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Walmart charged with fcpa violations.
FOR IMMEDIATE RELEASE 2019-102
Washington D.C., June 20, 2019 —
The Securities and Exchange Commission today charged Walmart with violating the Foreign Corrupt Practices Act (FCPA) by failing to operate a sufficient anti-corruption compliance program for more than a decade as the retailer experienced rapid international growth.
Walmart agreed to pay more than $144 million to settle the SEC’s charges and approximately $138 million to resolve parallel criminal charges by the U.S. Department of Justice for a combined total of more than $282 million.
According to the SEC’s order, Walmart failed to sufficiently investigate or mitigate certain anti-corruption risks and allowed subsidiaries in Brazil, China, India, and Mexico to employ third-party intermediaries who made payments to foreign government officials without reasonable assurances that they complied with the FCPA. The SEC’s order details several instances when Walmart planned to implement proper compliance and training only to put those plans on hold or otherwise allow deficient internal accounting controls to persist even in the face of red flags and corruption allegations.
“Walmart valued international growth and cost-cutting over compliance,” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit. “The company could have avoided many of these problems, but instead Walmart repeatedly failed to take red flags seriously and delayed the implementation of appropriate internal accounting controls.”
Walmart consented to the SEC’s order finding that it violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934.
The SEC’s investigation was conducted by Jason Rose, Irene Gutierrez, and Laura Bennett. The case was supervised by David Reece. The SEC appreciates the assistance of the Department of Justice Criminal Division’s Fraud Section, the Federal Bureau of Investigation, and the Internal Revenue Service. The SEC also appreciates the assistance of regulators and law enforcement in Brazil, India, and Mexico.
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Walmart Inc. and Brazil-Based Subsidiary Agree to Pay $137 Million to Resolve Foreign Corrupt Practices Act Case
Walmart Inc. (Walmart), a U.S.-based multinational retailer and its wholly owned Brazilian subsidiary, WMT Brasilia S.a.r.l. (WMT Brasilia), have agreed to pay a combined criminal penalty of $137 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA). WMT Brasilia pleaded guilty today in connection with the resolution.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney G. Zachary Terwilliger of the Eastern District of Virginia, Assistant Director Robert Johnson of the FBI’s Criminal Investigative Division and Special Agent in Charge Kelly Jackson of IRS Criminal Investigation’s (IRS-CI) Washington, D.C. office made the announcement.
“Walmart profited from rapid international expansion, but in doing so chose not to take necessary steps to avoid corruption,” said Assistant Attorney General Benczkowski. “In numerous instances, senior Walmart employees knew of failures of its anti-corruption-related internal controls involving foreign subsidiaries, and yet Walmart failed for years to implement sufficient controls comporting with U.S. criminal laws. As today’s resolution shows, even the largest of U.S. companies operating abroad are bound by U.S. laws, and the Department of Justice will continue to aggressively investigate and prosecute foreign corruption.”
“Walmart violated the Foreign Corrupt Practices Act because it failed to implement the internal controls necessary to ferret out corrupt conduct,” said U.S. Attorney Terwilliger. “For more than a decade, Walmart experienced exponential international growth but failed to create safeguards to protect against corruption risks in various countries. This resolution is the result of several years of steadfast work by the prosecutors and our law enforcement partners at the FBI and IRS-CI.”
“The FBI will hold corporations responsible when they turn a blind eye to corruption," said FBI Assistant Director Johnson. "If there is evidence of violations of FCPA, we will investigate. No corporation, no matter how large, is above the law."
“Walmart’s guilty plea is another step in IRS-CI’s ongoing effort to pursue corporations that engage in corruption that prevents fair competition around the world,” said IRS-CI Special Agent in Charge Jackson. “Through our efforts, we delved through layers of transactions and uncovered the bribery of foreign officials. Today’s announcement is a statement that no company, even one as large as Walmart, is above the law.”
According to Walmart’s admissions, from 2000 until 2011, certain Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption were aware of certain failures involving these controls, including relating to potentially improper payments to government officials in certain Walmart foreign subsidiaries, but nevertheless failed to implement sufficient controls that, among other things, would have ensured: (a) that sufficient anti-corruption-related due diligence was conducted on all third-party intermediaries (TPIs) who interacted with foreign officials; (b) that sufficient anti-corruption-related internal accounting controls concerning payments to TPIs existed; (c) that proof was required that TPIs had performed services before Walmart paid them; (d) that TPIs had written contracts that included anti-corruption clauses; (e) that donations ostensibly made to foreign government agencies were not converted to personal use by foreign officials; and (f) that policies covering gifts, travel and entertainment sufficiently addressed giving things of value to foreign officials and were implemented. Even though senior Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption knew of these issues, Walmart did not begin to change its internal accounting controls related to anti-corruption to comply with U.S. criminal laws until 2011.
