Wal-Mart One Year Later
One year ago, the New York Times ran a major story (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 post highlighting Wal-Mart’s FCPA disclosure). Thus, this week is a false one year anniversary of Wal-Mart’s FCPA scrutiny, but a meaningful anniversary nevertheless.
A year ago this week, in response to the NY Times article, Wal-Mart’s stock dropped approximately 8%. However, savvy investors should have recognized the NY Times induced dip as a buying opportunity because the market often overreacts (perhaps because of the plethora of suspect FCPA enforcement information in the public domain). For instance, the last trading day before the NY Times April article, Wal-Mart stock closed at $62.45. Last Friday, Wal-Mart stock closed at $78.29.
A December 2012 front-page NY Times article (see here for the prior post) added additional details to the previous April 2012, but did not change much from an FCPA perspective.
In the year since the original NY Times article, Wal-Mart’s FCPA scrutiny has followed a fairly typical pattern. Wal-Mart’s internal review has expanded beyond Mexico, civil shareholder suits and derivative claims have been filed, Wal-Mart has engaged in various remedial measures, and the company’s pre-enforcement action professional fees and expenses has skyrocketed (see this prior post for my calculation of $604,000 per work day).
The conduct described in the NY Times articles was unremarkable from a Foreign Corrupt Practices Act perspective – a view I have consistently held since last April (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 is that 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.
Payments in connection with foreign licenses, permits and the like have been the basis for many FCPA enforcement actions prior to Wal-Mart’s FCPA scrutiny and will likely be the basis for many FCPA enforcement actions in the future.
Indeed, 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.
It is also interesting to ponder the salient question of whether the payments at issue in Wal-Mart, which are outside the context of procurement, actually violate the FCPA (and here, as in many cases, there is an important distinction between the law Congress passed and DOJ/SEC enforcement theories). For instance, as noted in this prior post and in my above Wal-Mart Scrutiny article, the government has an overall losing record in non-procurement type cases when actually put to its burden of proof. However, as we all know, this will matter very little when it comes to any resolution of Wal-Mart’s scrutiny.
For all of the above reasons, I do not believe that Wal-Mart’s scrutiny “will test FCPA enforcement in new ways” as suggested by this post on the FCPA Blog. Nor should it.
FCPA enforcement ought not be influenced merely by the fact that a talented journalist at a leading newspaper has devoted time and effort to cover an instance of FCPA scrutiny. If Barstow and the NY Times would have focused on BizJet, the reaction likely would have been, and with good reason, more negative. But then again, there probably would not have been any reaction at all because BizJet is obviously no Wal-Mart. Insert many other recent FCPA enforcement actions [here], if Barstow and the NY Times would have focused on [that] instance of FCPA scrutiny, the story would have largely read the same.
Nor do I believe that Wal-Mart’s FCPA scrutiny will likely end up in the Top 5 FCPA enforcement actions of all time in terms of settlement amount. The reason? All of the cases in the Top 5 are procurement cases, not cases focused on licenses, permits and the like.
If Wal-Mart does indeed crack the Top 5 (and with the seeming escalation of FCPA fine and penalty amounts, it is likely only a matter of time when a license, permit case does crack the Top 5), it will likely be for reasons unrelated to substantive FCPA issues, but rather an increase in the company’s culpability score under the advisory Sentencing Guidelines based on its alleged handling of the potential FCPA issues in 2005.
Indeed, the remarkable aspects of the NY Times investigation is the alleged conduct (or lack thereof) of Wal-Mart and its top executives upon learning of problematic conduct in its Mexican subsidiary in 2005. Even in 2005 and continuing today, most business leaders, audit committees, and boards tend to overreact to FCPA issues and often reflexibly launch broad internal investigations. But, according to the NY Times, that is not what Wal-Mart did. Another remarkable aspect of the NY Times investigation is how Eduardo Castro-Wright (at the critical time period the CEO of Wal-Mart Mexico) was allegedy known by others at Wal-Mart to be involved in the Mexican payments, but was nevertheless continuously thereafter promoted by Wal-Mart.
Corporate governance, or lack thereof, is what made the NY Times April 2012 remarkable. This is the reason why Wal-Mart generated all the buzz it did a year ago this week and I’ve consistently held the view that the Wal-Mart story is a corporate governance sandwich with the FCPA as a mere condiment.
