hired. “He said, ‘Don’tworry. Keep it on its way.’”

Mr. Rodríguezmacedo declined tocomment; on Friday Wal-Mart dis-closed that he had been reassigned andis no longer Wal-Mart de Mexico’s gen-eral counsel.

Mr. Halter’s team hoped Mr. Rodrí-guezmacedo would shed light on howtwo outside lawyers came to be paid$8.5 million to “facilitate” permits. Mr.Rodríguezmacedo responded with eva-sive hostility, records and interviewsshow. When investigators asked him forthe gestores’ billing records, he said hedid not have time to track them down.They got similar receptions from otherexecutives.

Only after investigators complainedto higher authorities were the execu-tives more forthcoming. Led by Mr.Rodríguezmacedo, they responded withan attack on Mr. Cicero’s credibility.

The gestor audit, they told investiga-tors, had raised doubts about Mr. Cic-ero, since he had approved most of thepayments. They began to suspect hewas somehow benefiting, so they askedKroll to investigate. It was then, they as-serted, that Kroll discovered Mr. Cic-ero’s wife was a law partner of one ofthe gestores.

Mr. Cicero was fired, they said, be-cause he had failed to disclose that fact.They produced a copy of a “prelimi-nary” report from Kroll and e-mailsshowing the undisclosed conflict hadbeen reported to Bentonville.

Based on this behavior, Mr. Rodrí-guezmacedo argued, the gestor pay-ments were in all likelihood a “ruse” byMr. Cicero to defraud Wal-Mart de Mex-ico. Mr. Cicero and the gestores, he con-tended, probably kept every last peso ofthe “facilitating payments.”

Simply put, bribes could not havebeen paid if the money was stolen first.

It was an argument that gave Wal-Mart ample justification to end the in-quiry. But investigators were skeptical,records and interviews show.

Even if Mr. Rodríguezmacedo’s ac-count were true, it did not explain whyWal-Mart de Mexico’s executives hadauthorized gestor payments in the firstplace, or why they made “donations” toget permits, or why they rewrote auditsto keep Bentonville in the dark.

Investigators also wondered why atrained lawyer who had gotten awaywith stealing a small fortune from Wal-Mart would now deliberately draw thecompany’s full attention by implicatinghimself in a series of fictional bribes.And if Wal-Mart de Mexico’s executivestruly believed they had been victimized,why hadn’t they taken legal actionagainst Mr. Cicero, much less reportedthe “theft” to Bentonville?

There was another problem: Docu-ments contradicted most of the execu-tives’ assertions about Mr. Cicero.

Records showed Mr. Cicero had notbeen fired, but had resigned with sever-ance benefits and a $25,000 bonus. Infact, in a 2004 e-mail to Ms. Munich, Mr.Rodríguezmacedo himself describedhow he had “negotiated” Mr. Cicero’s“departure.” The same e-mail said Mr.Cicero had not even been confrontedabout the supposed undisclosed conflictinvolving his wife. (Mr. Cicero flatly de-nied that his wife had ever worked witheither gestor.) The e-mail also assuredMs. Munich there was no hint of finan-cial wrongdoing. “We see it merely asan undisclosed conflict of interest,” Mr.Rodríguezmacedo wrote.

There were other discrepancies. Mr. Rodríguezmacedo said the com-

pany had stopped using gestores afterMr. Cicero’s departure. Yet even as Mr.Cicero was being debriefed in October2005, Wal-Mart de Mexico real estateexecutives made a request to pay a ges-tor $14,000 to get a construction permit,records showed.

The persistent questions and docu-ment requests from Mr. Halter’s teamprovoked a backlash from Wal-Mart deMexico’s executives. After a week ofwork, records and interviews show, Mr.Halter and other members of the teamwere summoned by Eduardo F. Solór-zano Morales, then chief executive ofWal-Mart de Mexico.

Mr. Solórzano angrily chastised theinvestigators for being too secretive andaccusatory. He took offense that his ex-ecutives were being told at the start ofinterviews that they had the right not toanswer questions — as if they were be-ing read their rights.

“It was like, ‘You shut up. I’m goingto talk,’” a person said of Mr. Solórzano.“It was, ‘This is my home, my backyard.You are out of here.’”

Mr. Lewis viewed the complaints asan effort to sidetrack his investigators.“I find this ludicrous and a copout forthe larger concerns about what hasbeen going on,” he wrote.

Nevertheless, Mr. Herkert, the chiefexecutive for Latin America, was noti-

‘The documentationdidn’t look anything likewhat you would find in

legitimate billingrecords.’

Continued on Following Page

More excerpts of documents relatedto Wal-Mart’s inquiry into bribes in

Mexico, a detailed list of the playersinvolved and reader comments. nytimes.com/world

ONLINE: THE WAL-MART FILES

Turmoil at Wal-Mart: The Players

APRIL L. BROWN/ASSOCIATED PRESS

Eduardo Castro-Wright

Sergio Cicero Zapata, a former executive atWal-Mart de Mexico, told Wal-Mart lawyersthat top executives, including Mr. Castro-Wright and Mr. Rodríguezmacedo, supportedthe use of bribes to secure permits for newstores. The executives, he said, waved off legaland ethical concerns with a simple argument:“The goal justifies the means.”

This group of senior Wal-Mart lawyers and executives helped direct thecompany’s initial investigation into Mr. Cicero’s allegations. In November2005 they dispatched a team of investigators to Mexico City and con-ferred daily, sometimes even hourly, on what the team was finding. Be-cause of the potentially destructive impact of the allegations, it was con-sidered Wal-Mart’s most sensitive and closely guarded internal inquiry.

DANNY JOHNSTON/ASSOCIATED PRESS

Michael T. Duke

Mr. Cicero’s allegations and Wal-Mart’s subsequent investigation set off aprolonged struggle at the highest reaches of the company. Wal-Mart’sleaders — including those above — debated how the company shouldrespond. In the end, after a pivotal meeting led by Mr. Scott, control ofthe investigation was handed to one of its initial targets, Mr. Rodríguez-macedo, who quickly exonerated fellow Wal-Mart de Mexico executives.

TIM RUE/BLOOMBERG NEWS

H. Lee Scott Jr.

José Luis Rodríguezmacedo

The Leadership in Mexico

Directing the Investigation

The Men at the Top

Thomas A. Mars Maritza I.Munich

Michael Fung Joseph R. LewisKenneth H.Senser

John B. Menzer Thomas D. Hyde Lee Stucky Craig Herkert

C M Y K Nxxx,2012-04-22,A,009,Bs-BK,E2

ments” for new store permits all over Mexico.The audit did not delve into how the mon-

ey had been used to “facilitate” permits. But it showed the payments rising rapidly, roughly in line with Wal-Mart de Mexico’s accelerating growth. The audit recommended notifying Ben-tonville of the payments.

The recommendation, records showed, was removed by Wal-Mart de Mexico’s chief auditor, whom Mr. Cicero had identified as one of the ex-ecutives who knew about the bribes. The author of the gestor audit, meanwhile, “was fired not long after the audit was completed,” Mr. Halter wrote.

Mr. Ainley arranged to meet the fired au-ditor at his hotel. The auditor described other examples of Wal-Mart de Mexico’s leaders with-holding from Bentonville information about sus-pect payments to government officials.

The auditor singled out José Luis Rodrí-guezmacedo Rivera, the general counsel of Wal-Mart de Mexico.

Mr. Rodríguezmacedo, he said, took “signifi-cant information out” of an audit of Wal-Mart de Mexico’s compliance with the Foreign Corrupt Practices Act. The original audit had described how Wal-Mart de Mexico gave gift cards to gov-ernment officials in towns where it was building stores. “These were only given out until the con-struction was complete,” Mr. Ainley wrote. “At which time the payments ceased.”

These details were scrubbed from the final version sent to Bentonville.

Investigators were struck by Mr. Castro-Wright’s response to the gestor audit. It had been shown to him immediately, Wal-Mart de Mexico’s chief auditor had told them. Yet rather than expressing alarm, he had appeared wor-ried about becoming too dependent on too few gestores. In an e-mail, Mr. Rodríguezmacedo told Mr. Cicero to write up a plan to “diversify” the gestores used to “facilitate” permits.

