The giant American retailer, which also has stores in Brazil, Argentina, Chile and several Central American countries, has been accused of systematically paying bribes in Mexico that total more than $24 million over the course of several years. The bribes were used to get permission to build in places where it is illegal to do so.
There is ample evidence that Walmart was not forced to pay bribes to do business, but rather that the company actively encouraged corruption in the country by establishing an aggressive policy of offering bribes to Mexican officials who broke the laws and regulations of the country.
The case is being investigated in the United States and Mexico, and the company is facing several lawsuits from pension funds that have invested in the company’s stock. The eventual sentences and fines could have a major impact not just on Walmart but also on Mexico – the company is Mexico’s largest private employer, with 2,275 stores and 221,000 employees.
An internal investigation by Walmart of its 27 international subsidiaries seems to have revealed evidence of bribes by Walmart in Brazil as well as China and India.
Walmart is not unique. British bank HSBC helped launder money for Mexican drug cartels for years. And people still remember the case of IBM in Argentina 15 years ago, when IBM paid officials at the state-owned Banco Nacion a total of $37 million in exchange for a contract to renovate the bank’s computer systems.
All of these cases – and hundreds of others with less publicity – hurt not only the companies involved but also the image of the region. The last Transparency International report only ranked three Latin American countries – Chile, Uruguay and Costa Rica – above the world average for corruption. All of the other countries are perceived as having high corruption problems, and Venezuela is one of the worst of in the world, ranked 165 out of 176 countries.
Subverting the system
The development of a country depends on governments that establish and enforce rules and regulations that are the same for everyone, as well as a free-market system where all of the competitors play by the rules. When you can get an advantage by paying bribes, that system is subverted. And when the person who gets that advantage is Walmart, the victims are numerous, starting with their direct local competitors and including other potential international investors, who might think twice about investing in the market.
When a giant like HSBC is laundering drug money, it distorts the financial markets and subverts the democratic system.
The United States has taken a step in the right direction by legally punishing companies that commit bribery abroad. The situation would be even better if all countries adopted similar legislation.
The so-called multi-Latinos, the select club of Latin American multinationals, have the task of being agents of change, and should explicitly state a commitment to fight corruption in their statutes. These statutes should also include ethical standards to abide by when doing business throughout Latin America.
Latin American governments should establish an agreement to standardize corruption laws and penalties.
International development banks, like the World Bank and the Interamerican Development Bank, have taken a step in the right direction. Since a couple of years ago, any company that is guilty of corruption is barred from participating in projects financed by either bank.
The task sounds complicated and difficult, but it is worth it. Many studies have found a clear relationship between corruption, poverty and under-development – equal to the distortions produced in the way resources are distributed. It is obvious that corruption hurts countries where it takes place, and we need political will, both on the part of governments and business people, to get rid of this scourge.
* Irish Fin Min toasts bumper year for U.S. investment
* Dublin faces growing European hostility to low tax
* Crisis brings down costs, but talent is limited
By Lorraine Turner
DUBLIN, Nov 22 (Reuters) – U.S. business chiefs gathered in the Irish capital on Thursday to give thanks for low taxes, a cool climate and the financial crisis – three factors that have helped produce a bumper year in their favourite corner of Europe.
But there was a hint of foreboding at the American Chamber of Commerce’s annual Thanksgiving lunch in Dublin that Ireland’s promise to maintain its low corporate tax rate, its crisis wage cuts and its perfect weather for high-tech data farms may not be enough to keep the relationship sweet.
A limited pool of skilled workers, the loss of lucrative pharmaceutical patents and the threat of a fresh European attack on its low company taxes mean Ireland will need to fight to keep the investment flowing.
For its part, the government is thankful that multinationals, many of them based in the United States, are still backing Ireland as it struggles to recover from economic crisis and an international bailout in 2010.
“I’d like to give thanks for the U.S. investment and the enormous job creation,” Finance Minister Michael Noonan told the executives gathered for a traditional Thanksgiving feast of turkey and pumpkin pie, saying he expected another record year for investment this year.
“It’s important that what is being offered in Ireland is as attractive as it ever was,” he said, promising to maintain a package of incentives for companies and executives to face down growing competition from Britain, Israel and Singapore.
U.S. firms invested $30 billion into Ireland last year, more than in China and the rest of emerging Asia combined, according to the American Chamber of Commerce.
Ireland has long cultivated its ties with the huge Irish-American community, and the country is sometimes tongue-in-cheek called the 51st state of the union.
