Wal-Mart investing $1.3 billion in Mexican business as FCPA scrutiny continues

Wal-Mart Stores confirmed plans to invest $1.3 billion in its Mexican operations to build a new distribution center and expand several others over the next three years.

Walmart International CEO David Cheesewright told the media earlier this year that Mexico and much of the central American businesses were doing well, and the retailer would invest more in Mexico and other regions where they see growth potential. He said when Mexico’s business is going right, that makes his job much easier given that Walmex (Mexico and Central American operations) is a big chunk of his international portfolio in terms of stores, sales and market share.

The new investment will create about 10,000 new jobs in Mexico over the next three years, according to Guilherme Loureiro, CEO for Walmart Mexico.

It will not result in “any jobs being moved from the U.S.,” Wal-Mart spokeswoman Jo Warner said. “The investment is funded by Walmex and is necessary for expansion of Wal-Mart’s Mexican business.”

Over the past four years Wal-Mart has invested about $3.93 billion in the Mexico and central American. In August Walmex sold its clothing chain Suburbia to focus more the grocery business as Wal-Mart continues its mission to bid the world’s largest food retailer.

Cheesewright describes Walmart’s international portfolio as “big and diverse” but the superstar in recent quarters has been Walmex, most recently producing revenue of $6.25 billion in the third quarter, up 10.8% year-over-year. Walmex had stellar same-store sales of 7% and net sales growth of 8.6% in the quarter. He said Walmex comp sales on a two-year stack basis increased nearly 13%, with strong sales momentum across all formats, divisions and countries. E-commerce sales also grew 20% in Mexico during the third quarter.

The planned investment in Mexico comes about a decade after the retailer was accused of bribery and violations of the Foreign Corrupt Practices Act during a time of expansion into Mexico under the leadership of Eduardo Castro Wright, who is no longer with Walmart. The FCPA investigation began in Mexico and expanded to at least three other countries including China, India and Brazil. It is ow is in its fourth year costing Wal-Mart more than $738 million in legal fees and internal compliance restructuring efforts.

Mike Koehler, who spent 10 years as an FCPA lawyer and now teaches law at Southern Illinois University, told Talk Business & Politics there’s a 50/50 chance the investigations could wrap up this year, and 50:50 chance they could linger into calendar 2017. Koehler said the expense for Wal-Mart todate is “eye popping” but not surprising given FCPA litigation is a multi-billion dollar industry as the government agencies often work at their own leisure. After Wal-Mart’s recent third quarter earnings report Koehler said the $29 million spent in the quarter was slightly more than the $28 million spent in the second quarter.

“Doing the math, Wal-Mart’s third quarter FCPA and compliance-related costs is approximately $465,000 per working day,” Kohler noted in a recent blog post.

He said over the past 13 quarters Wal-Mart’s pre-enforcement action fees and expenses have ranged from a high of $1.3 million per working day to $396,000 per working day. Kohler said pre-enforcement action, professional fees and expenses are typically the largest financial hit to a company under FCPA scrutiny. In most cases he said pre-enforcement costs can be 3, 5, or 10 degrees higher than the action settlement fee.

Koehler said a recent quarterly filing by Wal-Mart pertinent to its FCPA scrutiny shows there are ongoing inquiries and investigations into its business operations by the Department of Justice and the Securities and Exchange Commission.

“A number of federal and local government agencies in Mexico have also initiated investigations of these (FCPA) matters. Walmex is cooperating with the Mexican governmental agencies conducting these investigations. Furthermore, lawsuits relating to the matters under investigation have been filed by several of the Company’s shareholders against it, certain of its current directors, certain of its former directors, certain of its current and former officers and certain of Walmex’s current and former officers,” noted the Wal-Mart filing,

Wal-Mart said it has no way to know how much longer the investigation will continue or what the financial impact of a settlement will be at this time.