“Eduardo Castro wants us to implement this plan as soon as possible,” he wrote.

Mr. Cicero did as directed. The plan, which authorized paying gestores up to $280,000 to “facilitate” a single permit, was approved with a minor change. Mr. Rodríguezmacedo did not want the plan to mention “gestores.” He wanted them called “external service providers.”

Mr. Halter’s team made one last discovery — a finding that suggested the corruption might

be far more extensive than even Mr. Cicero had described.

In going through Wal-Mart de Mexico’s da-tabase of payments, investigators noticed the company was making hefty “contributions” and “donations” directly to governments all over Mexico — nearly $16 million in all since 2003.

“Some of the payments descriptions in-dicate that the donation is being made for the issuance of a license,” Mr. Ainley wrote in one report back to Bentonville.

They also found a document in which a Wal-Mart de Mexico real estate executive had open-ly acknowledged that “these payments were performed to facilitate obtaining the licenses or permits” for new stores. Sometimes, Mr. Cicero told The Times, donations were used hand-in-hand with gestor payments to get permits.

Deflecting BlameWhen Mr. Halter’s team was ready to in-

terview executives at Wal-Mart de Mexico, the first target was Mr. Rodríguezmacedo.

Before joining Wal-Mart de Mexico in Janu-ary 2004, Mr. Rodríguezmacedo had been a law-yer for Citigroup in Mexico. Urbane and smooth, with impeccable English, he quickly won fans in Bentonville. When Wal-Mart invited executives from its foreign subsidiaries for several days of discussion about the fine points of the Foreign Corrupt Practices Act, Mr. Rodríguezmacedo was asked to lead one of the sessions.

It was called “Overcoming Challenges in Government Dealings.”

Yet Mr. Cicero had identified him as a partic-ipant in the bribery scheme. In his debriefings, Mr. Cicero described how Mr. Rodríguezmace-do had passed along specific payoff instructions from Mr. Castro-Wright. In an interview with The Times, Mr. Cicero said he and Mr. Rodrí-guezmacedo had discussed the use of gestores shortly after Mr. Rodríguezmacedo was hired. “He said, ‘Don’t worry. Keep it on its way.’ ”

Mr. Rodríguezmacedo declined to com-ment; on Friday Wal-Mart disclosed that he had been reassigned and is no longer Wal-Mart de Mexico’s general counsel.

Mr. Halter’s team hoped Mr. Rodríguez-macedo would shed light on how two outside lawyers came to be paid $8.5 million to “facili-tate” permits. Mr. Rodríguezmacedo responded with evasive hostility, records and interviews

show. When investigators asked him for the gestores’ billing records, he said he did not have time to track them down. They got similar re-ceptions from other executives.

Only after investigators complained to higher authorities were the executives more forthcoming. Led by Mr. Rodríguezmacedo, they responded with an attack on Mr. Cicero’s credibility.

The gestor audit, they told investigators, had raised doubts about Mr. Cicero, since he had approved most of the payments. They be-gan to suspect he was somehow benefiting, so they asked Kroll to investigate. It was then, they asserted, that Kroll discovered Mr. Cicero’s wife was a law partner of one of the gestores.

Mr. Cicero was fired, they said, because he had failed to disclose that fact. They produced a copy of a “preliminary” report from Kroll and e-mails showing the undisclosed conflict had been reported to Bentonville.

Based on this behavior, Mr. Rodríguez-macedo argued, the gestor payments were in all likelihood a “ruse” by Mr. Cicero to defraud Wal-Mart de Mexico. Mr. Cicero and the gestores, he contended, probably kept every last peso of the “facilitating payments.”

Simply put, bribes could not have been paid

if the money was stolen first.It was an argument that gave Wal-Mart

ample justification to end the inquiry. But inves-tigators were skeptical, records and interviews show.

Even if Mr. Rodríguezmacedo’s account were true, it did not explain why Wal-Mart de Mexico’s executives had authorized gestor pay-ments in the first place, or why they made “do-nations” to get permits, or why they rewrote audits to keep Bentonville in the dark.

Investigators also wondered why a trained lawyer who had gotten away with stealing a small fortune from Wal-Mart would now delib-erately draw the company’s full attention by im-plicating himself in a series of fictional bribes. And if Wal-Mart de Mexico’s executives truly believed they had been victimized, why hadn’t they taken legal action against Mr. Cicero, much less reported the “theft” to Bentonville?

There was another problem: Documents contradicted most of the executives’ assertions about Mr. Cicero.

Records showed Mr. Cicero had not been fired, but had resigned with severance benefits and a $25,000 bonus. In fact, in a 2004 e-mail to Ms. Munich, Mr. Rodríguezmacedo himself de-scribed how he had “negotiated” Mr. Cicero’s


fied about the complaints. Three dayslater, he and his boss, Mr. Duke, flew toMexico City. The trip had been long-planned — Mr. Duke toured severalstores — but they also reassured Wal-Mart de Mexico’s unhappy executives.

They arrived just as the investigatorswrapped up their work and left.

A Push to Dig DeeperWal-Mart’s leaders had agreed to

consider a full investigation if the pre-liminary inquiry found Mr. Cicero’s alle-gations credible.

Back in Bentonville, Mr. Halter andMr. Ainley wrote confidential reports toWal-Mart’s top executives in December2005 laying out all the evidence that cor-roborated Mr. Cicero — the hundreds ofgestor payments, the mystery codes,the rewritten audits, the evasive re-sponses from Wal-Mart de Mexico exec-utives, the donations for permits, theevidence gestores were still being used.

“There is reasonable suspicion,” Mr.Halter concluded, “to believe that Mex-ican and USA laws have been violated.”There was simply “no defendable expla-nation” for the millions of dollars in ges-tor payments, he wrote.

Mr. Halter submitted an “action plan”for a deeper investigation that wouldplumb the depths of corruption and cul-pability at Wal-Mart de Mexico.

Among other things, he urged “thatall efforts be concentrated on the recon-struction of Cicero’s computer history.”

Mr. Cicero, meanwhile, was still of-fering help. In November, when Mr.Halter’s team was in Mexico, Mr. Cicerooffered his services as a paid consult-ant. In December, he wrote to Ms. Mu-nich. He volunteered to share specificson still more stores, and he promised toshow her documents. “I hope you visitagain,” he wrote.

Mr. Halter proposed a thorough in-vestigation of the two main gestores. Hehad not tried to interview them in Mex-ico for fear of his safety. (“I do not wantto expose myself on what I consider tobe an unrealistic attempt to get Mex-ican lawyers to admit to criminal activi-ty,” he had explained to his bosses.)Now Mr. Halter wanted Wal-Mart tohire private investigators to interviewand monitor both gestores.

He also envisioned a round of adver-sarial interviews with Wal-Mart deMexico’s senior executives. He and hisinvestigators argued that it was time totake the politically sensitive step ofquestioning Mr. Castro-Wright abouthis role in the gestor payments.

By January 2006, the case hadreached a critical juncture. Wal-Mart’sleaders were again weighing whether toapprove a full investigation that wouldinevitably focus on a star executive al-ready being publicly discussed as a po-tential successor to Mr. Scott.

Wal-Mart’s ethics policy offered cleardirection. “Never cover up or ignore anethics problem,” the policy states. Andsome who were involved in the investi-gation argued that it was time to take astand against signs of rising corruptionin Wal-Mart’s global operations. Eachyear the company received hundreds ofinternal reports of bribery and fraud,records showed. In Asia alone, therehad been 90 reports of bribery just inthe previous 18 months.

The situation was bad enough thatWal-Mart’s top procurement executiveswere summoned to Bentonville thatwinter for a dressing down. Mr. Menzer,Wal-Mart’s vice chairman, warnedthem that corruption was creating anunacceptable risk, particularly giventhe government’s stepped-up enforce-ment of the Foreign Corrupt PracticesAct. “Times have changed,” he said.

