Bharati Enterprises faces heat in SEC order against Walmart over malpractices

Ending a seven-year-long investigation, US retail giant Walmart has agreed to pay $282 million in penalties to the US Department of Justice and the Securities Exchange Commission.

The SEC order against the Bentonville-based company has made serious allegations against Bharti Enterprises, Walmart's former joint venture partner in India of malpractices and making improper payments to government officials.

The SEC charged Walmart with violating the Foreign Corrupt Practices Act (FCPA) while conducting its businesses in India, China, Brazil and Mexico.

Walmart consented to the SEC order, which has highlighted Walmart failed to sufficiently investigate or mitigate certain anti-corruption risks.

The SEC order cited transgressions in Walmart's India joint venture with Bharti Enterprises, which it has referred to as the 'India Partner' of the retail company. Walmart had entered a 50-50 joint venture with Bharti Enterprises in 2007 to run wholesale stores, which ended in 2013.

Walmart had conducted a review of India partner in 2006. The initial due diligence had raised anti-corruption red flags about doing business in India.

In November 2006, a Walmart real estate employee had informed Walmart executives that he had received a “wink and nod” from an employee of Bharati Enterprises on transparency and clean transactions relative to the FCPA.

The SEC order also stated that the Bharti employee also admitted that “speed payments” were used in the past by India partner.

Between in or around March 2009 and in or around January 2011, Walmart’s internal audit team in India conducted at least three reviews of India subsidiary and India joint venture. All of those reviews identified certain weaknesses in anti-corruption related internal accounting controls that required remediation, which was not immediately addressed.

In or around July 23, 2011, an anonymous source sent an email to certain Walmart executives alleging that an employee of the joint venture and an employee of Walmart's India retail business were involved in a scheme to make improper payments to government officials to obtain store operating permits and licenses, and that a senior legal employee of the joint venture knew about the scheme. Although one executive requested that Walmart investigators examine the allegations, Walmart did not conduct an inquiry at that time.

In fact, these improper payments were recorded in India joint venture's books as “misc fees,” “miscellaneous,” “professional fees,” “incidental,” and “government fee.”

A Bharti Enterprises spokesperson said the company was neither involved nor aware of these proceedings, and hence did not offer any comment.

"As a responsible corporate, we have always been and remain compliant with all regulations and the laws of the land," the spokesperson said.

Walmart president and chief executive officer, Doug McMillon in a statement said, "We’re pleased to resolve this matter. Walmart is committed to doing business the right way, and that means acting ethically everywhere we operate. We’ve enhanced our policies, procedures and systems and invested tremendous resources globally into ethics and compliance, and now have a strong Global Anti-Corruption Compliance Program. We want to be the most trusted retailer, and a key to this is maintaining our culture of integrity."

Walmart’s Mexico subsidiary employed intermediaries that made improper payments to government officials to obtain licenses for stores. They also developed a system of three-digit codes which were typed or handwritten on the invoices of these intermediaries. Another corruption risk identified was the Mexico subsidiary’s practice of donations which were in the form of checks, cash, and merchandise to Mexican local government entities.

The ability of the intermediary to obtain licenses and permits quickly earned the nickname of sorceress or genie.

It was observed that the subsidiary’s draft anti-corruption policy and procedures were inconsistent with the policy adopted by Walmart in 2005. It was also observed that the China subsidiary’s policy excluded staff of state-owned companies from the definition of the government official.