Five years ago today, the New York Times published an article (here) titled “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle.”
The conduct at issue in the Times article related to Wal-Mart’s largest foreign subsidiary, Wal-Mart de Mexico (“Wal-Mart Mexico), and suggested that Wal-Mart Mexico “orchestrated a campaign of bribery to win market dominance” and that the entity “paid bribes to obtain permits in virtually every corner” of Mexico.
The April 2012 NY Times article resulted in intense world-wide media scrutiny of Wal-Mart. However, it was known months before the NY Times article, that Wal-Mart was under FCPA scrutiny. (See here for the December 2011 FCPA Professor post highlighting Wal-Mart’s FCPA disclosure). Like in many facets of modern life, the narrative that Wal-Mart’s FCPA scrutiny began with the NY Times article became more important than actual facts.
Thus, today is a false five year anniversary of Wal-Mart’s FCPA scrutiny, but a meaningful anniversary nevertheless.
In the five years since the original NY Times article, Wal-Mart’s FCPA scrutiny has followed a fairly typical pattern. Wal-Mart’s internal review expanded beyond Mexico, civil shareholder suits and derivative claims were filed, Wal-Mart engaged in various remedial measures, and the company’s pre-enforcement action professional fees and expenses skyrocketed. While being under FCPA scrutiny for 5.5 years is a long time, it has happened before in the corporate context.
As highlighted in this recent post, in the aggregate Wal-Mart has disclosed pre-enforcement professional fees and compliance enhancement expenses as follows.
FY 2013 = $157 million
FY 2014 = $282 million
FY 2015 = $173 million
FY 2016 = $126 million
FY 2017 = $99 million
TOTAL: $837 million
In addition, Wal-Mart disclosed:“In fiscal year 2018, we expect our third party FCPA and compliance-related expenses to range between $65 and $85 million.”
Regardless of what may (or may not) have happened at Wal-Mart approximately 5-10 years ago, it is clear that Wal-Mart has become an industry-leader in FCPA compliance best practices. Anyone who fails to acknowledge this is simply not credible.
While some pundits ridiculed me for being the first to specifically track Wal-Mart’s pre-enforcement action professional fees and expenses (in the eyes of some – Wal-Mart is a big company and “will survive its FCPA spending spree” plus it is “playing catch up for a decade of what appears to be FCPA neglect”), it quickly became the thing to do and such figures are notable because, as has been noted in prior posts and in my 2014 article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.
Pundit statements that Wal-Mart is “playing catch up for a decade of what appears to be FCPA neglect” wholly ignored other aspects of the New York Times reporting.
Indeed, the conduct described in the NY Times articles was unremarkable from a Foreign Corrupt Practices Act perspective – a view I have consistently held since April 2012 (see here for a prior post and here for my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”).
The unremarkable portion of the NY Times articles (another NY Times front page article in December 2012 see here for the prior post added additional details to the previous April 2012 article, but did not change much from an FCPA perspective) is that a foreign subsidiary of a major multi-national company operating in an FCPA high-risk jurisdiction allegedly made payments to “foreign officials” to facilitate or grease the issuance of certain licenses or permits. Even according to the NY Times, Wal-Mart’s subsidiary in Mexico “had taken steps to conceal [the payments] from Wal-Mart’s headquarters in Bentonville, Ark.” and Wal-Mart Mexico’s chief auditor altered reports sent to Bentonville discussing various problematic payments.
A November 2012 NY Times article (here) by David Barstow (the same author as the April 2012 and December 2012 articles) rightly noted that Wal-Mart’s investigation “was uncovering the kinds of problems and oversights that plague many global corporations.” It was perhaps the most insightful thing the NY Times has said about Wal-Mart’s FCPA scrutiny, yet the November 2012 article received scant attention compared to the other two articles.
Moreover, the November 2012 NY Times article noted that Wal-Mart’s internal review began in Spring 2011 when Jeffrey Gearhart (Wal-Mart’s general counsel) learned of an FCPA enforcement action against Tyson Foods (like Wal-Mart, a company headquartered in Arkansas – see here for the prior post discussing the Tyson enforcement action). According to the Times article, “the audit began in Mexico, China and Brazil, the countries Wal-Mart executives considered the most likely source of problems” and Wal-Mart hired KPMG and Greenberg Traurig to conduct the audit. The Times article noted that “in July 2011” the firms “had identified significant weaknesses in all three subsidiaries.”
Nevertheless, the narrative still persists that Wal-Mart’s FCPA scrutiny began with the NY Times article five years ago today.
In an event, a development in year four of Wal-Mart’s FCPA scrutiny was whether the NY Times published version of events will even be reflected in any potential FCPA enforcement action.