As if to underscore the problem, Wal-Mart’s leaders were confronted withnew corruption allegations at Wal-Martde Mexico even as they pondered Mr.Halter’s action plan. In January, Mr.Scott, Mr. Duke and Wal-Mart’s chair-man, S. Robson Walton, received ananonymous e-mail saying Wal-Mart deMexico’s top real estate executiveswere receiving kickbacks from con-struction companies. “Please you mustdo something,” the e-mail implored.

Yet at the same time, records and in-terviews show, there were misgivingsabout the budding reach and power ofCorporate Investigations.

In less than a year, Mr. Lewis’sbeefed-up team had doubled its case-load, to roughly 400 cases a year. Someexecutives grumbled that Mr. Lewisacted as if he still worked for the F.B.I.,where he had once supervised major in-vestigations. They accused him and hisinvestigators of being overbearing, dis-ruptive and naïve about the moral ambi-guities of doing business abroad. Theyargued that Corporate Investigationsshould focus more on quietly “neutraliz-ing” problems than on turning corruptemployees over to law enforcement.

Wal-Mart’s leaders had just wit-nessed the downside of that approach:in early 2005, the company went to theF.B.I. with evidence that the disgracedformer vice chairman, Mr. Coughlin,had embezzled hundreds of thousandsof dollars. The decision producedmonths of embarrassing publicity, espe-cially when Mr. Coughlin claimed hehad used the money to pay off unionspies for Wal-Mart.

Meanwhile, Wal-Mart de Mexico ex-ecutives were continuing to complain toBentonville about the investigation. Theprotests “just never let up,” a person in-volved in the case said.

Another person familiar with thethinking of those overseeing the in-vestigation said Wal-Mart would havereacted “like a chicken on a June bug”had the allegations concerned the Unit-

ed States. But some executives sawMexico as a country where bribery wasembedded in the business culture. Itsimply did not merit the same response.

“It’s a Mexican issue; it’s better to letit be a Mexican response,” the personsaid, describing the thinking of Wal-Mart executives.

In the midst of this debate, Ms. Mu-nich submitted her resignation, effec-tive Feb. 1, 2006. In one of her final acts,she drafted a memo that argued for ex-panding the Mexico investigation andgiving equal respect to Mexican andUnited States laws.

“The bribery of government offi-cials,” she noted dryly, “is a criminal of-fense in Mexico.”

She also warned against allowing im-plicated executives to interfere with theinvestigation. Wal-Mart de Mexico’s ex-ecutives had already tried to insertthemselves in the case. Just beforeChristmas, records show, Mr. Solórza-no, the Wal-Mart de Mexico chief execu-tive, held a video conference with Mr.Mars, Mr. Senser and Mr. Stucky to dis-cuss his team’s “hypothesis” that Mr.Cicero had stolen gestor payments.

“Given the serious nature of the alle-gations, and the need to preserve the in-tegrity of the investigation,” Ms. Mu-nich wrote, “it would seem more pru-dent to develop a follow-up plan of ac-tion, independent of Walmex manage-ment participation.”

The Chief Weighs InMr. Scott called a meeting for Feb. 3,

2006, to discuss revamping Wal-Mart’sinternal investigations and to resolvethe question of what to do about Mr. Cic-ero’s allegations.

In the days before the meeting,records show, Mr. Senser ordered hisstaff to compile data showing the ef-fectiveness of Corporate Investigations.He assembled statistics showing thatthe unit had referred relatively fewcases to law enforcement agencies. Hecirculated copies of an e-mail in whichMr. Rodríguezmacedo said he had beentreated “very respectfully and cordial-ly” by Mr. Senser’s investigators.

Along with Mr. Scott, the meeting in-cluded Mr. Hyde, Mr. Mars and Mr.Stucky, records show. The meeting

brought the grievances against Corpo-rate Investigations into the open. Mr.Senser described the complaints in Mr.Lewis’s performance evaluation, com-pleted shortly after the meeting. Wal-Mart’s leaders viewed Mr. Lewis’s in-vestigators as “overly aggressive,” hewrote. They did not care for Mr. Lewis’s“law enforcement approach,” and thefact that Mr. Scott convened a meetingto express these concerns only under-scored “the importance placed on thesetopics by senior executives.”

By meeting’s end, Mr. Senser hadbeen ordered to work with Mr. Marsand others to develop a “modified proto-col” for internal investigations.

Mr. Scott said he wanted it done fast,and within 24 hours Mr. Senser pro-duced a new protocol, a highly bureau-cratic process that gave senior Wal-Mart executives — including executivesat the business units being investigated— more control over internal investiga-tions. The policy included multiple“case reviews.” It also required seniorexecutives to conduct a “cost-benefitanalysis” before signing off on a full-blown investigation.

Under the new protocol, Mr. Lewisand his team would only investigate“significant” allegations, like those in-volving potential crimes or top execu-tives. Lesser allegations would be left tothe affected business unit to investigate.

“This captures it, I think,” Mr. Hydewrote when Mr. Senser sent him thenew protocol.

Four days after Mr. Scott’s meeting,with the new protocol drafted, Wal-Mart’s leaders began to transfer controlof the bribery investigation to one of itsearliest targets, Mr. Rodríguezmacedo.

Mr. Mars first sent Mr. Halter’s re-port to Mr. Rodríguezmacedo. Then hearranged to ship Mr. Halter’s investiga-tive files to him as well. In an e-mail, hesought Mr. Senser’s advice on how tosend the files in “a secure manner.”

Mr. Senser recommended FedEx.“There is very good control on thoseshipments, and while governments docompromise them if they are looking forsomething in particular, there is no rea-son for them to think that this shipmentis out of the ordinary,” he wrote.

“The key,” he added, “is being careful

about how you communicate the detailsof the shipment to José Luis.” He ad-vised Mr. Mars to use encrypted e-mail.

Wal-Mart’s spokesman, Mr. Tovar,said the company could not discuss Mr.Scott’s meeting or the decision to trans-fer the case to Mr. Rodríguezmacedo.“At this point,” he said, “we don’t have afull explanation of what happened. Un-fortunately, we realize that until the in-vestigation is concluded, there will besome unanswered questions.”

Wal-Mart’s leaders, however, hadclear guidance about the propriety ofletting a target of an investigation run it.

On the same day Mr. Senser wasputting the finishing touches on the newinvestigations protocol, Wal-Mart’s eth-ics office sent him a booklet of “bestpractices” for internal investigations. Ithad been put together by lawyers andexecutives who supervised investiga-tions at Fortune 500 companies.

“Investigations should be conductedby individuals who do not have anyvested interest in the potential out-comes of the investigation,” it said.

The transfer appeared to violate eventhe “modified protocol” for investiga-tions. Under the new protocol, Corpo-rate Investigations was still supposed tohandle “significant” allegations — in-cluding those involving potential crimesand senior executives. When Mr. Senserasked his deputies to list all investiga-tions that met this threshold, they cameup with 31 cases.

At the top of the list: Mexico.After the meeting with Mr. Scott, Mr.

Senser had told Mr. Lewis in his per-formance evaluation that his “highestpriority” should be to eliminate “theperceptions that investigators are beingtoo aggressive.” He wanted Mr. Lewisto “earn the trust of” his “clients” —Wal-Mart’s leaders. He wanted him tohead off “adversarial interactions.”

Mr. Senser now applied the same ad-vice to himself.

Even as Mr. Halter’s files were beingshipped to Mr. Rodríguezmacedo, Mr.Stucky made plans to fly to Mexico withother executives involved in the briberyinvestigation. The trip, he wrote, was“for the purpose of re-establishing ac-tivities related to the certain compli-ance matters we’ve been discussing.”

Mr. Stucky invited Mr. Senser along.“It is better if we do not make this trip

to Mexico City,” Mr. Senser replied. Hisinvestigators, he wrote, would simplybe “a resource” if needed.

Ten days after Mr. Stucky flew toMexico, an article about Wal-Mart ap-peared in The Times. It focused on “theincreasingly important role of one man:Eduardo Castro-Wright.” The articlesaid Mr. Castro-Wright was a “popularfigure” inside Wal-Mart because hemade Wal-Mart de Mexico one of thecompany’s “most profitable units.”

Wall Street analysts, it said, viewedhim as a “very strong candidate” to suc-ceed Mr. Scott.