But even here, the seldom-discussed November 2012 NY Times article, adds additional relevant details. It suggests that Wal-Mart’s December 2011 FCPA disclosure was motivated by Wal-Mart’s desire to pro-actively understand its FCPA risk (notwithstanding whatever may have occurred within the company in 2005 upon learning of potentially problematic payments in Mexico). According to the article, 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 NY 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.
Scrutiny Alerts And Updates
This post revisits themes originally explored in this prior post “The Sun Rose, A Dog Barked and a Company Disclosed FCPA Scrutiny” and this prior post “Recent Disclosures Raise Many Questions.”
Why, in this era of increased FCPA compliance, does there seem to be more, not less, FCPA inquiries? Does effective compliance reduce FCPA scrutiny or does effective compliance uncover more potential FCPA issues? If every company hired FCPA counsel to do a thorough review of its world-wide operations would – given the current enforcement theories – 50% of companies find technical FCPA violations? 75%? 95%? If the answer is any one of these numbers (and my guess is that 95% is probably the best answer), is that evidence of how corrupt business has become, evidence of how unhinged FCPA enforcement theories have become, or evidence of something else?
In other words, what does it say about enforcement of a law if, at any given time, the majority of corporations are on the wrong end of how that law is being enforced?
After all, according to the FCPA Blog’s most recent corporate disclosure list (here) approximately 90 companies are currently under investigation for FCPA violations. As the FCPA Blog rightly notes “nearly all entries are based on disclosures in SEC filings. That means non-issuers (non-public companies) aren’t included. And perhaps not all issuers have made a disclosure about a pending FCPA investigation, in which case the company may not appear on this list.”
This post highlights FCPA scrutiny and developments concerning the following companies: UBS, Panasonic, Image Sensing Systems, H-P, Oracle, IBM, InBev, Wal-Mart, and Net1,
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UBS
It reads like a law school issue-spotting exam.
A Kuwaiti sheik (and also a former Minister of Interior) alleges that a company subject to the FCPA offered a $20 million commission to derail a bid by a company for various telecommunication assets so that the subject company could get a lead role in finding a different buyer. The sheik alleges that he then used his influence, on the subject company’s behalf, placed a series of telephone calls, and the bid was derailed. The sheik then assisted the subject company in landing a lead advisory role on the sale to a different buyer giving the subject company a $22.5 million fee. The subject company then offers the sheik a job paying over $600,000 a year.
So reads this recent article in the Wall Street Journal concerning a Kuwaiti sheik and UBS and the sheik’s efforts to obtain the fee he says he is owed.
Panasonic
According to this recent Wall Street Journal article, “U.S. authorities are investigating whether [Panasonic Avionics Corp. (“PAC”) a U.S.-based subsidiary of Japanese electronics giant Panasonic Corp. that makes in-flight entertainment and communications systems for airlines] paid bribes abroad to land business.” According to the article, PAC’s legal department has instructed certain executives and employees to preserve documents “concerning any benefits or gifts provided, or the payment of anything of value, by Panasonic or PAC to any airline employee or government officials.”
Image Sensing Systems
Image Sensing Systems Inc. (a Minnesota based provider of above ground detection and information management solutions for markets including security, police and parking) disclosed in this recent release as follows.
“The Company has learned that Polish authorities are conducting an investigation into alleged violations of Polish law by two employees of ISS Poland, who have been charged with criminal violations of certain laws related to a project in the City of Lodz, Poland. Neither the Company nor any of its subsidiaries has been charged with any offense. A committee of the Company’s independent directors, with the assistance of independent counsel and accounting advisors, is conducting an investigation into these matters focusing on possible violations of Company policy, internal controls, and laws, including the Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act and Polish law. This investigation is ongoing, and the Company is voluntarily disclosing this matter to the Securities and Exchange Commission and the Department of Justice. ‘We take these matters very seriously, and are cooperating fully. Image Sensing Systems aims to conduct its business lawfully and ethically. We have taken remedial actions, including ending the employment of the two Polish employees. We are also assessing and implementing enhancements to our internal policies, procedures and controls. The Company’s known costs related to the investigation to date were immaterial in 2012 and approximately $1.5 million through March 22, 2013. While we are working diligently towards a timely conclusion, we are presently unable to determine the likely outcome or range of loss, if any, or predict with certainty the timeline for resolution of these matters.'”
