making local government more ethical

What We Can Learn from Walmart's Extensive Bribery in Mexico

Today, the New York Times ran a length investigatory report on Walmart's extensive bribery of local Mexican officials intended to rush through permits and zoning approvals, reduce environmental impact fees, and gain the allegiance of these officials.

The Independence of Investigators
The report raises a few important local government ethics issues. One is the independence of investigators. A preliminary investigation was done by Walmart's home investigation unit, but when it recommended an extensive investigation, Walmart executives turned the investigation over to Walmart de Mexico executives implicated in the bribery scheme. This was despite advice from Walmart International's general counsel that, “The wisdom of assigning any investigative role to management of the business unit being investigated escapes me.”

When it comes down to it, there is very little difference between self-investigation and cover-up. If allegations are true, those charged with investigating the allegations don't have to investigate them at all. They know what happened. If the allegations are false, an investigation stating they are false won't be believed by anybody.

This goes for governments just as much as businesses. At least corporate ethics recognizes this, while local governments, on the whole, do not. According to the article, a best practices booklet put together by investigation personnel at top corporations says, “Investigations should be conducted by individuals who do not have any vested interest in the potential outcomes of the investigation.” I would add that the investigations should also not be conducted by individuals whose appointing authority has a vested interest in the potential outcome of any investigation. In other words, high-level officials or executives should not be selecting ethics commission members or special investigators, nor should they have any contact with them except in a formal interview.

Jurisdiction over Applicants
The second important local government ethics issue here is jurisdiction of ethics programs over applicants such as Walmart. I realize that the allegations here involve bribes, but bribes are nothing more than gifts that can be proven to have a quid pro quo. One problem with most ethics programs is that those who make gifts to government officials are not responsible for them, unless they can be proven to be bribes (and often not even then). Not only is there little incentive not to make such gifts, but this also means that applicants are not made part of the ethics program. They get no training, make no disclosures, and are not expected to seek advice or report possible ethics violations, such an official's gift request.

Government officials certainly have the higher obligations, but there is no reason to leave applicants out of an ethics program. Their participation can make it far easier to bring ethics proceedings against them and, therefore, far more likely that they will not tempt officials into ethical misconduct or give in to unethical officials demanding money for action.

Confidential Information
It's worth noting that Walmart not only paid to speed up permits and the like, but also to purchase confidential information. Confidential information provisions are too often thought to be about confidentiality, when they are really about misuse of office to benefit oneself and others. One reason is that it is hard to prove that confidential information has been sold or has been given to someone to help her business, with the implication that something will be done in return in the future. I feel strongly that it is not a government ethics policy to prohibit the disclosing of confidential information, and that, in fact, it is sometimes valuable to do this (e.g., when closed session and attorney-client confidentiality rules are used to hide information that should be public). What must be prohibited is an official disclosing information selectively to help himself and others.

Gifts to Governments
There is a belief even in the government ethics community that gifts to officials are wrong, but gifts to governments are okay. It turns out that a lot of the gifts given by Walmart in Mexico were to governments ($16 million between 2003 and 2005), rather than to officials. They were made to facilitate the obtaining of licenses and permits, and often were made at the same time as the bribes.

It is important to remember that money given to governments is not always used to benefit its citizens. And even when it is, it still benefits high-level officials by keeping down tax increases, which makes re-election much easier.

The Importance of Government Ethics
Let's assume that Mexican local governments had independent ethics programs. Considering that Walmart built hundreds of stores, it is likely that some of these ethics programs would have investigated and prosecuted some of Walmart's gifts. News of these prosecutions would have led ethics programs in other cities where Walmart was building stores to investigate whether gifts were being made there, as well. Walmart could not have ignored the allegations and effectively ended the investigation in order to protect its reputation. It would have had to stop making the bribes.

It would have not only meant less bribery in Mexico, but in the long run would have been better for Walmart's reputation. It will now deservedly be dragged through the mud, with the careers of many executives ended, and some possibly going to prison.

Effective local government ethics programs are good for applicants and contractors, in the long run. And they are even good for government officials. When will they come to recognize this?

Robert Wechsler
Director of Research, City Ethics