Case ClosedFor those who had investigated Mr.

Cicero’s allegations, the preliminary in-quiry had been just that — preliminary.In memos and meetings, they had ar-gued that their findings clearly justifieda full-blown investigation. Mr. Castro-Wright’s precise role had yet to be de-termined. Mr. Halter had never beenpermitted to question him, nor had Mr.Castro-Wright’s computer files been ex-amined, records and interviews show.

At the very least, a complete investi-gation would take months.

Mr. Rodríguezmacedo, the man nowin charge, saw it differently. Hewrapped up the case in a few weeks,with little additional investigation.

“There is no evidence or clear in-dication,” his report concluded, “ofbribes paid to Mexican government au-thorities with the purpose of wrongfullysecuring any licenses or permits.”

That conclusion, his report explained,was largely based on the denials of hisfellow executives. Not one “mentionedhaving ordered or given bribes to gov-ernment authorities,” he wrote.

His report, six pages long, neglectedto note that he had been implicated inthe same criminal conduct.

That was not the only omission. Whilehis report conceded that Wal-Mart deMexico executives had authorizedyears of payments to gestores, it neverexplained what these executives ex-pected the gestores to do with the mil-lions of dollars they received to “facili-tate” permits.

He was also silent on the evidencethat Wal-Mart de Mexico had doled outdonations to get permits. Nor did he ad-dress evidence that he and other execu-tives had suppressed or rewritten au-dits that would have alerted Bentonvilleto improper payments.

Instead, the bulk of Mr. Rodríguez-macedo’s report attacked the integrityof his accuser.

Mr. Cicero, he wrote, made Wal-Martde Mexico’s executives think theywould “run the risk of having permitsdenied if the gestores were not used.”But this was merely a ruse: In all likeli-hood, he argued, Wal-Mart de Mexicopaid millions for “services never ren-dered.” The gestores simply pocketedthe money, he suggested, and Mr. Cic-ero “may have benefited,” too.

But he offered no direct proof. Indeed,as his report made clear, it was less anallegation than a hypothesis built ontwo highly circumstantial pillars.

First, he said he had consulted withJesús Zamora-Pierce, a “prestigious in-dependent counsel” who had writtenbooks on fraud. Mr. Zamora, he wrote,“feels the conduct displayed by SergioCicero is typical of someone engaging infraud. It is not uncommon in Mexico forlawyers to recommend the use of ges-tores to facilitate permit obtainment,when in reality it is nothing more than ameans of engaging in fraud.”

Second, he said he had done a statis-tical analysis that found Wal-Mart deMexico won permits even faster afterMr. Cicero left. The validity of his analy-sis was impossible to assess; he did notinclude his statistics in the report.

In building a case against Mr. Cicero,Mr. Rodríguezmacedo’s report includedseveral false statements. He describedMr. Cicero’s “dismissal” when recordsshowed he had resigned. He also wrotethat Kroll’s investigation of Mr. Ciceroconcluded that he “had a considerableincrease in his standard of living duringthe time in which payments were madeto the gestores.” Kroll’s report made nosuch assertion, people involved in theinvestigation said.

His report promised a series of cor-rective steps aimed at putting the entirematter to rest. Wal-Mart de Mexicowould no longer use gestores. Therewould be a renewed commitment toWal-Mart’s anticorruption policy. Hedid not recommend any disciplinary ac-tion against his colleagues.

There was, however, one person hehoped to punish. Wal-Mart de Mexico,he wrote, would scour Mr. Cicero’srecords and determine “if any legal ac-tion may be taken against him.”

Mr. Rodríguezmacedo submitted adraft of his report to Bentonville. In ane-mail, Mr. Lewis told his superiors thathe found the report “lacking.” It was notclear what evidence supported the re-port’s conclusions, he wrote. “More im-portantly,” he wrote, “if one agrees thatSergio defrauded the company and I amone of them, the question becomes, howwas he able to get away with almost $10million and why was nothing done afterit was discovered?”

Mr. Rodríguezmacedo responded byadding a paragraph to the end of his re-port: They had decided not to pursue“criminal actions” against Mr. Cicerobecause “we did not have strong case.”

“At the risk of being cynical,” Mr.Lewis wrote in response, “that report isexactly the same as the previous whichI indicated was truly lacking.”

But it was enough for Wal-Mart. Mr.Rodríguezmacedo was told by execu-tives in Bentonville on May 10, 2006, toput his report “into final form, thus con-cluding this investigation.”

No one told Mr. Cicero. All he knewwas that after months of e-mails, phonecalls and meetings, Wal-Mart’s interestseemed to suddenly fade. His phonecalls and e-mails went unanswered.

“I thought nobody cares about this,”he said. “So I left it behind.”

OCTOBER 2005 Wal-Mart lawyers meet with a former Wal-Mart de Mexico executive who describes how Wal-Mart’s largest foreign subsidiary orchestrated a campaign of bribery. Wal-Mart opens a “preliminary inquiry.”

An InvestigationEvolves

NOVEMBER 2005 Joseph R. Lewis, Wal-Mart’s director for corporate investigations, tells his boss that their investigators have begun to find evidence of widespread bribery in Mexico.

DECEMBER 2005 The leader of Wal-Mart’s preliminary inquiry informs Wal-Mart’s leaders that there is “reasonable suspicion to believe” that laws have been violated. He urges Wal-Mart to expand the investigation.

JANUARY 2006 Maritza I. Munich, general counsel of Wal-Mart International, warns against allowing executives from Wal-Mart de Mexico to participate in the active investigation.

FEBRUARY 2006 Days after a pivotal meeting with H. Lee Scott Jr., then chief executive of Wal-Mart, the company’s general counsel, Thomas A. Mars, arranges to transfer the investigation to José Luis Rodríguezmacedo, general counsel of Wal-Mart de Mexico.

MAY 2006 Mr. Rodríguezmacedo, himself a target of Wal-Mart’s investigation, completes the inquiry and finds “no evidence” of bribes. The case is closed.

THE NEW YORK TIMES

Bribery CaseHushed UpBy Wal-Mart

From Preceding Page

Nxxx,2012-04-22,A,010,Bs-BW,E1


fied about the complaints. Three dayslater, he and his boss, Mr. Duke, flew toMexico City. The trip had been long-planned — Mr. Duke toured severalstores — but they also reassured Wal-Mart de Mexico’s unhappy executives.

They arrived just as the investigatorswrapped up their work and left.

A Push to Dig DeeperWal-Mart’s leaders had agreed to

consider a full investigation if the pre-liminary inquiry found Mr. Cicero’s alle-gations credible.

Back in Bentonville, Mr. Halter andMr. Ainley wrote confidential reports toWal-Mart’s top executives in December2005 laying out all the evidence that cor-roborated Mr. Cicero — the hundreds ofgestor payments, the mystery codes,the rewritten audits, the evasive re-sponses from Wal-Mart de Mexico exec-utives, the donations for permits, theevidence gestores were still being used.

“There is reasonable suspicion,” Mr.Halter concluded, “to believe that Mex-ican and USA laws have been violated.”There was simply “no defendable expla-nation” for the millions of dollars in ges-tor payments, he wrote.

Mr. Halter submitted an “action plan”for a deeper investigation that wouldplumb the depths of corruption and cul-pability at Wal-Mart de Mexico.

Among other things, he urged “thatall efforts be concentrated on the recon-struction of Cicero’s computer history.”

Mr. Cicero, meanwhile, was still of-fering help. In November, when Mr.Halter’s team was in Mexico, Mr. Cicerooffered his services as a paid consult-ant. In December, he wrote to Ms. Mu-nich. He volunteered to share specificson still more stores, and he promised toshow her documents. “I hope you visitagain,” he wrote.

Mr. Halter proposed a thorough in-vestigation of the two main gestores. Hehad not tried to interview them in Mex-ico for fear of his safety. (“I do not wantto expose myself on what I consider tobe an unrealistic attempt to get Mex-ican lawyers to admit to criminal activi-ty,” he had explained to his bosses.)Now Mr. Halter wanted Wal-Mart tohire private investigators to interviewand monitor both gestores.