H-P, IBM and Oracle
This recent ProPublic report highlights the relationship between various tech companies including H-P, IBM and Oracle with a “senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.
According to the article, Polish prosecutor say that the individual “received more than a $1 million in cash and brand-name gifts in exchange for steering government contracts to the three American companies, as well as to a Polish company called Netline. According to prosecutors, the gifts included a BMW motorcycle, a Nissan SUV, a Harmon Kardon home theater, a Sony 50 inch television, 12 HP laptops, several iPads and a refrigerator.”
The article further states as follows.
“IBM and Hewlett-Packard said in statements that they were cooperating with Polish authorities. Hewlett-Packard noted that “no current HP employees are suspects in this case,” while IBM pointed out that “press reports” on the case referred to a “former IBM employee.” The company said in its statement that it “believes in the highest ethical standards for its employees and is committed to the principles of business ethics and lawful conduct.” Oracle, whose possible entanglement in the investigation had not been publicly known before today, would not comment for this article”
IBM and Oracle have both recently been the subjects of FCPA enforcement actions (see here and here) and as noted in this post H-P has been under FCPA scrutiny since approximately April 2010.
AB InBev
InBev, a leading global brewer based in Belgium with ADRs traded on the N.Y. Stock Exchange, recently disclosed in its annual report as follows.
“We have been informed by the SEC that it is conducting an investigation into our affiliates in India, including our nonconsolidated Indian joint venture, InBev Indian Int’l Private Ltd, and whether certain relationships of agents and employees were compliant with the FCPA. We are investigating the conduct in question and cooperating with the SEC.”
As noted in this Bloomberg article, AB InBev’s market share in India is about 2 percent and operations are run by an Indian subsidiary, Crown Beers India, and a joint venture with RKJ Group for local production, in which AB InBev holds a minority stake.
Other beverage industry companies also currently the subject of FCPA scrutiny include Owens Illinois (see here for prior post), Beam Inc. (see here for the prior post) and Central European Distribution Corp. (see here for the prior post).
An industry sweep? (See here from the Wall Street Journal Corruption Currents).
Wal-Mart
In its recent 10-K filing, Wal-Mart stated, in pertinent part, regarding its FCPA scrutiny as follows.
“Our process of assessing and responding to the governmental investigations and the shareholder lawsuits continues. While we believe that it is probable that we will incur a loss from these matters, given the on-going nature and complexity of the review, inquiries and investigations, we cannot reasonably estimate any loss or range of loss that may arise from these matters. Although we do not presently believe that these matters will have a material adverse effect on our business, given the inherent uncertainties in such situations, we can provide no assurance that these matters will not be material to our business in the future.”
[…]
“These matters may require the involvement of certain members of the Company’s senior management that could impinge on the time they have available to devote to other matters relating to the business. The Company expects that there will be on-going media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the Company’s role as a corporate citizen.”
Related to Wal-Mart’s overall FCPA scrutiny, this recent article in the Wall Street Journal suggests that Wal-Mart’s “compliance crackdown” is one of the reasons for the company’s stalled growth in India. Another reason discussed is “India’s labyrinthine process for developing commercial real estate and operating stores”
Net1
As noted in this previous post, in December 2012, Net1 UEPS (a South African telecommunications company with shares traded on a U.S. exchange) disclosed that it received letters from the DOJ and SEC informing the company that the agencies had begun an investigation into whether Net 1 violated the FCPA by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing a contract with the South African Social Security Agency to provide social welfare and benefits payments.
The company recently announced as follows.
“[A] full bench of the South African Supreme Court of Appeal (“Appeal Court”) unanimously ruled that the tender process followed by the South African Social Security Agency (“SASSA”) in awarding a contract to Net1’s wholly owned subsidiary Cash Paymaster Services (Proprietary) Limited (“CPS”) was valid and legal.”
Friday Roundup
Hits and misses, does it really need to cost this much, the Wal-Mart effect, survey says, Senate hearing quotable, while they’re at it, checking in on Hollywood and Goldman too, spot on, and some refreshing words. It’s all here in the Friday roundup.
