We continue our week of exploration of all things
Sherlock Holmes in honor of his 125th anniversary last week by
taking a look at my favorite Holmes novel "The Hound of the Baskervilles".
It is the third of four crime novels by Sir Arthur Conan Doyle featuring the
detective Sherlock Holmes. The book was originally serialized in The Strand
Magazine from August 1901 to April 1902. In 2003 the book was listed on the
BBC's The Big Read poll of the UK's best-loved novel. I have read the novel and
seen almost all of the available movie and television adaptations. I love the Basil
Rathbone version, in eerie black and white, but the Hammer version starring
Peter Cushing is actually more faithful to the original text. The story is set
largely on Dartmoor in Devon in England's West Country and tells the story of
an attempted murder inspired by the legend of a fearsome, diabolical hound. And
for every stone that Holmes overturns to try and solve the mystery another
question arises.
I thought about this novel in the context of the recent
news comings and goings of Wal-Mart and its ongoing Foreign Corrupt Practices
Act (FCPA) imbroglio. As reported by the FCPA
Blog, in an article entitled "Wal-Mart's
latest FCPA disclosure (November 2012)", the company disclosed in its
Form 8-K filed with the Securities and Exchange Commission (SEC) on November
15, 2012 that its internal investigation of its foreign subsidiaries had
expanded into "Brazil, China and India." It was not clear from its 8-K filing
whether this was the internal investigation initiated after the New York Times
(NYT) April 22 story about allegations of corruption and bribery coming out of
its Mexico subsidiary or if this was a part of the investigation began in
spring 2011 as a relatively routine audit of how well its foreign subsidiaries
were complying with its anti-corruption policies.
In a very interesting development, as reported by the FCPA Professor, in a blog,
entitled "New
Wal-Mart Details Emerge", where he cited back to a NYT
article that "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. According to the NYT 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 LLP to
conduct the audit. The NYT article notes that "in July 2011" the firms "had
identified significant weaknesses in all three subsidiaries."
The NYT article went on to state that an un-named
Wal-Mart official said that "It was clear that they were not executing" or
following Wal-Mart's internal protocols for performance of due diligence on
third parties and FCPA compliance training. Further, the problems unearthed in
this internal investigation were serious enough to merit an increase in scope
"to expand the audit to all 26 of its foreign subsidiaries." Then in the fall
of 2011, Wal-Mart discovered that the NYT was investigating the company over
allegations of bribery and corruption in its Mexico subsidiary and "Wal-Mart's
response in 2005 to serious and specific accusations of widespread bribery by
Wal-Mart de Mexico, the company's largest foreign subsidiary." This new
allegation led Wal-Mart to hire another law firm, Jones Day, "to investigate
whether top executives had quashed the company's investigation into the
lawyer's claims." The company began to look into other specific accusations of
wrongdoing, both in Mexico and it its other subsidiaries. This "effectively
created two lines of inquiry - the first being the global compliance review
begun by Greenberg Traurig and KPMG. The second was the internal inquiry into
specific accusations of bribery and corruption."
Last Friday, an article in the Chicago Tribune, entitled
"Wal-Mart
India unit suspends CFO, others pending probe", reported that the
company had "suspended its chief financial officer and other employees as it
investigates alleged violations of U.S. anti-bribery laws". In addition to the
Chief Financial Officer (CFO), who doubled up as the firm's acting legal
counsel, those suspended included a senior manager, manager, assistant manager
and retainer. "The five, whose job was to procure licenses required for stores
and other real estate approvals, taxation and logistics, were told not to
attend office until the FCPA-related investigations were over, said one of the
persons asking not to be named."
This investigation was being led by Greenberg Traurig. In
the Tribune article, the FCPA Professor was quoted as saying,
"Suspensions are common in situations like this. Companies that are under FCPA
scrutiny want to demonstrate to enforcement agencies that upon learning of
improper conduct, they took effective remedial measures," said Koehler. "Part
of doing that is to isolate current employees from their positions, so that any
improper conduct does not continue." Further, the Professor stated that "If any
alleged improper conduct occurred, then the suspensions by Wal-Mart "will serve
it well in the eyes of enforcement agencies" such as the Department of Justice
and the Securities and Exchange Commission, in deciding how to resolve the
broader case."
An interesting perspective was presented by Sonia Jaspal
in her blog RiskBoard,
in a post entitled "Bharti
Walmart India - Internal FCPA Investigation". Jaspal posed some
interesting and difficult questions relating to the difficulty of doing
business in India without paying bribes. She stated, "The Retail Association of
India lists 51 different approvals from 32 different agencies. Seeing the corruption
index of India and the way government departments' function, I would be very
surprised if an organization manages to obtain all the relevant licenses
without any grease payments. Hence, the question is how will the
organizations manage to function without paying bribes?" She went on to ask
"What happens in such a case to the license? Will the license be revoked,
cancelled, or returned? If not, what is stopping the organizations from first
taking the licenses by paying bribes and then doing a clean-up exercise to show
their commitment to ethics?"
These are all serious and difficult questions for
Wal-Mart, its Indian subsidiary and many others to answer. But as Holmes,
through his dogged pursuit, was able to finally overcome the mystery of the
Hound of the Baskervilles, perhaps someday these questions posed herein may
become close to being resolved.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
advisor. The author, his affiliates, and related entities shall not be
responsible for any loss sustained by any person or entity that relies on this
publication. The Author gives his permission to link, post, distribute, or
reference this article for any lawful purpose, provided attribution is made to
the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2012
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
For more information about LexisNexis
products and solutions connect with us through our corporate site.