This article was reprinted with permission
from FCPA Professor
One year ago, the New York Times ran a major story (here)
titled "Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level
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. However, it was known months
before the NY Times article that Wal-Mart was under FCPA
scrutiny. (See here for
the December 2011 post highlighting Wal-Mart's FCPA disclosure).
Thus, this week is a false one year anniversary of Wal-Mart's
FCPA scrutiny, but a meaningful anniversary nevertheless.
A year ago this week, in response to the NY Times
article, Wal-Mart's stock dropped approximately 8%. However, savvy
investors should have recognized the NY Times induced dip as a buying
opportunity because the market often overreacts (perhaps because of
the plethora of suspect FCPA enforcement information in the public
domain). For instance, the last trading day before the NY Times
April article, Wal-Mart stock closed at $62.45. Last Friday, Wal-Mart
stock closed at $78.29.
A December 2012 front-page NY Times article (see here for
the prior post) added additional details to the previous April 2012, but did
not change much from an FCPA perspective.
In the year since the original NY Times article,
Wal-Mart's FCPA scrutiny has followed a fairly typical pattern.
Wal-Mart's internal review has expanded beyond Mexico, civil shareholder suits
and derivative claims have been filed, Wal-Mart has engaged in various remedial
measures, and the company's pre-enforcement action professional fees and
expenses has skyrocketed (see this prior post for
my calculation of $604,000 per work day).
The conduct described in the NY Times articles was
unremarkable from a Foreign Corrupt Practices Act perspective - a view I have
consistently held since last April (see here for a prior
post and here
for my article "Foreign Corrupt Practices Act Enforcement As Seen Through
Wal-Mart's Potential Exposure."
The unremarkable portion of the NY
Times articles is that foreign subsidiary of a major multi-national
company operating in an FCPA high-risk jurisdiction allegedly made payments to
"foreign officials" to facilitate or grease the issuance of certain licenses or
permits. Even according to the NY 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.
Payments in connection with foreign licenses,
permits and the like have been the basis for many FCPA enforcement actions
prior to Wal-Mart's FCPA scrutiny and will likely be the basis for
many FCPA enforcement actions in the future.
Indeed, a November 2012 NY Times article (here) by
David Barstow (the same author as the April 2012 and December 2012 articles)
rightly noted that Wal-Mart's investigation "was uncovering the kinds of problems
and oversights that plague many global corporations." It was perhaps
the most insightful thing the NY Times has said about Wal-Mart's FCPA scrutiny,
yet the November 2012 article received scant attention compared to the other
It is also interesting to ponder the salient question of
whether the payments at issue in Wal-Mart, which are outside the
context of procurement, actually violate the FCPA (and here, as in many
cases, there is an important distinction between the law Congress passed and
DOJ/SEC enforcement theories). For instance, as noted in this
prior post and in my above Wal-Mart Scrutiny article, the government has an
overall losing record in non-procurement type cases when
actually put to its burden of proof. However, as we all
know, this will matter very little when it comes to any
resolution of Wal-Mart's scrutiny.
For all of the above reasons, I do not believe that
Wal-Mart's scrutiny "will test FCPA enforcement in new ways" as suggested by this post
on the FCPA Blog. Nor should it.
FCPA enforcement ought not be influenced merely by
the fact that a talented journalist at a leading newspaper has devoted time and
effort to cover an instance of FCPA scrutiny. If Barstow and the NY Times
would have focused on BizJet, the reaction
likely would have been, and with good reason, more negative. But then
again, there probably would not have been any reaction at all
because BizJet is obviously no Wal-Mart. Insert many other
recent FCPA enforcement actions [here], if Barstow and the NY Times would
have focused on [that] instance of FCPA scrutiny, the story would
have largely read the same.
Nor do I believe that Wal-Mart's FCPA scrutiny will
likely end up in the Top 5 FCPA enforcement actions of all time in terms of
settlement amount. The reason? All of the cases in the Top 5 are
procurement cases, not cases focused on licenses, permits and the like.
If Wal-Mart does indeed crack the Top 5 (and
with the seeming escalation of FCPA fine and penalty amounts, it is
likely only a matter of time when a license, permit case does crack
the Top 5), it will likely be for reasons unrelated to substantive
FCPA issues, but rather an increase in the company's culpability
score under the advisory Sentencing Guidelines based on its alleged
handling of the potential FCPA issues in 2005.
Indeed, the remarkable aspects of the NY
Times investigation is the alleged conduct (or lack thereof) of
Wal-Mart and its top executives upon learning of problematic conduct in its
Mexican subsidiary in 2005. Even in 2005 and continuing today, most
business leaders, audit committees, and boards tend to overreact to
FCPA issues and often reflexibly launch broad internal
investigations. But, according to the NY Times, that is not what Wal-Mart
did. Another remarkable aspect of the NY Times investigation is
how Eduardo Castro-Wright (at the critical time period the CEO of Wal-Mart
Mexico) was allegedy known by others at Wal-Mart to be involved in the Mexican
payments, but was nevertheless continuously thereafter promoted by Wal-Mart.
Corporate governance, or lack thereof, is what made the
NY Times April 2012 remarkable. This is the reason why Wal-Mart
generated all the buzz it did a year ago this week and
I've consistently held the view that the Wal-Mart story is
a corporate governance sandwich with the FCPA as a mere condiment.
But even here, the seldom-discussed November 2012
NY Times article, adds additional relevant details. It suggests that
Wal-Mart's December 2011 FCPA disclosure was motivated by Wal-Mart's
desire to pro-actively understand its FCPA risk (notwithstanding
whatever may have occurred within the company in 2005 upon learning of
potentially problematic payments in Mexico). According to the article,
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 (like Wal-Mart, a company headquartered in Arkansas
- see here for
the prior post discussing the Tyson enforcement action). According to
the NY Times 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 to conduct the
Read more articles on the FCPA by Mike
Koehler at FCPA
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