The internal controls failures allowed Walmart foreign subsidiaries in Mexico, India, Brazil and China to hire TPIs without establishing sufficient controls to prevent those TPIs from making improper payments to government officials in order to obtain store permits and licenses. In a number of instances, insufficiencies in Walmart’s anti-corruption-related internal accounting controls in these foreign subsidiaries were reported to senior Walmart employees and executives. The internal control failures allowed the foreign subsidiaries in Mexico, India, Brazil and China to open stores faster than they would have with sufficient internal accounting controls related to anti-corruption. Consequently, Walmart earned additional profits through these subsidiaries by opening some of its stores faster.
In Mexico, a former attorney for Walmart’s local subsidiary reported to Walmart in 2005 that he had overseen a scheme for several years prior in which TPIs made improper payments to government officials to obtain permits and licenses for the subsidiary and that several executives at the subsidiary knew of and approved of the scheme. Most of the TPI invoices included a code specifying why the subsidiary had made the improper payment, including: (1) avoiding a requirement; (2) influence, control or knowledge of privileged information known by the government official; and (3) payments to eliminate fines.
In India, because of Walmart’s failure to implement sufficient internal accounting controls related to anti-corruption, from 2009 until 2011, Walmart’s operations there were able to retain TPIs that made improper payments to government officials in order to obtain store operating permits and licenses. These improper payments were then falsely recorded in Walmart’s joint venture’s books and records with vague descriptions like “misc fees,” “miscellaneous,” “professional fees,” “incidental” and “government fee.”
In Brazil, as a result of Walmart’s failure to implement sufficient internal accounting controls related to anti-corruption at its subsidiary, Walmart Brazil, despite repeated findings in internal audit reports that such controls were lacking, Walmart Brazil continued to retain and renew contracts with TPIs without conducting the required due diligence. Improper payments were in fact paid by some of these TPIs, including a construction company that made improper payments to government officials in connection with the construction of two Walmart Brazil stores in 2009 without the knowledge of Walmart Brazil. Walmart Brazil indirectly hired a TPI whose ability to obtain licenses and permits quickly earned her the nickname “sorceress” or “genie” within Walmart Brazil. Walmart Brazil employees, including a Walmart Brazil executive, knew they could not hire the intermediary directly because of several red flags. In 2009, the TPI made improper payments to government inspectors in connection with the construction of a Walmart Brazil store without the knowledge of Walmart Brazil. WMT Brasilia was a wholly-owned subsidiary of Walmart and was a majority-owner of Walmart Brazil, Walmart’s wholly-owned subsidiary in Brazil, and the majority-owner of retail stores operating as Walmart Brazil.
In China, Walmart’s local subsidiary’s internal audit team flagged numerous weaknesses in internal accounting controls related to anti-corruption at the subsidiary between 2003 and 2011, sometimes repeatedly, but many of these weaknesses were not addressed. In fact, from 2007 until early 2010, Walmart and the subsidiary failed to address nearly all of the anti-corruption-related internal controls audit findings.
Walmart entered into a three-year non-prosecution agreement and agreed to retain an independent corporate compliance monitor for two years. The $137 million penalty reflects a 20 percent reduction off the bottom of the applicable U.S. Sentencing Guidelines fine range for the portion of the penalty applicable to conduct in Mexico and 25 percent for the portion applicable to the conduct in Brazil, China and India. Walmart fully cooperated with the investigation in Brazil, China and India. Walmart cooperated with the investigation in Mexico, but did not timely provide documents and information to the government and did not de-conflict with the government’s request to interview one witness before Walmart interviewed that witness. Walmart did not voluntarily disclose the conduct in Mexico and only disclosed the conduct in Brazil, China and India after the government had already begun investigating the Mexico conduct. The $137 million penalty includes forfeiture of $3.6 million and a fine of $724,898 from WMT Brasilia.