He also envisioned a round of adver-sarial interviews with Wal-Mart deMexico’s senior executives. He and hisinvestigators argued that it was time totake the politically sensitive step ofquestioning Mr. Castro-Wright abouthis role in the gestor payments.

By January 2006, the case hadreached a critical juncture. Wal-Mart’sleaders were again weighing whether toapprove a full investigation that wouldinevitably focus on a star executive al-ready being publicly discussed as a po-tential successor to Mr. Scott.

Wal-Mart’s ethics policy offered cleardirection. “Never cover up or ignore anethics problem,” the policy states. Andsome who were involved in the investi-gation argued that it was time to take astand against signs of rising corruptionin Wal-Mart’s global operations. Eachyear the company received hundreds ofinternal reports of bribery and fraud,records showed. In Asia alone, therehad been 90 reports of bribery just inthe previous 18 months.

The situation was bad enough thatWal-Mart’s top procurement executiveswere summoned to Bentonville thatwinter for a dressing down. Mr. Menzer,Wal-Mart’s vice chairman, warnedthem that corruption was creating anunacceptable risk, particularly giventhe government’s stepped-up enforce-ment of the Foreign Corrupt PracticesAct. “Times have changed,” he said.

As if to underscore the problem, Wal-Mart’s leaders were confronted withnew corruption allegations at Wal-Martde Mexico even as they pondered Mr.Halter’s action plan. In January, Mr.Scott, Mr. Duke and Wal-Mart’s chair-man, S. Robson Walton, received ananonymous e-mail saying Wal-Mart deMexico’s top real estate executiveswere receiving kickbacks from con-struction companies. “Please you mustdo something,” the e-mail implored.

Yet at the same time, records and in-terviews show, there were misgivingsabout the budding reach and power ofCorporate Investigations.

In less than a year, Mr. Lewis’sbeefed-up team had doubled its case-load, to roughly 400 cases a year. Someexecutives grumbled that Mr. Lewisacted as if he still worked for the F.B.I.,where he had once supervised major in-vestigations. They accused him and hisinvestigators of being overbearing, dis-ruptive and naïve about the moral ambi-guities of doing business abroad. Theyargued that Corporate Investigationsshould focus more on quietly “neutraliz-ing” problems than on turning corruptemployees over to law enforcement.

Wal-Mart’s leaders had just wit-nessed the downside of that approach:in early 2005, the company went to theF.B.I. with evidence that the disgracedformer vice chairman, Mr. Coughlin,had embezzled hundreds of thousandsof dollars. The decision producedmonths of embarrassing publicity, espe-cially when Mr. Coughlin claimed hehad used the money to pay off unionspies for Wal-Mart.

Meanwhile, Wal-Mart de Mexico ex-ecutives were continuing to complain toBentonville about the investigation. Theprotests “just never let up,” a person in-volved in the case said.

Another person familiar with thethinking of those overseeing the in-vestigation said Wal-Mart would havereacted “like a chicken on a June bug”had the allegations concerned the Unit-

ed States. But some executives sawMexico as a country where bribery wasembedded in the business culture. Itsimply did not merit the same response.

“It’s a Mexican issue; it’s better to letit be a Mexican response,” the personsaid, describing the thinking of Wal-Mart executives.

In the midst of this debate, Ms. Mu-nich submitted her resignation, effec-tive Feb. 1, 2006. In one of her final acts,she drafted a memo that argued for ex-panding the Mexico investigation andgiving equal respect to Mexican andUnited States laws.

“The bribery of government offi-cials,” she noted dryly, “is a criminal of-fense in Mexico.”

She also warned against allowing im-plicated executives to interfere with theinvestigation. Wal-Mart de Mexico’s ex-ecutives had already tried to insertthemselves in the case. Just beforeChristmas, records show, Mr. Solórza-no, the Wal-Mart de Mexico chief execu-tive, held a video conference with Mr.Mars, Mr. Senser and Mr. Stucky to dis-cuss his team’s “hypothesis” that Mr.Cicero had stolen gestor payments.

“Given the serious nature of the alle-gations, and the need to preserve the in-tegrity of the investigation,” Ms. Mu-nich wrote, “it would seem more pru-dent to develop a follow-up plan of ac-tion, independent of Walmex manage-ment participation.”

The Chief Weighs InMr. Scott called a meeting for Feb. 3,

2006, to discuss revamping Wal-Mart’sinternal investigations and to resolvethe question of what to do about Mr. Cic-ero’s allegations.

In the days before the meeting,records show, Mr. Senser ordered hisstaff to compile data showing the ef-fectiveness of Corporate Investigations.He assembled statistics showing thatthe unit had referred relatively fewcases to law enforcement agencies. Hecirculated copies of an e-mail in whichMr. Rodríguezmacedo said he had beentreated “very respectfully and cordial-ly” by Mr. Senser’s investigators.

Along with Mr. Scott, the meeting in-cluded Mr. Hyde, Mr. Mars and Mr.Stucky, records show. The meeting

brought the grievances against Corpo-rate Investigations into the open. Mr.Senser described the complaints in Mr.Lewis’s performance evaluation, com-pleted shortly after the meeting. Wal-Mart’s leaders viewed Mr. Lewis’s in-vestigators as “overly aggressive,” hewrote. They did not care for Mr. Lewis’s“law enforcement approach,” and thefact that Mr. Scott convened a meetingto express these concerns only under-scored “the importance placed on thesetopics by senior executives.”

By meeting’s end, Mr. Senser hadbeen ordered to work with Mr. Marsand others to develop a “modified proto-col” for internal investigations.

Mr. Scott said he wanted it done fast,and within 24 hours Mr. Senser pro-duced a new protocol, a highly bureau-cratic process that gave senior Wal-Mart executives — including executivesat the business units being investigated— more control over internal investiga-tions. The policy included multiple“case reviews.” It also required seniorexecutives to conduct a “cost-benefitanalysis” before signing off on a full-blown investigation.

Under the new protocol, Mr. Lewisand his team would only investigate“significant” allegations, like those in-volving potential crimes or top execu-tives. Lesser allegations would be left tothe affected business unit to investigate.

“This captures it, I think,” Mr. Hydewrote when Mr. Senser sent him thenew protocol.

Four days after Mr. Scott’s meeting,with the new protocol drafted, Wal-Mart’s leaders began to transfer controlof the bribery investigation to one of itsearliest targets, Mr. Rodríguezmacedo.

Mr. Mars first sent Mr. Halter’s re-port to Mr. Rodríguezmacedo. Then hearranged to ship Mr. Halter’s investiga-tive files to him as well. In an e-mail, hesought Mr. Senser’s advice on how tosend the files in “a secure manner.”

Mr. Senser recommended FedEx.“There is very good control on thoseshipments, and while governments docompromise them if they are looking forsomething in particular, there is no rea-son for them to think that this shipmentis out of the ordinary,” he wrote.

“The key,” he added, “is being careful

about how you communicate the detailsof the shipment to José Luis.” He ad-vised Mr. Mars to use encrypted e-mail.

Wal-Mart’s spokesman, Mr. Tovar,said the company could not discuss Mr.Scott’s meeting or the decision to trans-fer the case to Mr. Rodríguezmacedo.“At this point,” he said, “we don’t have afull explanation of what happened. Un-fortunately, we realize that until the in-vestigation is concluded, there will besome unanswered questions.”

Wal-Mart’s leaders, however, hadclear guidance about the propriety ofletting a target of an investigation run it.

On the same day Mr. Senser wasputting the finishing touches on the newinvestigations protocol, Wal-Mart’s eth-ics office sent him a booklet of “bestpractices” for internal investigations. Ithad been put together by lawyers andexecutives who supervised investiga-tions at Fortune 500 companies.

“Investigations should be conductedby individuals who do not have anyvested interest in the potential out-comes of the investigation,” it said.

The transfer appeared to violate eventhe “modified protocol” for investiga-tions. Under the new protocol, Corpo-rate Investigations was still supposed tohandle “significant” allegations — in-cluding those involving potential crimesand senior executives. When Mr. Senserasked his deputies to list all investiga-tions that met this threshold, they cameup with 31 cases.

At the top of the list: Mexico.After the meeting with Mr. Scott, Mr.