But sentimentality does not attract U.S. business projects. Thanks to the 12.5 percent company tax rate and transfer pricing – in which multinationals route profits from high tax to low tax countries – foreign firms can repatriate most of the money they pour into Ireland, bolstering their profits.
Ireland, lying on the western edge of Europe and relatively isolated from many of its major markets, jealously guards the competitive advantage brought by the low tax regime.
But European hostility over this has re-emerged, with German opposition leader Peer Steinbrueck, who hopes to oust Chancellor Angela Merkel in elections next year, criticising it last month.
A storm over how multinationals cap their tax bills, brewing since a Reuters investigation into the issue, is likely to put Ireland in the spotlight, an editorial in The Irish Times noted on Thursday. “For the government, such developments are a major concern,” the newspaper said.
At Thursday’s lunch, Noonan reiterated that the corporate tax rate was “not negotiable”.
Multinationals have benefited from Ireland’s economic crash as business costs have fallen back to 2003 levels, according to the IDA, the agency tasked with attracting foreign investment.
U.S. multinationals currently employ over 100,000 of Ireland’s 1.8 million strong workforce and a host of companies, including PayPal and Apple, are expanding.
Dublin commercial property prices, once on a par with Manhattan and Moscow, have more than halved. Capitalising on this, Google spent 100 million euros last year on the tallest commercial office building in Dublin. The U.S. technology giant plans to kit it out with a swimming pool in the basement for its 2,000 plus staff.
But high-tech companies are struggling to find enough talent in Ireland, where graduates preferred to become architects or real estate agents during the property-fuelled boom years rather than software engineers or scientists.
Multinationals are fighting over recruits from overseas who have brought plethora of foreign accents to the coffee shops and sandwich bars of Dublin’s trendy south docklands area, where Google and Facebook have large offices.
In September, a senior Facebook executive said the firm would continue investing in Ireland, where it already has over 400 staff, as long as it could find the right sort of employees.
Conscious of the problem, the government has introduced tax breaks for overseas workers who move to Ireland.
Peter O’Neill, head of the American Chamber of Commerce in Ireland, said Ireland can not rest on its laurels if it wants to attract the right worker and the right companies to Ireland.
“The bar is getting higher all the time,” said O’Neill, who is chief of IBM Ireland. “Investment is mobile, people are mobile, you’ve got to have the right environment at all times.”
A strategy to lure drugs companies, started in the 1960s, has made Ireland the largest net exporter of pharmaceuticals in the world, according to Dublin-based industry group PharmaChemicalIreland. Products such as Viagra and Botox are manufactured in the country.
But this reliance on the life sciences sector, which employs over 47,000 people, has become a weakness as patents lapse on a host of drugs, allowing competitors to make cheap copies elsewhere. These include Pfizer’s Lipitor and Enbrel, although Enbrel will go off patent later than originally scheduled.
Officials in Ireland say the “patent cliff” will be offset by new patented drugs and products coming into production but there will be a time lag, according to experts.
“The new products coming on-patent in the short-term will not be able to offset the fall in exports of these blockbuster drugs coming off-patent,” said Chris Van Egeraat, lecturer at Maynooth University. “We are going to talk about billions in a reduction of exports”.
The impact is already being felt; Irish exports fell sharply in September from record highs the previous month.
“You’ve two risks for Irish exports: you’ve the specific risk related to the patent cliff, and you have the risk related to the global environment,” said KBC Ireland chief economist Austin Hughes, predicting a gentle slowdown. “But luckily a lot of the companies that are in Ireland are doing well.”
Irish officials can at least be thankful that the weather at least is here to stay.
Ireland’s temperate climate, often the bane of wind-swept tourists, is an asset for data centre operators. Natural air can be used to cool the rows of giant servers that act as the world’s online library without costly heavy air-conditioning.
Google recently opened a 75 million euro data centre, housing computers that run cloud computing services, where users store data on secure external servers rather than their own network or computer. Microsoft also unveiled a $130 million expansion to its Dublin-based “mega” data centre earlier this year.
Cheaper and better options exist in Europe, but Ireland is fast becoming a cloud hub for the region because the tech giants already installed in Ireland are opting to build out in a country which they know and like.
“Ireland will become an increasingly important attraction for the cloud market,” said Rakesh Kumar, an analyst with Gartner, which advises companies such as Microsoft and Cisco.
“These companies… have got facilities, they’re happy with them, they’ve got good skills and good languages… so when they have a choice to either expand and build out new sites in different regions, it makes a lot of sense to stick to what they have,” he said.