In a related resolution with the U.S. Securities and Exchange Commission (SEC), Walmart agreed to disgorge $144 million in profits.
The FBI’s International Corruption Squad in Washington, D.C. and IRS-CI are investigating the case. Assistant Chiefs Tarek Helou and Lorinda Laryea and Trial Attorney Katherine Raut of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jamar Walker of the Eastern District of Virginia are prosecuting the case.
The Criminal Division’s Office of International Affairs has provided significant assistance by obtaining key evidence in this case, as have public authorities in, among other countries, Mexico and India.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa .
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self-study / Criminal Law 1 Credit
Ariel A. Neuman
Principal, Bird Marella
Email: [email protected]
Ariel is a trial lawyer and former federal prosecutor. He regularly represents corporations and individuals in high-stakes white collar criminal matters and bet-the-company civil litigation.
Naomi S. Solomon
Associate, Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow PC
Phone: (310) 201-2100
Email: [email protected]
Naomi represents clients in complex litigation and white collar matters.
While the government is touting Walmart's $282 million settlement to resolve a seven-year Foreign Corrupt Practices Act investigation as a victory, the settlement is actually a win for the company. The financial penalties may be headline grabbing but are a small fraction of Walmart's annual $7 billion in profits. They are far less than the reported government's original $1 billion demand. Walmart Inc., the parent company, got a non-prosecution agreement, and although the settlement requires a corporate monitor, the monitor's activities are limited in an almost unprecedented fashion and will last only two years. Moreover, despite providing what looks like an almost decade-long master class in what not to do in the corporate compliance context, not a single executive, board member or employee faces prosecution or other government-imposed sanction.
Walmart certainly has paid a steep price for its actions in both reputational terms and real dollars -- reportedly spending $900 million on legal fees and related costs and settling a shareholder suit for $160 million, all in addition to the settlement with the government -- but things could have been a lot worse if the company and its lawyers had not played their cards so well.
The case first caught the public eye in April 2012 when The New York Times reported that Walmart's Mexico subsidiary made suspicious payments of at least $24 million to officials and intermediaries in Mexico, and then tried to conceal them from Walmart's headquarters. It further reported that executives at Walmart headquarters, when they learned about the case, took extraordinary steps to quash the internal investigation despite the advice of their outside counsel and at least one in-house lawyer (who resigned apparently in part due to Walmart's failure to comply with its own policies). Walmart reportedly assigned the internal investigation to the executive who had authorized the bribes, who then "promptly exonerated his fellow ... executives."
The corporate response was such that only after learning that the New York Times was investigating the story did Walmart make a self-disclosure to Department of Justice regarding potential FCPA violations. The current settlement makes clear that the Mexico debacle was only the tip of the iceberg of corruption activity that had been plaguing the company's international operations for almost a decade.
According to the order issued by the Securities and Exchange Commission last month, the problems dated back to at least 2003 and spanned the globe, from Mexico to China to Brazil and to India. This was a period of intense and rapid international growth for Walmart and the company wanted to keep things rolling. Time and again, reports of corruption would make their way to Walmart headquarters in Arkansas only to be swept under the rug by the company's top executives. Moreover, while Walmart has always prided itself on its moral and ethical standards, its roll-out of an anti-corruption policy was halting at best, beginning with a 2002 plan for a compliance and training program that was delayed, revised and put on hold for almost nine years.
Nonetheless, Walmart walked away with a settlement that is far less onerous than what might have been. Perhaps foreshadowing last month's settlement, a certain reality TV star who would four years later be elected president responsed to the original New York Times story, criticizing the FCPA as "ridiculous" and a "horrible law" that makes it difficult for companies to compete internationally. His administration appears to have taken note. At the same time, the settlement shows that DOJ's departures from the Obama-era Yates Memo -- which emphasized individual accountability in corporate crime cases -- continues to grow.
Walmart's Pre-2012 Anti-Corruption Efforts & Responses Are a Lesson in What Not to Do
Despite numerous warnings of potential FCPA issues around the globe, Walmart did not implement a strong anti-corruption program using outside counsel or consultants. Instead, it tried to handle things in-house, making halting and ineffective efforts to come up with a program on its own. The SEC's summary of those efforts is devastating.
In 2002, Walmart planned "within a few months" to implement a "worldwide comprehensive and anti-corruption compliance training program." But it did not prepare a draft of compliance materials until 2003, and then did not revise those materials for over a year. In early 2005, it distributed the materials, but then formally put the program on hold just a few months later.