Senser had told Mr. Lewis in his per-formance evaluation that his “highestpriority” should be to eliminate “theperceptions that investigators are beingtoo aggressive.” He wanted Mr. Lewisto “earn the trust of” his “clients” —Wal-Mart’s leaders. He wanted him tohead off “adversarial interactions.”

Mr. Senser now applied the same ad-vice to himself.

Even as Mr. Halter’s files were beingshipped to Mr. Rodríguezmacedo, Mr.Stucky made plans to fly to Mexico withother executives involved in the briberyinvestigation. The trip, he wrote, was“for the purpose of re-establishing ac-tivities related to the certain compli-ance matters we’ve been discussing.”

Mr. Stucky invited Mr. Senser along.“It is better if we do not make this trip

to Mexico City,” Mr. Senser replied. Hisinvestigators, he wrote, would simplybe “a resource” if needed.

Ten days after Mr. Stucky flew toMexico, an article about Wal-Mart ap-peared in The Times. It focused on “theincreasingly important role of one man:Eduardo Castro-Wright.” The articlesaid Mr. Castro-Wright was a “popularfigure” inside Wal-Mart because hemade Wal-Mart de Mexico one of thecompany’s “most profitable units.”

Wall Street analysts, it said, viewedhim as a “very strong candidate” to suc-ceed Mr. Scott.

Case ClosedFor those who had investigated Mr.

Cicero’s allegations, the preliminary in-quiry had been just that — preliminary.In memos and meetings, they had ar-gued that their findings clearly justifieda full-blown investigation. Mr. Castro-Wright’s precise role had yet to be de-termined. Mr. Halter had never beenpermitted to question him, nor had Mr.Castro-Wright’s computer files been ex-amined, records and interviews show.

At the very least, a complete investi-gation would take months.

Mr. Rodríguezmacedo, the man nowin charge, saw it differently. Hewrapped up the case in a few weeks,with little additional investigation.

“There is no evidence or clear in-dication,” his report concluded, “ofbribes paid to Mexican government au-thorities with the purpose of wrongfullysecuring any licenses or permits.”

That conclusion, his report explained,was largely based on the denials of hisfellow executives. Not one “mentionedhaving ordered or given bribes to gov-ernment authorities,” he wrote.

His report, six pages long, neglectedto note that he had been implicated inthe same criminal conduct.

That was not the only omission. Whilehis report conceded that Wal-Mart deMexico executives had authorizedyears of payments to gestores, it neverexplained what these executives ex-pected the gestores to do with the mil-lions of dollars they received to “facili-tate” permits.

He was also silent on the evidencethat Wal-Mart de Mexico had doled outdonations to get permits. Nor did he ad-dress evidence that he and other execu-tives had suppressed or rewritten au-dits that would have alerted Bentonvilleto improper payments.

Instead, the bulk of Mr. Rodríguez-macedo’s report attacked the integrityof his accuser.

Mr. Cicero, he wrote, made Wal-Martde Mexico’s executives think theywould “run the risk of having permitsdenied if the gestores were not used.”But this was merely a ruse: In all likeli-hood, he argued, Wal-Mart de Mexicopaid millions for “services never ren-dered.” The gestores simply pocketedthe money, he suggested, and Mr. Cic-ero “may have benefited,” too.

But he offered no direct proof. Indeed,as his report made clear, it was less anallegation than a hypothesis built ontwo highly circumstantial pillars.

First, he said he had consulted withJesús Zamora-Pierce, a “prestigious in-dependent counsel” who had writtenbooks on fraud. Mr. Zamora, he wrote,“feels the conduct displayed by SergioCicero is typical of someone engaging infraud. It is not uncommon in Mexico forlawyers to recommend the use of ges-tores to facilitate permit obtainment,when in reality it is nothing more than ameans of engaging in fraud.”

Second, he said he had done a statis-tical analysis that found Wal-Mart deMexico won permits even faster afterMr. Cicero left. The validity of his analy-sis was impossible to assess; he did notinclude his statistics in the report.

In building a case against Mr. Cicero,Mr. Rodríguezmacedo’s report includedseveral false statements. He describedMr. Cicero’s “dismissal” when recordsshowed he had resigned. He also wrotethat Kroll’s investigation of Mr. Ciceroconcluded that he “had a considerableincrease in his standard of living duringthe time in which payments were madeto the gestores.” Kroll’s report made nosuch assertion, people involved in theinvestigation said.

His report promised a series of cor-rective steps aimed at putting the entirematter to rest. Wal-Mart de Mexicowould no longer use gestores. Therewould be a renewed commitment toWal-Mart’s anticorruption policy. Hedid not recommend any disciplinary ac-tion against his colleagues.

There was, however, one person hehoped to punish. Wal-Mart de Mexico,he wrote, would scour Mr. Cicero’srecords and determine “if any legal ac-tion may be taken against him.”

Mr. Rodríguezmacedo submitted adraft of his report to Bentonville. In ane-mail, Mr. Lewis told his superiors thathe found the report “lacking.” It was notclear what evidence supported the re-port’s conclusions, he wrote. “More im-portantly,” he wrote, “if one agrees thatSergio defrauded the company and I amone of them, the question becomes, howwas he able to get away with almost $10million and why was nothing done afterit was discovered?”

Mr. Rodríguezmacedo responded byadding a paragraph to the end of his re-port: They had decided not to pursue“criminal actions” against Mr. Cicerobecause “we did not have strong case.”

“At the risk of being cynical,” Mr.Lewis wrote in response, “that report isexactly the same as the previous whichI indicated was truly lacking.”

But it was enough for Wal-Mart. Mr.Rodríguezmacedo was told by execu-tives in Bentonville on May 10, 2006, toput his report “into final form, thus con-cluding this investigation.”

No one told Mr. Cicero. All he knewwas that after months of e-mails, phonecalls and meetings, Wal-Mart’s interestseemed to suddenly fade. His phonecalls and e-mails went unanswered.

“I thought nobody cares about this,”he said. “So I left it behind.”

OCTOBER 2005 Wal-Mart lawyers meet with a former Wal-Mart de Mexico executive who describes how Wal-Mart’s largest foreign subsidiary orchestrated a campaign of bribery. Wal-Mart opens a “preliminary inquiry.”

An InvestigationEvolves

NOVEMBER 2005 Joseph R. Lewis, Wal-Mart’s director for corporate investigations, tells his boss that their investigators have begun to find evidence of widespread bribery in Mexico.

DECEMBER 2005 The leader of Wal-Mart’s preliminary inquiry informs Wal-Mart’s leaders that there is “reasonable suspicion to believe” that laws have been violated. He urges Wal-Mart to expand the investigation.

JANUARY 2006 Maritza I. Munich, general counsel of Wal-Mart International, warns against allowing executives from Wal-Mart de Mexico to participate in the active investigation.

FEBRUARY 2006 Days after a pivotal meeting with H. Lee Scott Jr., then chief executive of Wal-Mart, the company’s general counsel, Thomas A. Mars, arranges to transfer the investigation to José Luis Rodríguezmacedo, general counsel of Wal-Mart de Mexico.

MAY 2006 Mr. Rodríguezmacedo, himself a target of Wal-Mart’s investigation, completes the inquiry and finds “no evidence” of bribes. The case is closed.

THE NEW YORK TIMES

Bribery CaseHushed UpBy Wal-Mart

From Preceding Page

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“departure.” The same e-mail said Mr. Cicero had not even been confronted about the sup-posed undisclosed conflict involving his wife. (Mr. Cicero flatly denied that his wife had ever worked with either gestor.) The e-mail also as-sured Ms. Munich there was no hint of financial wrongdoing. “We see it merely as an undis-closed conflict of interest,” Mr. Rodríguezmace-do wrote.

There were other discrepancies.Mr. Rodríguezmacedo said the company

had stopped using gestores after Mr. Cicero’s departure. Yet even as Mr. Cicero was being debriefed in October 2005, Wal-Mart de Mexico real estate executives made a request to pay a gestor $14,000 to get a construction permit, re-cords showed.