Hits and Misses
I read pretty much everything churned out by FCPA Inc., including the flood of recent client alerts concerning the Straub and Steffen decisions. (See here and here for previous posts summarizing the decisions). Many of these alerts are good and informative (for instance, see here from Debevoise & Plimpton). However, some of these alerts are just plain wrong.
The headline of one alert was “District Court Decision Limits the Extraterritorial Reach of the FCPA.” The headline of another alert was “Court Sets Limits on Extraterritorial FCPA Reach; Dismisses Case Against Foreign Siemens Executive.”
Neither the Straub nor Steffen decisions concerned extraterritorial application of the FCPA. In fact, there is no extraterritorial reach of the FCPA as to foreign actors. Yes, the FCPA was amended in 1998 to provide for alternative “nationality” jurisdiction (i.e. extraterritorial jurisdiction) over U.S. persons (both legal and natural), however, 78dd-1(g) and 78dd-2(i) are strictly limited to U.S. persons.
Rather, the Straub decision concerned the scope of territorial jurisdiction under 78dd-1(a), specifically the meaning of “use of the mails or any means or instrumentality of interstate commerce …”.
The Steffen decision did not even reach this issue as the judge found the initial threshold issue of personal jurisdiction lacking.
Wal-Mart’s FCPA Scrutiny Expenses Mount
During the media feeding frenzy after the New York Times April 2012 Wal-Mart article (see here for the prior post), I had the pleasure to appear on Eliot Spitzer’s Viewpoint program on Current TV. At the end of the segment, after the substantive issues were discussed, Spitzer offered that he has several contacts in the FCPA bar and that, regardless of the substantive issues involved in Wal-Mart’s FCPA scrutiny or the ultimate outcome, lots of lawyers were poised to make lots of money.
Spitzer of course was right.
Wal-Mart recently stated (here) that it has incurred “$157 million of professional fees and expenses related to the ongoing” FCPA matter during its last fiscal year and that it expect to incur an additional “$40 to $45 million for the first quarter of fiscal 2014.” During Wal-Mart’s recent earnings conference call, a company executive stated as follows. “On FCPA, we continue to work closely with anticorruption compliance experts to review and to assess our programs and help us implement concrete steps for each particular market. In the various markets, these experts have spent tens of thousands of hours on anti-corruption support and training. We remain committed to follow all laws and regulations in the markets where we operate.”
The $157 million Wal-Mart spent in the last FY equates to approximately $604,000 in professional fees and expenses per working day.
I observed in this March 2011 articles as follows.
“This new era of enforcement has resulted in wasteful overcompliance, companies viewing every foreign business partner with irrational suspicion, and companies deploying teams of lawyers and specialists around the world spending millions to uncover every potential questionable or unethical $100 corporate payment. This new era of enforcement has proven lucrative to many segments of the legal, accounting, and compliance industries and the status quo would, from their perspective, seem desirable.”
The question again ought to be asked – does it really need to cost this much or has FCPA scrutiny turned into a boondoggle for many involved? For more on this issue, see my article “Big, Bold, and Bizarre: The Foreign Corrupt Practices Act Enters a New Era.”
While minor compared to Wal-Mart’s FCPA professional fees and expenses, Beam Inc. recently disclosed here that in 2012 the company spent approximately $4.2 million for “legal, forensic accounting, and other fees related to our internal investigation into Foreign Corrupt Practices Act compliance in our India operations.”
Wal-Mart Effect
Switching gears, but sticking with Wal-Mart related issues, this May 2012 post highlighted a potential “Wal-Mart effect.” In short, the point was that Wal-Mart is clearly not the only company subject to the FCPA that needs licenses, permits and the like when doing business in Mexico. I predicted that Wal-Mart’s potential FCPA exposure would cause sleepless nights for many company executives doing business in Mexico and the general region. The post then discussed statements made during a Kimco Realty Corporation earnings call in May 2012 concerning its properties in Mexico.
Earlier this week, Kimco Realty stated in an SEC filing as follows.
“On January 28, 2013, the Company received a subpoena from the Enforcement Division of the SEC in connection with an investigation, In the Matter of Wal-Mart Stores, Inc. (FW-3678), that the SEC Staff is currently conducting with respect to possible violations of the Foreign Corrupt Practices Act. The Company is responding to the subpoena and intends to cooperate fully with the SEC in this matter. The Company has also been notified that the U.S. Department of Justice (“DOJ”) is conducting a parallel investigation, and the Company expects that it will cooperate with the DOJ investigation. At this point, we are unable to predict the duration, scope or result of the SEC or DOJ investigation.”