In February 2007, the company announced the launch of a "new and enhanced" program with rollout to come two months later; instead, the new policy was published in December 2008. Shortly thereafter, Walmart changed course yet again and, instead of a worldwide standard, rolled out its "Freedom within a Framework" program which allowed its subsidiaries to design and implement their own country-specific anti-corruption programs. Finally in 2011, with the New York Times and government investigation looming, Walmart hired outside counsel and an international consulting firm to get its program on track.
Throughout the relevant period of 2003 to 2011, Walmart at best ignored serious red flags its foreign subsidiaries and audit teams reported, and at worst actively worked to quash those reports.
As early as 2003, Walmart's China subsidiary requested FCPA training and a clear policy in light of an internal audit report showing payments to government officials and weaknesses in internal accounting controls. Walmart declined to provide either. And in 2006, Walmart allowed the China subsidiary to draft an anti-corruption policy that excluded employees of state-owned enterprises from the definition of "government official," despite internal warnings that this did not comply with Walmart's corporate policies and likely would not comply with the FCPA.
Walmart did not do any better in India. Starting in 2006, Walmart executives received repeated whistleblower emails detailing a scheme to make improper payments to government officials and a history of the same. Walmart did nothing. And like in China, when Walmart's India audit team reported for four years running that internal controls were ineffective and needed attention, the company did not respond.
In Brazil, Walmart likewise ignored warnings from its internal audit team that the company had accounting controls weaknesses. When allegations were uncovered in 2009 that a construction firm employed by the company had made illegal payments for certain non-Walmart projects, Walmart did not respond. Moreover, the company used an intermediary who was referred to internally as "sorceress" or "genie" for her ability to conjure permits and licenses, at huge fees.
Finally, executives in Arkansas effectively crushed an investigation in Mexico into the company's years-long practice of paying intermediaries to make improper payments to government officials. Ignoring the advice of both in-house and outside counsel, the company had its own employees determine whether a full investigation was necessary, and put a lawyer who was allegedly involved in the bribery in charge of those efforts. Despite the previous findings by internal investigators that laws had potentially been violated and that a full, independent investigation was needed, the matter was quickly closed and everyone was deemed exonerated.
Walmart made no efforts at self-disclosure before the New York Times's reporting efforts came to its attention. Despite the government's FCPA program -- which rewards self-disclosure and cooperation with governmental investigation -- it appears Walmart made every effort to squelch any reports of what was happening at its subsidiaries around the world.
Post-2012, Walmart Played It Exactly Right
Things began to turn around after Walmart finally hired outside counsel to conduct an internal investigation and a global compliance review, and made changes at the executive level.
Walmart self-disclosed potential FCPA violations in Mexico to DOJ and the SEC in November 2011. As the results of its expanded internal investigation rolled in, it then disclosed the findings concerning Brazil, China and India. Walmart received full cooperation credit for these three countries, and partial credit for Mexico because DOJ already was investigating there by the time Walmart made disclosures. In the settlement, Walmart is credited for, among other things (1) giving regular presentations to the government of the internal investigation's factual findings and other information; (2) making its foreign employees available for interviews; (3) providing documents and translations; and (4) obtaining cooperation of former employees and third parties.
Walmart also is getting credit for robust remediation efforts. With the benefit of outside counsel, Walmart finally put in place a full-scale, global compliance program. It hired global and dedicated regional ethics, compliance and anti-corruption officers and personnel. It began conducting monthly and quarterly anti-corruption monitoring. And it implemented enhanced anti-corruption internal accounting controls focused on the selection and use of third parties.
At the same time, Walmart did not simply roll over for the government. While FCPA investigations typically take some time, the seven-year span of this case is an outlier. The shareholder derivative suit actually settled more quickly than the federal investigation, and for a larger amount than either of the individual agency penalties.
During that seven-year period, by all accounts, Walmart smartly balanced an aggressive settlement posture with its cooperative investigative approach. For instance, it was reported that Walmart was able to convince a judge to quash a 2016 DOJ grand jury subpoena for testimony from a former Walmart general counsel, based on a prior agreement regarding evidence gathering between the company and DOJ. The company apparently battled with the SEC at times about certain document disclosures. And the company also refused an Obama-era settlement with penalties of approximately $600 million because it would have impacted the company's ability to accept food stamps.
