The big one finally is resolved. The long-awaited Walmart Inc. (Walmart) Foreign Corrupt Practices Act (FCPA) enforcement action was announced yesterday. This massive case came in with multiple documents, a long list of instances of bribery and corruption, a slew of individuals who turned some very blind eyes to evidence literally in front of them, some $900+ million in pre-resolution investigative and remediation costs and a total fine and penalty of $282 million. Over the next several blog posts I will be exploring the enforcement action. How many will it be? At this point I do not know but I can say it will be multi-part. I start today with the basic information and background facts.

The settlement breaks down with a criminal action, involving Walmart’s Brazilian subsidiary, WMT Brasilia S.a.r.l., (WMT Brasilia) pleading guilty to violating the FCPA’s accounting standards. In this matter, Walmart agreed to pay penalties of $138 million. Walmart entered into a three-year Non-Prosecution Agreement (NPA) with the  Department of Justice (DOJ) and agreed to retain an independent corporate compliance monitor for two years. In a civil action involving the Securities and Exchange Commission (SEC), Walmart paid $144.7 million in disgorgement and prejudgment interest. The SEC settled the action through Cease and Desist Order (Order).

The documents for this matter include, from the DOJ: Criminal Information (Information); Non-Prosecution Agreement (NPA); Plea Agreement and Statement of Facts (Plea Agreement). From the SEC, a Cease and Desist Order (Order).

The matter involved bribery schemes in Brazil, Mexico, India and China. It involved courageous employees who came forward with substantiated allegations of bribery and corruption only to have the corporate office shut down all inquiries going forward. In one instance, the corporate headquarters sent the bribery investigation to the person in Mexico who was running the scheme, i.e. to investigate himself. You can imagine the result of that investigation.

But it is also the story of a company who very late in the game, decided that it had to actually do compliance. To that end it spent over $900 million in pre-settlement investigative and remediation costs. These costs will no doubt continue to grow with the requirement of a corporate monitor. Yet Walmart should receive some deserving credit for stepping up and putting in place a compliance program which has been talked and written about extensively. The NPA details many of the compliance program improvements made by the company and we will consider them at greater length in subsequent blog post.

Representatives from the DOJ announced the criminal sanctions in a Press Release. They included Assistant Attorney General Brian A. Benczkowski, DOJ Criminal Division, US Attorney G. Zachary Terwilliger of the Eastern District of Virginia, Assistant Director Robert Johnson, Federal Bureau of Investigation (FBI) Criminal Investigative Division, and Special Agent in Charge Kelly Jackson, of IRS Criminal Investigation’s (IRS-CI) Washington, DC office, made the announcement.

Benczkowski  stated, “Walmart profited from rapid international expansion, but in doing so chose not to take necessary steps to avoid corruption. 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.”

Terwilliger stated, “Walmart violated the Foreign Corrupt Practices Act because it failed to implement the internal controls necessary to ferret out corrupt conduct. 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.” Finally, FBI Assistant Director Johnson said, “The FBI will hold corporations responsible when they turn a blind eye to corruption”. “If there is evidence of violations of FCPA, we will investigate. No corporation, no matter how large, is above the law.”

Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit, said in a SEC Press Release,  “Walmart valued international growth and cost-cutting over compliance. 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.” The SEC found that “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.”

Finally, on the amount of the fine and penalty, the final word comes from Matt Kelly, who is not only the coolest guy in compliance but also apparently is among, many other things, a financial data geek as well, as he ran the numbers and said “Based on Walmart’s $510.33 billion in annual revenue, it can pay for this fine in a little less than five hours. Even if we include all the investigation costs, etc. and estimate total cost at 10 times that fine, for a total of $2.82 billion— Walmart would cover that in two days.”

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, 2019

0 comments