Survey Says
The annual Litigation Trends and Survey report by Fulbright & Jaworski is always a good read. This year’s report (see here to download) surveyed 392 “senior corporate counsel” (275 in the U.S., 100 in the U.K. and 17 in other jurisdictions) on a wide-range of litigation and related matters. The following were FCPA or related survey results.
“Companies that have retained outside counsel to assist with a corruption or bribery investigation in the past 12 months (including, but not limited to, FCPA in U.S. and equivalent in U.K.”
- 9% of U.S. respondents answered “yes”; 18% of U.K. respondents answered “yes.” As noted, “U.S. figures [2010-2012] have remained relatively stable.”
“Companies that have engaged in due diligence for bribery or corruption (including FCPA matters) relating to a merger, acquisition or other business transactions with a foreign country in the past 12 months.”
- 18% of U.S. respondents answered “yes”; 26% of U.K. respondents answered “yes.” As noted, “more companies this year have engaged outside counsel in due diligence for corruption or bribery investigations due to business transactions with entities based in a foreign country.”
As to the due diligence figures, in the abstract these figures do not mean much, unless one knows how many responding companies actually engaged in foreign acquisitions or other business combinations.
The last survey result in the report perhaps speaks best to the over-hyped nature of the U.K. Bribery Act.
“Has your company changed the way it operates due to the emergence of anti-bribery legislation outside the U.S., such as U.K. Bribery Act 2010?”
- 78% of U.S. respondents answered “no” and 63% of U.K. respondents answered “no.”
Senate Hearing Quotable
Senator Elizabeth Warren (D-MA) had some quotable moments (here) during a recent Senate Banking hearing. The hearing concerned financial regulation, not the FCPA. Nevertheless, some of the issues have some overlap to FCPA enforcement – including how settlement policies in regulatory enforcement actions create conditions in which there is “not much incentive to follow the law” and how “too big to fail” perhaps means “too big for trial.”
Disclosure Issues
This recent Wall Street Journal CFO Journal post notes as follows.
“Securities and Exchange Commissioner Troy Paredes called for a complete review of the information companies disclose to investors, amid concerns that investors suffer from “disclosure overload” that could hamper their ability to gauge the importance of the data. “What we need is a top-to-bottom review of our disclosure regime,” Mr. Paredes said at the Practising Law Institute’s annual “SEC Speaks” conference in Washington, D.C. on Friday.”
While they’re at it, the SEC should take a look at its absurd position that all payments in violation of the FCPA, no matter how small the payment and no matter how large the company, are “qualitatively material.” For instance, as noted in this previous post concerning comments made by enforcement officials at a conference I chaired, an SEC official suggested that the concept of materiality itself has two “sub-concepts”: (i) quantitative materiality (something that impacts a company’s financial statements) and (ii) qualitative materiality. While conceding that very few improper payments are “quantitatively material” and while recognizing that “qualitative materiality” is a “complicated gray area,” the SEC officials nevertheless said that all bribes can be considered qualitatively material because they may “automatically trigger a books and records violation.” For formal SEC guidance on this issue, see here.
Checking In
Hollywood Industry Sweep
From the New York Times regarding the on-going scrutiny of Hollywood movie studios in China.
“Last March, word reached several studios of a confidential inquiry by the Securities and Exchange Commissionand the Justice Department into possible violations of the Foreign Corrupt Practices Act by people or companies involved in the China film trade. Since then, executives and their advisers have been waiting for some public sign of the scope or focus of the government’s interest. So far, there has been none. But official silence has not kept the investigation from casting a chill over dealings between Hollywood and China.”
Goldman
From the Wall Street Journal regarding the on-going scrutiny of Goldman’s dealings with Libya’s sovereign wealth fund.
“Libya’s sovereign-wealth fund said it is cooperating with the U.S. Securities and Exchange Commission in its ongoing investigation into Goldman Sachs Group Inc. over the securities firm’s dealings with the fund when Col. Moammar Gadhafi was in power. […] People close to the Libyan investment fund said officials have authorized some former fund executives to give testimony to the SEC. The officials also agreed to provide documents and other data to U.S. regulators about the fund’s ties to Goldman, these people said.”