All of this served to delay the government's investigation. The government's initial demand that Walmart Inc. plead guilty to a crime and pay $1 billion in penalties fell away as time wore on. The enforcement agencies experienced significant turnover at the start of the Trump administration, reportedly hampering their efforts. And with that delay came a change in administrations and changes in attitudes towards the FCPA law itself.
Walmart's efforts were rewarded. Although Walmart's Brazilian subsidiary pleaded guilty to a books and records violations, the conviction is essentially meaningless for Walmart Inc. given that the Brazilian subsidiary was sold off by Walmart last year. Importantly, not a single officer, executive, or employee -- in the United States or elsewhere -- was prosecuted.
The parent company itself got a three-year non-prosecution agreement and, considering the money on the table under the previous administration, relatively low fines. DOJ's two-year corporate monitorship is far less burdensome than is standard. As other commentators have noted, DOJ made several concessions from the norm, including limiting the monitorship as to timing, geographic scope, and covered business scope.
While DOJ and the SEC tout the Walmart case as an "aggressive" investigation and prosecution, the result suggests otherwise. Companies and executives examining the case must be excused if they wonder how Walmart got the settlement it did in light of the conduct that came to light. This case is not the norm.
Walmart's early approach to compliance efforts is not recommended. Compliance programs must be robust, uniform, and professionally created and implemented, ideally by counsel familiar with the relevant regulatory environment. Anti-corruption efforts for a massive, international corporation should not be approached lightly. And once a program is identified as necessary, it should be fashioned and put in place at the earliest possible date, without delay or hesitation.
Moreover, when allegations of criminal conduct come to light, they must be thoroughly and independently investigated. The investigation, perhaps obviously, should not be placed in the hands of anyone who might be implicated in the misconduct, and the results should not be swept under the rug.
Finally, when misconduct is found, early and full disclosure to governmental authorities must be carefully considered. Given the reported facts, it is a wonder that Walmart not only was able to avoid obstruction of justice charges, but actually secure cooperation credit. But if it had self-disclosed earlier, it likely would have been able to take full advantage of DOJ's FCPA policy and perhaps avoid prosecution altogether.
At the same time, after the issues came to light, Walmart did things exactly right. The common wisdom that delay generally helps the accused has been proven true once again. Walmart rode out the Obama administration for the less-FCPA friendly Trump administration, a tactic which is serving other companies in their own cases as well. This delay also gave Walmart the time necessary to implement the remediation policies and procedures which the SEC and DOJ could point to as signs of the company's good faith to justify a lesser punishment.
The case also demonstrates that it is important to not completely roll over even if your client chooses to cooperate with the government. Too often counsel fear that if they stand strong on critical issues the government will walk away from the table. The reality is that the government usually wants a deal just as badly as the company in this kind of case.
The Walmart case will no doubt be used as a case study for years to come. Counsel and clients would do well to look at it closely to learn what they should and should not do in the realm of anti-corruption work.
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Wal-Mart Bribery Case Harvard Case Solution & Analysis
Home >> Harvard Case Study Analysis Solutions >> Wal-Mart Bribery Case
Wal-Mart Bribery Case Case Solution
Wal-Mart has always wanted to build its stores in the populated locations of the Mexico. It wanted to continue its retail operations in Elda Pineda’s alfalfa field, this is an ideal location for it as this is the main entrance into the town and it is not much far from the historical monuments and pyramids located near the town. It was expecting large number of customer traffic in its alfalfa field, due to the tourism and the highly populated and dense nature of the location.
While in the process of acquiring the location for continuing its commercial operations, its faced an obstacle with respect to the city’s zoning procedures. The leaders of the location wanted to prohibit the construction near pyramids and they also believed that the town’s entrance was already congested enough that even a single commercial construction took place, then the traffic would not be easy to handle. Wal-Mart’s hopes were doomed when they came to know that the 2003 zoning map would prohibit commercial development near Mrs. Pineda’s field. The executive responsible for the development of Wal-Mart in the desired location was not willing to let go of this ideal location to place their retail sites.In response and counter to these consequences they came up with an unethical and illegal solution, they agreed on bribing the authorities to heal the possible threat and damage.
They paid bribes to authorities to make favorable changes to the coning maps of the town, as the zoning map was not to be considered by the law until it was published in a government newspaper. Before the zoning map was sent to the newspaper, Wal-Mart De Mexico arranged a bribe payment to an official to make changes to the map, which would allow the construction and development plans of Wal-Mart.
