In a development that can only be called stunning,
the New York Times
(NYT) on Sunday, April 22, 2012, reported, in an article entitled "Vast
Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle", on
an alleged multi-year bribery and corruption scheme advanced by Wal-Mart in its
Mexico operations. The alleged bribery scheme was truly breath-taking in its
scope and operation. I am certain others will write about it extensively, beginning
as soon as today, and I certainly will review the article in greater depth in
upcoming blog posts, the first thing that struck me is that this case will
sound the death knell for any efforts to amend the Foreign Corrupt Practices
Act (FCPA). Whether you believe such efforts constitute badly needed reform
because the Department of Justice (DOJ) has gone too far in enforcement; that
any amendments would water down the FCPA and simply make bribery easier; or
perhaps some minor clarification of certain terms and definitions is needed; I
think you can kiss all of that good-bye.
As reported in the NYT article, Wal-Mart executives at
its Mexico subsidiary, Wal-Mart de Mexico, "had orchestrated a campaign of
bribery to win market dominance. In its rush to build stores, he said, the
company had paid bribes to obtain permits in virtually every corner of the
country." This alleged bribery scheme included routine payments to Mexican
governmental officials for "every conceivable type of permit, license, piece of
paper, or any other type of approval needed or required to plan, build and
operate a Wal-Mart in Mexico. Literally, millions of peso was paid out for
everything from routine approvals to extraordinary consents."
To facilitate this alleged bribery scheme Wal-Mart de
Mexico kept two sets of books on the illegal payments through third party
agents, which were made to Mexican governmental officials. As reported,
Wal-Mart de Mexico "targeted mayors and city council members, obscure urban
planners, low-level bureaucrats who issued permits - anyone with the
power to thwart Wal-Mart's growth. The bribes, he said, bought zoning
approvals, reductions in environmental impact fees and the allegiance of
neighborhood leaders." These payments were coded in a manner which hid their
true basis. Later, reporting sent to the home office, in Bentonville, AR, were
scrubbed so that the illegal payments were labeled "legal fees".
The time frames of the events reported were from the
1990's to 2006. It is unclear if any alleged bribes were paid after this time.
The purpose of the alleged bribes "was to build hundreds of new stores so fast
that competitors would not have time to react. Bribes, he explained,
accelerated growth. They got zoning maps changed. They made environmental
objections vanish. Permits that typically took months to process magically
materialized in days. What we were buying was time". The article also reported
that "Wal-Mart de Mexico was the company's brightest success story, pitched to
investors as a model for future growth. (Today, one in five Wal-Mart stores is
The End of FCPA Amendment
So how does all of this portend the end of efforts to
amend the FCPA? As reported, "Wal-Mart's ethics policy offered clear direction.
"Never cover up or ignore an ethics problem," the policy states." What do you
think a compliance defense would do for Wal-Mart about now? Wal-Mart prided
itself on its world-wide FCPA anti-corruption compliance program. The claim
that companies would act more ethically and in compliance if they could rely on
a compliance defense would seem to be negated by facts reported about Wal-Mart.
Do these facts seem like a rogue employee or even junta of rogue Mexican
employees going off on their own? Whatever your thoughts on that question may
be, it certainly appears that having a best practices compliance program
did not lead to Wal-Mart doing business more ethically. And what if Wal-Mart's
corporate headquarters in Bentonville AR was not involved in any illegal
conduct or even kept in the dark by Wal-Mart de Mexico? What does that say
about having a robust compliance program?
Amending the FCPA to protect corporate headquarters in
the US from liability under the doctrine of Respondeat Superior? You can
forget about that happening in a heartbeat. No one can argue with anything
close to a straight face that this problem was exclusive to Mexico. The
corporate parent received the benefits from any profits made due to the bribery
so it is difficult to image why a corporation should not be a part of any
enforcement action. And as the FCPA
Professor recently noted in a blog post, entitled "A Q&A
with Claudius Sokenu on Where Else?"", that question may be
close to someone's thoughts at the DOJ about now.
How about that grace period for those companies which
have a compliance program and self-reporting violations? Wal-Mart corporate was
made aware of the allegations set forth in the NYT article in 2004 and chose
not to self-report. As noted in the article "Neither American nor Mexican law
enforcement officials were notified. None of Wal-Mart de Mexico's leaders were
disciplined. Indeed, its chief executive, Eduardo Castro-Wright, identified by
the former executive as the driving force behind years of bribery, was promoted
to vice chairman of Wal-Mart in 2008." Indeed Wal-Mart did not report (I cannot
say self-disclose) any FCPA investigation to the DOJ and Securities and
Exchange Commission (SEC) until after the NYT notified those agencies
that it was investigating these allegations back in 2011. As stated in
the article, "Until this article, the allegations and Wal-Mart's investigation
had never been publicly disclosed." How's that for transparency in a publicly
held US company? If a company as ethical as Wal-Mart will not self-disclose,
what does that say about the rest of corporate America and its thinking on
How about those claims that US companies were being
unfairly prosecuted because they did not know their counter-parties were
employees of state owned enterprises or that the person they were lavishly
entertaining was an official of a foreign government? You mean those "targeted
mayors and city council members, obscure urban planners, low-level bureaucrats
who issued permits - anyone with the power to thwart Wal-Mart's growth"?
Whatever the merits of those companies who said "it's not fair - we didn't
know" they were a government official - waive that proposed amendment bye-bye,
with both arms over your head.
So whether you were pro or anti-FCPA amendment, I think
that you have Wal-Mart to thank for the fact that any such thoughts now will Rest
in Peace as this new saga in FCPA enforcement moves forward.
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.
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© Thomas R. Fox, 2012
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