Spot On
Two recent Q&A’s on Law360 caught my eye. The question was “what is an important issue or case relevant to your practice area and why.”
Neil Eggleston (Kirkland & Ellis) stated as follows.
“We are beginning to see the development of case law in the FCPA area, which I believe is good for the process. Most of these cases have been settled. When that occurs, defendants have little incentive to refuse to agree to novel Department of Justice theories of prosecution or jurisdiction, so long as the penalty is acceptable. The department then cites its prior settlement as precedent when settling later ones. But no court approved the earlier settlement, and the prior settlement should have no precedential value in favor of the DOJ in later settlements. As the DOJ increases its prosecution of individuals, we will see many more trials, which will give rise to courts, not the DOJ, interpreting the statute.”
For more on these issues, see my article “The Facade of FCPA Enforcement” and this previous guest post on “prosecutorial common law.”
Richard Marmaro (Skadden) answered the same question as follows.
“An issue of importance in the white collar area is the issue of prosecutorial misconduct, and appropriate remedies for prosecutors who intentionally conceal evidence, intimidate witnesses, or otherwise compromise or impact a defendant’s right to a fair trial. I have seen firsthand in several of my cases shocking misconduct, which has gone undisciplined by the U.S. Department of Justice. I have been fortunate enough to expose this misconduct, and have had cases dismissed as a result. Indeed, over the last decade, there have been several dismissals nationwide at trial or reversals on appeal based on willful misconduct by government lawyers. Despite these judicial findings, however, the Justice Department’s record of disciplining misbehaving prosecutors is shockingly inadequate. I don’t know of any prosecutor that has been terminated based on a judicial finding of intentional misconduct. In addition, I believe that only two prosecutors have received any discipline at all (both in the Stevens case). In my view, the failure to sanction prosecutors who have been found by judges to have committed misconduct sends the wrong signal to defendants, the public and the vast majority of prosecutors who do their jobs honestly every day.”
For more, see this previous post titled “Should There Be A Difference?”
Refreshing Words
Every now and then it is refreshing to read some common sense words about FCPA compliance and risk assessment. Such as this recent post from the Trace blog.
“Remember, perfection is neither possible nor necessary. When devising a compliance plan, it’s important to remind oneself of the big picture. A company need not break the bank to have a compliance program that follows accepted best practices. As discussed below, there are various ways that good compliance can be affordable. And companies are not responsible for developing full-proof compliance programs; they only need to develop programs proportionate to the risk they face, with the understanding that no program will completely eliminate all risk from the equation. Unlike in other areas of business, when it comes to compliance, being in the middle of the pack is okay.”
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A good weekend to all.
Wal-Mart Again On The Front Page Of The New York Times
This past April, New York Times journalist David Barstow detailed, in a front page article, Wal-Mart de Mexico’s historical business conduct in Mexico. The article resulted in one of the most intense instances of FCPA scrutiny ever. (See here for the prior post discussing the April story).
Today, in a front-page article (here) titled “The Bribery Aisle: How Wal-Mart Used Payoffs to Get Its Way in Mexico,” Barstow continues his investigation of Wal-Mart’s historical business conduct in Mexico.
While the extensive article provides much factual detail concerning many of the general issues from the original April article, from an FCPA perspective, the issues largely remain the same. For my prior analysis of Wal-Mart’s FCPA scrutiny, see this article titled “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”
Based on travel to dozens of towns and cities in Mexico, gathering tens of thousands of documents related to Wal-Mart de Mexico permits, and interviewing scores of government officials and Wal-Mart employees, the article, in pertinent part, states as follows.
“The Times’s examination reveals that Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance – public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals. Through confidential Wal-Mart documents, The Times identified 19 stores sites across Mexico that were the target of Wal-Mart de Mexico’s bribes. The Times then matched information about specific bribes against permit records for each site. Clear patterns emerged. Over and over, for example, the dates of bribe payments coincided with dates when critical permits were issued. Again and again, the strictly forbidden became miraculously attainable. Thanks to eight bribe payments totaling $341,000, for example, Wal-Mart built a Sam’s Club in one of Mexico City’s most densely populated neighborhoods, near the Basilica de Guadalupe, without a construction license, or an environmental permit, or an urban impact assessment, or even a traffic permit. Thanks to nine bribe payments totaling $765,000, Wal-Mart built a vast refrigerated distribution center in an environmentally fragile flood basin north of Mexico City, in an area where electricity was so scarce that many smaller developers were turned away.”
