On Monday, the Wall Street Journal published this page one article titled “Wal-Mart Bribery Probe Finds Few Signs of Major Misconduct in Mexico” about the company’s long-standing Foreign Corrupt Practices Act scrutiny.
The WSJ article largely represented a “nana nana boo boo” article seemingly in response to the New York Times previous Wal-Mart FCPA reporting in that the WSJ asserts, 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.”
More fundamentally, Wal-Mart’s entire FCPA scrutiny since December 2011, and the media reporting of it, demonstrate that greater restraint and discipline is needed by various FCPA commentators (and others) who are all to quick to react to media reporting of FCPA issues by non-lawyer journalists.
First some background.
In April 2012, the New York Times ran a front-page 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.
The WSJ article this week states in pertinent part:
“A high-profile federal probe into allegations of widespread corruption at Wal-Mart Stores Inc.’s operations in Mexico has found little in the way of major offenses, and is likely to result in a much smaller case than investigators first expected, according to people familiar with the probe.
The three-year investigation isn’t over, but most of the work has been completed, and it is possible the case could be resolved with a fine and no criminal charges leveled against individual Wal-Mart executives, these people said.
As part of the same investigation, investigators found evidence of bribery in India, centering on widespread but relatively small payments made to local officials there, the people said. Wal-Mart is likely to face U.S. foreign-bribery charges under the Foreign Corrupt Practices Act over those payments, they said.”
The Justice Department launched its investigation after a pair of 2012 New York Times articles about alleged bribes the world’s largest retailer by revenue might have paid in Mexico to obtain permits to build stores there, the people said. Mexico is home to about 20% of Wal-Mart’s roughly 11,500 locations.
The articles portrayed in detail millions of dollars Wal-Mart’s Mexico unit allegedly paid to middlemen. They described permits that had previously been hard to obtain coming through within days or weeks after the alleged payments. The articles also described how senior Wal-Mart executives appeared to shut down an internal inquiry into the suspicious payments.”
Let’s pause for a moment right here.
The notion that Wal-Mart’s FCPA scrutiny began with the New York Times articles (published in April 2012 and December 2012) is false, but has become part of the narrative surrounding Wal-Mart’s FCPA scrutiny. As reported here by FCPA Professor in December 2011, Wal-Mart disclosed in FCPA scrutiny in December 2011.
Back to the WSJ article.
“The [government’s] probe uncovered evidence that contradicted some of the allegations in the New York Times articles, said people familiar with the investigation. The five-year statute of limitations made it very unlikely that other instances of alleged misconduct could be prosecuted, these people said. But it is still possible, these people said, that new evidence could emerge at the final stages of the investigation to change officials’ view of the case.
They said the federal findings so far largely match up with the results of an internal probe Wal-Mart launched in the wake of questions from the New York Times.
Matt Purdy, the New York Times’ deputy executive editor, said the stories “were largely based on internal Wal-Mart documents that described hundreds of suspect payments involving millions of dollars. One of those documents, written by Wal-Mart’s own investigators, concluded that there was ‘reasonable suspicion’ to believe Wal-Mart de Mexico repeatedly violated the Foreign Corrupt Practices Act. To this day, Wal-Mart has not taken issue with the articles we published. Instead, the company says it has spent tens of millions of dollars to improve its compliance with anticorruption laws and it has removed several key executives involved in the matter.”
Much of the suspected bribery investigators unearthed in India involves thousands of small payments to low-level local officials to help move goods through customs or obtain real-estate permits. The vast majority of the suspicious payments were less than $200, and some were as low as $5, the people said, but when added together they totaled millions of dollars.
The people said investigators found similar payments in Mexico, but the bulk of such activity seemed to be in India.
Because penalties under the FCPA are often connected to the amount of profit the alleged misconduct generated, the payments in India wouldn’t be likely to result in any sizable penalty, since Wal-Mart’s operations there haven’t been particularly profitable, said people familiar with the matter.”
The WSJ then quotes an FCPA commentator who states that the now apparent scope and severity of Wal-Mart’s FCPA issues is “totally unexpected.”
Perhaps the now 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.
Much of Wal-Mart FCPA scrutiny coverage was 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 New York Times article, here for coverage on the two year anniversary of the New York Times article, and here for coverage on the three year anniversary of the New York Times article. See here and here for additional critical commentary about the New York 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).
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 is to show greater discipline and restraint before basing arguments and advocating positions based on a newspaper article written by a non-lawyer journalist.