The operations of Wal-Mart have now started and they have successfully been able to function in the ideal location. Despite their success in acquiring and initiating their store site in Mrs. Pineda’s fields, they are facing a number of criticism and societal opposition as their operations in the location are heavily affecting the cultural and environmental condition of the town. The town perceives the activities of the retail giant to be in against of the cultures and traditions of the town and a number of strikes, hunger sit-ins and protests through different mediums are being conducted by the concerned people living there.
A number of strong entities have already started investigation on their own platforms. These authorities and entities are finding a number of convincing and considerable evidences to conclude to the point that they were involved in the illegal and unethical act of bribing for attaining leadership and edge over their competitors in the Mexican market.
Wal-Mart’s leading executives have found out regarding these negative happening in the Mexican territory and they had also started an investigation for finding out about the unethical acts of executives of the company. A number of managers and individuals, against whom a number of provident evidences were found, have been fired by the organization and they are making every possible amendment to control the situation in Mexico.
The image of the organization is at stake right now.A number of protests are being conducted out by the town members and the organization’s activities are being perceived in against the betterment of the town’s cultures and natural treasures located in the town. Wal-Mart is damaging the environmental conditions as well. The organization is concerned about the steps that would settle the long driven issue through ways that would not damage the organization and the society as well. The organization must take some efficient steps to overcome the situation in order to remain an operating entity and organization in the location...................
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In a long-awaited settlement, Walmart Inc. agreed to pay U.S. criminal and civil enforcement authorities $282.7 million to settle allegations that it violated the books-and-records provision of the Foreign Corrupt Practices Act and failed to maintain adequate internal anti-corruption controls with its operations in China, India, Brazil, and Mexico.
The global resolution finally concludes one of the longest and most high-profile investigations in FCPA enforcement history.
The retail giant entered into a three-year nonprosecution agreement with the Department of Justice, and agreed to submit to an independent compliance monitor for two years in addition to paying $138 million in criminal penalties.
On the civil side, Walmart paid $144.7 million in disgorgement and pre-judgment interest to the Securities and Exchange Commission, which asserted that Walmart’s subsidiaries in China, India, Brazil, and Mexico operated “without a system of internal accounting controls” for more than a decade, beginning in 2000. The SEC also found that Walmart failed to sufficiently investigate known corruption despite numerous red flags.
Moreover, WMT Brazilia S.a.r.l , Walmart’s wholly owned Brazilian subsidiary, entered a guilty plea for causing a violation of the FCPA’s books-and-records provision.
In November 2011, Walmart disclosed that it had launched an internal investigation to determine “whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act.”
Although Walmart’s initial internal investigation focused on its operations in Mexico, it expanded to countries in Asia and South America following a damning exposé published in the New York Times in 2012. The report detailed purportedly widespread and pervasive corruption accompanying Walmart’s operations in China, India, and Brazil.
Significant, Far-Reaching Failures
Both the DOJ and SEC cited numerous instances in which the company, or one of its foreign subsidiaries, planned to implement proper compliance and training, but ultimately failed to do so, allowing inadequate internal accounting controls to persist despite red flags and corruption warnings.
The absence of these internal controls enabled Walmart to open stores worldwide at an accelerated pace, reaping profits while ignoring acute corruption risk. The control failures in each of these countries were both significant and far-reaching.
In China , Walmart failed to provide “immediate widespread anti-corruption training” or a detailed FCPA policy covering third-party intermediaries and joint venture partners, despite requests to do so from the local subsidiary, according to the SEC.
In India , Walmart had failed to “implement and maintain a system of sufficient internal accounting controls related to anti-corruption” despite the existence of multiple audit reports discussing control deficiencies and a whistleblower report alleging improper payment to Indian government officials. Bribery allegations were met with a “wink and nod” by the company’s local partner.
In Mexico , Walmart’s internal investigation uncovered evidence that a $4 million payment had been made in 2005 to an intermediary to help expedite the issuance of certain real estate licenses necessary for the company to begin construction of its store. A lawyer for the Mexican subsidiary alleged the intermediary was corrupt, but the claim was disputed a year later as part of Walmart’s ongoing inquiry.