The majority of the article focuses on alleged bribe payments – approximately $200,000 in all – to build a Wal-Mart de Mexico store in Teotihuacan, a city home to several historical treasures.
The allegations focus on a changed zoning map, various permits and licenses needed for construction, town council approval, potential donations to Mexico’s National Institute of Anthropology and History (INAH – the official guardian of Mexico’s cultural treasures) , and offers of money to neighborhoods to expand its cemetery, pave a road, build a handball court, pay for paint and computers for a school, and build a new office building.
As to these later category of alleged payments or offers, the Time article does not mention that even the Department of Justice, in similar types of circumstances, has blessed similar offers of payment in the context of FCPA Opinion Procedure Releases – see here, here, and here.
Like the April article in the Times, today’s story also focuses on the conduct of business leaders at corporate headquarters. The Times article states as follows. “Despite multiple news accounts of possible bribes, Wal-Mart’s leaders in the United States took no steps to investigate Wal-Mart de Mexico.” The article also quotes a Wal-Mart spokesman as saying that while executives in the United States were aware of the controversies surrounding the Teotihucan store, “none of the [Wal-Mart employees interviewed in connection with Wal-Mart’s current investigation] , including people responsible for real estate projects in Mexico during [the relevant time period] recall any mention of bribery allegations related to the store.”
In short, and as I originally stated in my prior article, it is useful to view the Wal-Mart story as a corporate governance sandwich with the FCPA merely a condiment.
See here for Wal-Mart’s statement and video concerning today’s New York Times article. In pertinent part, the statement is as follows.
“The allegations contained in the New York Times article surrounding events in 2003-2004 involving the permitting and licensing process for a Walmart de Mexico store in Teotihuacan, Mexico, have been part of the company’s ongoing investigation of potential violations of the U.S. Foreign Corrupt Practices Act we began more than a year ago. The Audit Committee of the board, comprised entirely of independent directors, is overseeing the investigation. We are also continuing to cooperate with the Department of Justice and the Securities and Exchange Commission on this matter. At this point, the investigation is still ongoing and we have not yet reached final conclusions. A thorough and independent investigation will take time to complete. We wish we could say more but we will not jeopardize the integrity of the investigation. […] While the investigation is ongoing, we have not waited to act. Over the past 20 months, we have made significant improvements to our compliance programs around the world and have taken a number of specific, concrete actions with respect to our processes, procedures and people. Over the past several months we have:
- Established several new compliance positions around the world;
- Directed more than 300 third-party legal and accounting experts who have dedicated in excess of 79,000 hours to this effort;
- Conducted more than 85 in-country visits and more than 1,000 interviews of market personnel;
- Spent more than $35 million on new processes and procedures; and
- Conducted training sessions attended by more than 19,000 associates.
New Wal-Mart Details Emerge
Last week the New York Times ran a front-page story (here) regarding Wal-Mart and its FCPA scrutiny. The story did not receive nearly the attention of the April New York Times story (see here for the prior post), but the recent article includes new details relevant to Wal-Mart’s potential FCPA scrutiny.
And no, I am not talking about the unsurprising fact that Wal-Mart’s scrutiny has expanded beyond Mexico to also include China, India and Brazil. (See here for the prior post discussing how this was likely to happen).
Rather, the new details suggest that Wal-Mart’s internal review is less of a knee-jerk reaction upon learning of the New York Times April story, but more an instance of the company pro-actively seeking to understand its FCPA risk, notwithstanding whatever may have occurred within the company in 2005 and 2006 upon learning of potentially problematic payments in Mexico.
According to the recent Times article, 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 notes that “in July 2011” the firms “had identified significant weaknesses in all three subsidiaries.”
The Times article next rightly states as follows. “The audit was uncovering the kinds of problems and oversights that plague many global corporations.”
The Times article notes that Wal-Mart has spent $99 million on its FCPA review in the past nine months.
To learn more about Wal-Mart’s potential FCPA scrutiny and what it says about this current era of FCPA enforcement, see my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”