As highlighted in this prior post, in October 2015 The Wall Street Journal published a front-page “nana nana boo boo” article seemingly in response to the New York Times previous Wal-Mart FCPA reporting. The WSJ asserted, citing unnamed sources, that the actual legal investigation of Wal-Mart (as opposed to the journalism investigation) “uncovered evidence that contradicted some of the allegations in the New York Times articles.”
To some FCPA commentators, the apparent scope and severity of Wal-Mart’s FCPA issues was “totally unexpected.” Perhaps the apparent scope and severity of Wal-Mart’s FCPA issues are “totally unexpected” if one fell hook-line-and-sinker for the New York Times coverage. And to be sure, many people did and the New York Times article created a media feeding frenzy and offered up a divisive company as a punching bag.
Many lined up to take punches at Wal-Mart and used the company’s FCPA scrutiny to advance various policy positions even though the only “support” for the positions was an article written by a non-lawyer journalist. For instance, certain commentators predicted that the Wal-Mart derivative actions would set a new standard for director liability. They were once again proven wrong. As highlighted here, the document request dispute in connection with a Wal-Mart derivative action in Delaware was much to do about nothing. More importantly, as highlighted here, a federal court judge dismissed eight Wal-Mart shareholder FCPA-related derivative claims that were consolidated into one action. As highlighted in this post, in July 2016 the Eighth Circuit affirmed dismissal of the derivative actions.
Much of Wal-Mart’s FCPA scrutiny coverage over the past five years has been overblown and at times breathless (see here – Wal-Mart’s scrutiny “will test FCPA enforcement in new ways.”).
Not here at FCPA Professor.
Readers of this website will recall that I have consistently called the FCPA aspects of Wal-Mart’s scrutiny “unremarkable.” See here for the 2012 article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Explosure,” see here for coverage on the one year anniversary of the NY Times article, here for coverage on the two year anniversary of the NY Times article, and here for coverage on the three year anniversary of the NY Times article, and here for coverage of the four year anniversary of the NY Times article. See here and here for additional critical commentary about the NY Times article.
Among other things, I stressed that Wal-Mart’s FCPA scrutiny should not depend on a talented journalist at a leading newspaper writing a story about a well-known company. Indeed, the New York Time story would have been largely the same if the journalist and New York Times devoted its significant resources to other instances of FCPA scrutiny.
During Wal-Mart’s FCPA scrutiny, I have communicated with the New York Times journalist who won the Pulitzer Prize for the Wal-Mart articles and expressed my concern with the FCPA aspects of the article and how the article omitted certain relevant legal information. Further, I appeared with the journalist at the ABA’s Sixth Annual National Institute on the Foreign Corrupt Practices Act on a panel titled “Captain or Passenger?: How to Navigate the Rough Waters of an FCPA Media Crisis,” (September 19, 2013). During the event, I again questioned certain of the FCPA information in the New York Times articles and the response of the journalist was along the following lines: I am a journalist, I tell stories, I leave the legal issues to others.
Throughout Wal-Mart’s FCPA scrutiny, I have predicted that Wal-Mart’s FCPA scrutiny will likely not end up in the Top 5 FCPA enforcement actions of all time in terms of settlement amount. Time will tell whether this prediction is true (and with the seeming “just because” escalation of FCPA fine and penalty amounts – see here – it may not be true). On this score, in October 2016 Bloomberg reported (see here for the prior post):
“Wal-Mart Stores Inc. is butting heads with the U.S. government over how to wrap up a long-running foreign corruption investigation. Officials have proposed that the world’s biggest retailer pay at least $600 million to resolve probes by the Justice Department and the Securities and Exchange Commission into whether it bribed government officials in markets from Mexico to India and China, according to three people familiar with the matter. The retailer has rebuffed the government’s request, two of them said.”
In January 2017, the Wall Street Journal reported: “In the final weeks of the Obama administration, [Wal-Mart] and U.S. officials weren’t able to agree on a deal before Donald Trump’s inauguration, people familiar with the matter said. “Wal-Mart and the government are very far apart in terms of a settlement.” (See here for the prior post).
In short, many, many people reacted to the New York Times Wal-Mart articles in strange and unwarranted ways.
Time will tell whether the New York Times or Wall Street Journal narrative is correct (and to be sure the WSJ, like other media sources, has written FCPA articles in the past that omitted relevant information and/or otherwise turned not be true).
Yet, the lesson for the FCPA community from Wal-Mart’s FCPA scrutiny is to show greater discipline and restraint before basing arguments and advocating positions based on a newspaper article written by a non-lawyer journalist.
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