The persistent questions and document requests from Mr. Halter’s team provoked a backlash from Wal-Mart de Mexico’s execu-tives. After a week of work, records and inter-views show, Mr. Halter and other members of the team were summoned by Eduardo F. Solór-zano Morales, then chief executive of Wal-Mart de Mexico.

Mr. Solórzano angrily chastised the inves-tigators for being too secretive and accusatory. He took offense that his executives were being told at the start of interviews that they had the right not to answer questions — as if they were being read their rights.

“It was like, ‘You shut up. I’m going to talk,’ ” a person said of Mr. Solórzano. “It was, ‘This is my home, my backyard. You are out of here.’ ”

Mr. Lewis viewed the complaints as an ef-fort to sidetrack his investigators. “I find this ludicrous and a copout for the larger concerns about what has been going on,” he wrote.

nevertheless, Mr. Herkert, the chief execu-tive for Latin America, was notified about the complaints. Three days later, he and his boss, Mr. Duke, flew to Mexico City. The trip had been long-planned — Mr. Duke toured several stores — but they also reassured Wal-Mart de Mexi-co’s unhappy executives.

They arrived just as the investigators wrapped up their work and left.

A Push to Dig DeeperWal-Mart’s leaders had agreed to consider

a full investigation if the preliminary inquiry found Mr. Cicero’s allegations credible.

Back in Bentonville, Mr. Halter and Mr. Ainley wrote confidential reports to Wal-Mart’s top executives in December 2005 laying out all the evidence that corroborated Mr. Cicero — the hundreds of gestor payments, the mystery codes, the rewritten audits, the evasive respons-es from Wal-Mart de Mexico executives, the do-nations for permits, the evidence gestores were still being used.

“There is reasonable suspicion,” Mr. Halter concluded, “to believe that Mexican and USA laws have been violated.” There was simply “no defendable explanation” for the millions of dol-lars in gestor payments, he wrote.

Mr. Halter submitted an “action plan” for a deeper investigation that would plumb the depths of corruption and culpability at Wal-Mart de Mexico.

Among other things, he urged “that all ef-forts be concentrated on the reconstruction of Cicero’s computer history.”

Mr. Cicero, meanwhile, was still offering help. In november, when Mr. Halter’s team was in Mexico, Mr. Cicero offered his services as a paid consultant. In December, he wrote to Ms. Munich. He volunteered to share specifics on still more stores, and he promised to show her documents. “I hope you visit again,” he wrote.

Mr. Halter proposed a thorough investiga-tion of the two main gestores. He had not tried to interview them in Mexico for fear of his safe-ty. (“I do not want to expose myself on what I consider to be an unrealistic attempt to get Mexican lawyers to admit to criminal activity,” he had explained to his bosses.) now Mr. Halter wanted Wal-Mart to hire private investigators to interview and monitor both gestores.

He also envisioned a round of adversarial interviews with Wal-Mart de Mexico’s senior executives. He and his investigators argued that it was time to take the politically sensitive step of questioning Mr. Castro-Wright about his role in the gestor payments.

By January 2006, the case had reached a critical juncture. Wal-Mart’s leaders were again weighing whether to approve a full investigation that would inevitably focus on a star executive already being publicly discussed as a potential successor to Mr. Scott.

Wal-Mart’s ethics policy offered clear di-rection. “never cover up or ignore an ethics problem,” the policy states. And some who were

involved in the investigation argued that it was time to take a stand against signs of rising cor-ruption in Wal-Mart’s global operations. Each year the company received hundreds of internal reports of bribery and fraud, records showed. In Asia alone, there had been 90 reports of bribery just in the previous 18 months.

The situation was bad enough that Wal-Mart’s top procurement executives were sum-moned to Bentonville that winter for a dressing down. Mr. Menzer, Wal-Mart’s vice chairman, warned them that corruption was creating an unacceptable risk, particularly given the government’s stepped-up enforcement of the Foreign Corrupt Practices Act. “Times have changed,” he said.

As if to underscore the problem, Wal-Mart’s leaders were confronted with new corruption allegations at Wal-Mart de Mexico even as they pondered Mr. Halter’s action plan. In January, Mr. Scott, Mr. Duke and Wal-Mart’s chairman, S. Robson Walton, received an anonymous e-mail saying Wal-Mart de Mexico’s top real es-tate executives were receiving kickbacks from construction companies. “Please you must do something,” the e-mail implored.

Yet at the same time, records and interviews show, there were misgivings about the budding reach and power of Corporate Investigations.

In less than a year, Mr. Lewis’s beefed-up team had doubled its caseload, to roughly 400 cases a year. Some executives grumbled that Mr. Lewis acted as if he still worked for the F.B.I., where he had once supervised major investiga-tions. They accused him and his investigators of being overbearing, disruptive and naïve about the moral ambiguities of doing business abroad. They argued that Corporate Investigations should focus more on quietly “neutralizing” problems than on turning corrupt employees over to law enforcement.

Wal-Mart’s leaders had just witnessed the downside of that approach: in early 2005, the company went to the F.B.I. with evidence that the disgraced former vice chairman, Mr. Cough-lin, had embezzled hundreds of thousands of dol-lars. The decision produced months of embar-rassing publicity, especially when Mr. Coughlin claimed he had used the money to pay off union spies for Wal-Mart.

Meanwhile, Wal-Mart de Mexico execu-tives were continuing to complain to Benton-

ville about the investigation. The protests “just never let up,” a person involved in the case said.

Another person familiar with the thinking of those overseeing the investigation said Wal-Mart would have reacted “like a chicken on a June bug” had the allegations concerned the United States. But some executives saw Mexico as a country where bribery was embedded in the business culture. It simply did not merit the same response.

“It’s a Mexican issue; it’s better to let it be a Mexican response,” the person said, describing the thinking of Wal-Mart executives.

In the midst of this debate, Ms. Munich sub-mitted her resignation, effective Feb. 1, 2006. In one of her final acts, she drafted a memo that argued for expanding the Mexico investigation and giving equal respect to Mexican and United States laws.

“The bribery of government officials,” she noted dryly, “is a criminal offense in Mexico.”

She also warned against allowing implicat-ed executives to interfere with the investigation. Wal-Mart de Mexico’s executives had already tried to insert themselves in the case. Just be-fore Christmas, records show, Mr. Solórzano, the Wal-Mart de Mexico chief executive, held a video conference with Mr. Mars, Mr. Senser and Mr. Stucky to discuss his team’s “hypothesis” that Mr. Cicero had stolen gestor payments.

“Given the serious nature of the allegations, and the need to preserve the integrity of the in-vestigation,” Ms. Munich wrote, “it would seem more prudent to develop a follow-up plan of ac-tion, independent of Walmex management par-ticipation.”

The Chief Weighs InMr. Scott called a meeting for Feb. 3, 2006, to

discuss revamping Wal-Mart’s internal investi-gations and to resolve the question of what to do about Mr. Cicero’s allegations.

In the days before the meeting, records show, Mr. Senser ordered his staff to compile data showing the effectiveness of Corporate In-vestigations. He assembled statistics showing that the unit had referred relatively few cases to law enforcement agencies. He circulated cop-ies of an e-mail in which Mr. Rodríguezmacedo said he had been treated “very respectfully and cordially” by Mr. Senser’s investigators.

Along with Mr. Scott, the meeting included

Mr. Hyde, Mr. Mars and Mr. Stucky, records show. The meeting brought the grievances against Corporate Investigations into the open. Mr. Senser described the complaints in Mr. Lewis’s performance evaluation, completed shortly after the meeting. Wal-Mart’s leaders viewed Mr. Lewis’s investigators as “overly ag-gressive,” he wrote. They did not care for Mr. Lewis’s “law enforcement approach,” and the fact that Mr. Scott convened a meeting to ex-press these concerns only underscored “the importance placed on these topics by senior ex-ecutives.”

By meeting’s end, Mr. Senser had been or-dered to work with Mr. Mars and others to de-velop a “modified protocol” for internal investi-gations.

Mr. Scott said he wanted it done fast, and within 24 hours Mr. Senser produced a new pro-tocol, a highly bureaucratic process that gave senior Wal-Mart executives — including execu-tives at the business units being investigated — more control over internal investigations. The policy included multiple “case reviews.” It also required senior executives to conduct a “cost-benefit analysis” before signing off on a full-blown investigation.

