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Further To Wal-Mart’s Pre-Enforcement Action Professional Fees And Expenses

This recent guest post on the FCPA Blog regarding Wal-Mart, specifically its disclosed pre-enforcement action professional fees and expenses, stated “some FCPA watchers are so indignant by the $300 million figure they have broken it down into FCPA compliance dollars spent per day …”.

That would be me (see here, here and here for prior posts).

And clearly I am not the only one that has taken note of Wal-Mart’s pre-enforcement action expenses.  Indeed, the FCPA Blog itself took note (here) and called my initial calculation of Wal-Mart’s per day expenses (when it was a mere $604,000 per working day) “eye popping.”

Just yesterday, Reynolds Holding writing on his Breakingviews column -“Lawyers Need to Brake Their Bribe-Case Gravy Train” – stated:

“Lawyers need to pull the brake on their bribery-probe gravy train. Wal-Mart Stores shelled out about $80 million last quarter alone – some $1.25 million per working day – on an internal corruption investigation. […] Wasteful scorched-earth legal tactics inflate costs, while potentially ruinous U.S. penalties make companies scared to skimp. Smarter lawyering could slow the runaway spending.  Scrutiny under the FCPA typically throws multinationals into attorney-hiring overdrive. Having legal eagles delve into corporate innards helps a company look cooperative and thereby win leniency from the government.   […]  There is a better way. A records search at a multinational’s headquarters can quickly reveal how and, generally, where and to whom bribes are being paid, according to veterans of the Siemens case and others. Investigations in just a few countries can then ferret out the details of a global scheme. That’s often enough to reach a reasonable settlement with Uncle Sam.  Yet unnecessarily far-flung and costly probes persist. Not only does the prospect of enormous fees encourage lawyers running an investigation to engage in overkill. A company’s officers also don’t want to be seen to cut corners or get in the attorneys’ way. The usual healthy corporate tendency to police costs carefully doesn’t apply.  For big companies the waste may not show, either. Even a legal bill of, say, $500 million is a drop in the bucket for a company like Wal-Mart with revenue nearly 1,000 times that figure every year. That shouldn’t, however, let lawyers off the hook. Ethics rules require their fees to be reasonable. In bribery cases, that standard is at risk of becoming corrupted.”

The recent guest post on the FCPA Blog went on to state as follows.

“Over roughly the same period covered by the $300 million cost, Wal-Mart’s sales have been about $1 trillion ($1,000,000,000,000). Those FCPA compliance costs are less than one third of one percent of its sales. And with profits last year of about $17 billion,  Wal-Mart will survive its FCPA spending spree. The world’s largest retailer is finally investing in FCPA compliance in proportion to its size. It’s playing catch up for a decade of what appears to be FCPA neglect.”


The necessity and legitimacy of FCPA pre-enforcement action professional fees and expenses ought not be measured by a company’s profitability or overall sales.

Nor is it necessarily appropriate to say that Wal-Mart is finally investing in FCPA compliance in proportion to its size.  The inference is that a large company with large profits ought to spend more on FCPA compliance than a smaller company with smaller profits.

FCPA risk of course is unique to specific industries, and even within the same industry, often to specific companies.  It is not hard to imagine a small company with smaller profits having a higher FCPA risk profile than a large company with larger profits.

Nor is it necessarily appropriate to say that Wal-Mart is “playing catch up for a decade of what appears to be FCPA neglect.”  Presumably this sentence is based on one read of the Wal-Mart New York Times articles.  It appears, even accepting everything in the Times articles as gospel-truth, that Wal-Mart had some corporate governance failures or deficiencies at certain critical points.  For more on this see my article “Foreign Corrupt Practices Act Enforcement as Seen through Wal-Mart’s Potential Exposure.”

However, as noted in this prior post, let’s not forget other information in the Times articles.

First, according to the 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.

Second, according to the Times, Wal-Mart’s investigation “was uncovering the kinds of problems and oversights that plague many global corporations.”

Third, according to the Times, Wal-Mart’s internal reviews began in Spring 2011 – long before the Times April 2012 article, when Wal-Mart’s general counsel learned of an FCPA enforcement action against Tyson Foods (like Wal-Mart, a company headquartered in Arkansas).

Finally, the recent guest post on the FCPA Blog states that Wal-Mart’s pre-enforcement action professional fees and expenses can “be looked at like accumulated liability for a toxic waste  site: First a determination of the origin, size and places of the contamination, then the costs of the clean up and damages.”

Accepting the analogy, perhaps you’ve heard that Superfund and other environmental clean-up costs frequently turn into boondoggles as well. (See e.g., here).

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