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Wal-Mart’s FCPA And Compliance Related Expenses Stand At $738 Million – Expected To Grow To Approximately $850 Million

In its recent 4Q FY2016 earnings call presentation [1] Wal-Mart disclosed $33 million in Foreign Corrupt Practices Act and compliance related expenses ($25 million for ongoing investigations and inquiries and $8 million for global compliance program and organizational enhancements).

Doing the math, Wal-Mart’s 4Q FCPA and compliance-related costs is approximately $520,000 per working day.

Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses.

While some pundits have ridiculed me [2] for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples [3],” 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.

Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $520,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have largely crested as the figures for the past nine quarters have been approximately $470,000, $470,000, $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $126 million.

In addition, Wal-Mart disclosed: “in fiscal year 2017, we expect our FCPA-related expenses to range between $100 and $120 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 recently become an industry-leader in FCPA compliance best practices.

Should you have any doubt about this, read Wal-Mart’s annual “Global Compliance Program Report” (see here [4] for FY 2015 and here [5] for FY 2014).

The significant investment Wal-Mart has made in FCPA compliance should be relevant as a matter of law in the future if a non-executive employee or agent acts contrary to Wal-Mart’s policies and procedures and in violation of the FCPA.  (See my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense [6]“).

Compliance defense detractors say that such a defense will promote “check-a-box compliance” and a “race to the bottom.”

There is nothing “check-a-box” about spending approximately $250 million over the past four years on FCPA compliance enhancements nor can one credibly argue that if other companies follow Wal-Mart’s enhancements and approach that this is a “race to the bottom.”

The key policy issue is this.

Wal-Mart has engaged in FCPA compliance enhancements in reaction to its high-profile FCPA scrutiny.

Perhaps if there was a compliance defense more companies would be incentivized to engage in compliance enhancements pro-actively.

A compliance defense is thus not a “race to the bottom” it is a “race to the top”  (see here [7] for the prior post) and it is surprising how compliance defense detractors are unable or incapable of grasping this point.