Under the new protocol, Mr. Lewis and his team would only investigate “significant” alle-gations, like those involving potential crimes or top executives. Lesser allegations would be left to the affected business unit to investigate.

“This captures it, I think,” Mr. Hyde wrote when Mr. Senser sent him the new protocol.

Four days after Mr. Scott’s meeting, with the new protocol drafted, Wal-Mart’s leaders began to transfer control of the bribery inves-tigation to one of its earliest targets, Mr. Rodrí-guezmacedo.

Mr. Mars first sent Mr. Halter’s report to Mr. Rodríguezmacedo. Then he arranged to ship Mr. Halter’s investigative files to him as well. In an e-mail, he sought Mr. Senser’s advice on how to send the files in “a secure manner.”

Mr. Senser recommended FedEx. “There is very good control on those shipments, and while governments do compromise them if they are looking for something in particular, there is no reason for them to think that this shipment is out of the ordinary,” he wrote.

“The key,” he added, “is being careful about how you communicate the details of the ship-

ment to José Luis.” He advised Mr. Mars to use encrypted e-mail.

Wal-Mart’s spokesman, Mr. Tovar, said the company could not discuss Mr. Scott’s meet-ing or the decision to transfer the case to Mr. Rodríguezmacedo. “At this point,” he said, “we don’t have a full explanation of what happened. Unfortunately, we realize that until the inves-tigation is concluded, there will be some unan-swered questions.”

Wal-Mart’s leaders, however, had clear guidance about the propriety of letting a target of an investigation run it.

On the same day Mr. Senser was putting the finishing touches on the new investigations pro-tocol, Wal-Mart’s ethics office sent him a booklet of “best practices” for internal investigations. It had been put together by lawyers and execu-tives who supervised investigations at Fortune 500 companies.

“Investigations should be conducted by in-dividuals who do not have any vested interest in the potential outcomes of the investigation,” it said.

The transfer appeared to violate even the “modified protocol” for investigations. Under the new protocol, Corporate Investigations was still supposed to handle “significant” alle-gations — including those involving potential crimes and senior executives. When Mr. Senser asked his deputies to list all investigations that met this threshold, they came up with 31 cases.

At the top of the list: Mexico.After the meeting with Mr. Scott, Mr. Sens-

er had told Mr. Lewis in his performance eval-uation that his “highest priority” should be to eliminate “the perceptions that investigators are being too aggressive.” He wanted Mr. Lewis to “earn the trust of” his “clients” — Wal-Mart’s leaders. He wanted him to head off “adversarial interactions.”

Mr. Senser now applied the same advice to himself.

Even as Mr. Halter’s files were being shipped to Mr. Rodríguezmacedo, Mr. Stucky made plans to fly to Mexico with other execu-tives involved in the bribery investigation. The trip, he wrote, was “for the purpose of re-es-tablishing activities related to the certain com-pliance matters we’ve been discussing.” Mr. Stucky invited Mr. Senser along.

“It is better if we do not make this trip to

Mexico City,” Mr. Senser replied. His investiga-tors, he wrote, would simply be “a resource” if needed.

Ten days after Mr. Stucky flew to Mexico, an article about Wal-Mart appeared in The Times. It focused on “the increasingly important role of one man: Eduardo Castro-Wright.” The article said Mr. Castro-Wright was a “popular figure” inside Wal-Mart because he made Wal-Mart de Mexico one of the company’s “most profitable units.”

Wall Street analysts, it said, viewed him as a “very strong candidate” to succeed Mr. Scott.

Case ClosedFor those who had investigated Mr. Cicero’s

allegations, the preliminary inquiry had been just that — preliminary. In memos and meet-ings, they had argued that their findings clearly justified a full-blown investigation. Mr. Castro-Wright’s precise role had yet to be determined. Mr. Halter had never been permitted to question him, nor had Mr. Castro-Wright’s computer files been examined, records and interviews show.

At the very least, a complete investigation would take months.

Mr. Rodríguezmacedo, the man now in charge, saw it differently. He wrapped up the case in a few weeks, with little additional inves-tigation.

“There is no evidence or clear indication,” his report concluded, “of bribes paid to Mexi-can government authorities with the purpose of wrongfully securing any licenses or permits.”

That conclusion, his report explained, was largely based on the denials of his fellow ex-ecutives. not one “mentioned having ordered or given bribes to government authorities,” he wrote.

His report, six pages long, neglected to note that he had been implicated in the same crimi-nal conduct.

That was not the only omission. While his report conceded that Wal-Mart de Mexico exec-utives had authorized years of payments to ges-tores, it never explained what these executives expected the gestores to do with the millions of dollars they received to “facilitate” permits.

He was also silent on the evidence that Wal-Mart de Mexico had doled out donations to get permits. nor did he address evidence that he and other executives had suppressed or rewrit-

ten audits that would have alerted Bentonville to improper payments.

Instead, the bulk of Mr. Rodríguezmacedo’s report attacked the integrity of his accuser.

Mr. Cicero, he wrote, made Wal-Mart de Mexico’s executives think they would “run the risk of having permits denied if the gestores were not used.” But this was merely a ruse: In all likelihood, he argued, Wal-Mart de Mexico paid millions for “services never rendered.” The gestores simply pocketed the money, he sug-gested, and Mr. Cicero “may have benefited,” too.

But he offered no direct proof. Indeed, as his report made clear, it was less an allegation than a hypothesis built on two highly circumstantial pillars.

First, he said he had consulted with Jesús Zamora-Pierce, a “prestigious independent counsel” who had written books on fraud. Mr. Zamora, he wrote, “feels the conduct displayed by Sergio Cicero is typical of someone engaging in fraud. It is not uncommon in Mexico for law-yers to recommend the use of gestores to facili-tate permit obtainment, when in reality it is noth-ing more than a means of engaging in fraud.”

Second, he said he had done a statistical analysis that found Wal-Mart de Mexico won permits even faster after Mr. Cicero left. The va-lidity of his analysis was impossible to assess; he did not include his statistics in the report.

In building a case against Mr. Cicero, Mr. Rodríguezmacedo’s report included several false statements. He described Mr. Cicero’s “dis-missal” when records showed he had resigned. He also wrote that Kroll’s investigation of Mr. Cicero concluded that he “had a considerable in-crease in his standard of living during the time in which payments were made to the gestores.” Kroll’s report made no such assertion, people involved in the investigation said.

His report promised a series of corrective steps aimed at putting the entire matter to rest. Wal-Mart de Mexico would no longer use ges-tores. There would be a renewed commitment to Wal-Mart’s anticorruption policy. He did not recommend any disciplinary action against his colleagues.

There was, however, one person he hoped to punish. Wal-Mart de Mexico, he wrote, would scour Mr. Cicero’s records and determine “if any legal action may be taken against him.”

Mr. Rodríguezmacedo submitted a draft of his report to Bentonville. In an e-mail, Mr. Lewis told his superiors that he found the report “lack-ing.” It was not clear what evidence supported the report’s conclusions, he wrote. “More im-portantly,” he wrote, “if one agrees that Sergio defrauded the company and I am one of them, the question becomes, how was he able to get away with almost $10 million and why was noth-ing done after it was discovered?”

Mr. Rodríguezmacedo responded by adding a paragraph to the end of his report: They had de-

cided not to pursue “criminal actions” against Mr. Cicero because “we did not have strong case.”

“At the risk of being cynical,” Mr. Lewis wrote in response, “that report is exactly the same as the previous which I indicated was truly lacking.”

But it was enough for Wal-Mart. Mr. Rodrí-guezmacedo was told by executives in Benton-ville on May 10, 2006, to put his report “into final form, thus concluding this investigation.”

no one told Mr. Cicero. All he knew was that after months of e-mails, phone calls and meet-ings, Wal-Mart’s interest seemed to suddenly fade. His phone calls and e-mails went unan-swered.

“I thought nobody cares about this,” he said. “So I left it behind.” n

Alejandra Xanic von Bertrab and James C. McKinley Jr. contributed reporting from Mexico City.