In Brazil , management at Walmart’s local subsidiary approved the hiring of a third party to help secure an operating and other licenses for the company. The intermediary was dubbed the “sorceress” or the “genie” for “her ability to obtain licenses and permits quickly.”
Focus Was on Internal Controls
It is important to note, however, that neither the DOJ nor SEC brought any anti-bribery charges against Walmart. Regulators instead focused exclusively on the company’s deficient internal controls regime and how it violated the FCPA’s accounting principles creating the potential risk of bribery rather than finding any actual knowledge of bribery itself.
Other dimensions of the global resolution are revealing.
The $282 million settlement figure, while not insignificant, is dwarfed by the nearly $1 billion Walmart spent on investigation and compliance enhancement-related costs, according to reports the company filed with the SEC over the past seven years. The lesson is clear: Failing to maintain a sufficiently robust compliance program carries with it enormous long-term costs.
But at the same time, Walmart likely secured more favorable settlement terms by disclosing the exploding costs it was incurring every year in connection with the investigation, forcing regulators to consider the eye-popping amount the company had spent before finalizing settlement.
At a time when billion-dollar, multi-jurisdictional penalties have increasingly become the norm in FCPA enforcement, Walmart’s settlement appears relatively lenient. Both the DOJ and SEC specifically cited Walmart’s cooperation, remediation efforts, and decision to self-disclose as factors behind the comparably mild resolution.
Walmart also benefited by refusing to settle with regulators from the Obama administration, who were reportedly seeking penalties approaching a billion dollars. Walmart’s legal team was undoubtedly aware that President Trump had expressed skepticism of the FCPA prior to his election to the White House. The company accurately predicted that it was more likely to secure a better deal with the Trump administration than with its predecessor.
Some Trump Administration officials disagree. The FBI’s Robert Johnson said in a statement the day the settlement was announced that the “FBI will hold corporations responsible when they turn a blind eye to corruption.”
“If there is evidence of violations of the FCPA, we will investigate. No corporation, no matter how large, is above the law,” Johnson said.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Ronak D. Desai is an international investigations, enforcement defense, and compliance attorney deeply experienced in conducting FCPA and white collar investigations in high-risk jurisdictions. He currently leads the India practice at a prominent international law firm and previously served as an attorney to the U.S. Congress. He also serves as a legal and policy expert at the Lakshmi Mittal South Asia Institute at Harvard University .
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Analysis: Walmart’s Spend-and-Tell Strategy Paid Off in Bribery Settlement
The retailer spent over $900 million on investigations and compliance enhancements during a probe into alleged foreign corrupt practices act violations.
Updated June 26, 2019 7:45 pm ET
Quarter after quarter, the figure grew. By the time Walmart Inc. reached a long-awaited settlement with U.S. authorities last week, the company had amassed more than $900 million in costs from compliance enhancements and internal investigations into foreign bribery law violations in Mexico, Brazil, China and India.
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CASE STUDY – MEXICO WALMART SCANDAL
by christina black
Free Related PDFs
2006, Paper to be presented at conference on Global …
in Van der Pijl, ed. (forthcoming) Handbook of the International Political Economy of Production
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This article offers a power theory of value analysis of Wal-Mart’s contested expansion in the retail business. More specifically, it draws on, and develops, some aspects of the capital as power framework so as to provide the first clear quantitative explication of the company’s power trajectory to date. After rapid growth in the first four decades of its existence, the power of Wal-Mart appears to be flat-lining relative to dominant capital as a whole. The major problems for Wal-Mart lie in the fact that its green-field growth is running into barriers, while its cost cutting measures seem to be approaching a floor. The article contends that these problems are in part born out of resistance that Wal-Mart is experiencing at multiple social scales. The case of Wal-Mart may tell us about the wider limits of corporate power within contemporary capitalism; and the research methods outlined here may be of use to scholars seeking to conduct political-economic research on the pecuniary trajectories of other major firms.
José G. Vargas-hernández , José G. Vargas-Hernández
This paper analyzes the strategies which are followed by Wal-Mart in different parts of the world from the viewpoint of theories of institutions, property rights and agency. The analysis of the questions what happens to these firms when they are in countries with high corruption index? It could answer this question in light of the theory of institutions, the theory of property rights and the theory of the agency. This paper specifically focuses on finding out if the above theories are applicable. The analysis concludes that the same firm adopts a different strategy in each place even if is in conflict with their values at home.
José G. Vargas-Hernández
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