The long-awaited Walmart Inc. (Walmart) Foreign Corrupt Practices Act (FCPA) enforcement action was announced last week. 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. The documents for this matter include, from the Department of Justice (DOJ): Criminal Information(Information); Non-Prosecution Agreement (NPA); Plea Agreement and Statement of Facts (Plea Agreement). From the Securities and Exchange Commission (SEC), a Cease and Desist Order (Order). Today, we consider the bribery schemes used by Walmart.
As previously noted, the DOJ fine for Walmart Brazil under its Criminal Plea was $724,898 and criminal forfeiture of $3.6 million. There was no calculation for discount under the FCPA Corporate Enforcement Policy for Walmart Brazil as it was a criminal matter. Walmart Brazil did receive a reduction of 2 points (out of a possible 5 points) under the US Sentencing Guidelines for one or more of the following “The organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of responsibility of its criminal conduct”.
The DOJ penalty assessed under the NPA was $137.9 million. For this penalty, Walmart received a 25% discount for cooperation with the DOJ investigation into its conduct in Brazil, India and China. However the company only received 20% discount for its cooperation with the investigation in Mexico because “Walmart did not timely provide documents and information to the Fraud Section and the Office in response to certain requests and did not deconflict with the Fraud Section and the Office’s request to interview one witness before the Company interviewed that witness. It was specifically noted that Walmart did not receive self-disclosure credit because it did not “timely and voluntarily disclose to the Fraud Section and the Office the Mexico conduct”.
The SEC penalty was disgorgement of $199 million plus prejudgment interest of $25 million for a total amount of $144 million. There was no other information in the Order on how this was derived. Clearly the US Supreme Court decision in Kokeshseverely restricted the SEC’s ability to seek profit disgorgement from ill-gotten gain.
What Walmart did, probably as well as, if not better than any other company under a massive FCPA investigation was to engage in “significant remedial measures”. Mike Volkov said, “Walmart demonstrated perhaps one of the finest remediation efforts by a global company in building and enhancing its ethics and compliance program. The professionals dedicated to this effort should be proud of their achievements, especially in turning around such a large ship as Walmart.” These remedial efforts should be studied by every compliance professional and in-house counsel who might find themselves in similar action. The remedial actions included the following.
- Hiring a Global Chief Ethics & Compliance Officer with a title of Executive Vice President, an International Chief Ethics & Compliance Officer and a dedicated Global Anti-Corruption Officer, with separate reporting lines to the Audit Committee of the Board of Directors.
- Adding dedicated regional and market Chief Ethics & Compliance Officers, foreign market anti-corruption directors and anti-corruption compliance personnel at the Company’s home office and in the Company’s foreign markets, with separate reporting lines to the Audit Committee of the Board of Directors.
Internal Reviews and Monitoring
- Conducting, across each of the Company’s markets, enhanced monthly and quarterly anti-corruption monitoring by dedicated Company Financial Controls and Continuous Improvement Teams (who monitor at the store-level), with results tracked in a centralized, real-time automated monitoring system.
- Enhancing annual anti-corruption risk assessments across all international markets.
- Enhancing on-site global anti-corruption audits to test adherence to enhanced anti-corruption related internal accounting controls and procedures.
- Enhancing anti-corruption related internal accounting controls on the selection and use of third parties, including building a custom third-party automated portal to evaluate, manage and identify third party intermediaries and conducting third party audits and risk-based anti-corruption training of third parties.
- Enhancing global anti-corruption training and awareness program, including enhanced onboarding and annual in-person and computer-based anti-corruption training for directors, senior management, and employees most likely to interact directly or indirectly with government officials.
Licensing and Charitable Donations
- Implementing an automated global license management system for obtaining and renewing licenses and permits and a global donation management system which enhances controls relating to charitable donations.
- Ending business relationships with third parties involved in the FCPA violative conduct.
One item not discussed in any of the settlement documents was the departure of Walmart executives who had ties to the scandal. As far back as 2014, the New York Times reported that men who belonged to a list of executives from the uppermost reaches of Walmart’s management, who held critical positions when corruption scandals engulfed Walmart had left the company. At the time of the NYT piece the list included the company’s international division Thomas A. Mars, formerly the chief administrative officer for Walmart in the United States, José Luis Rivera, once the general counsel at Walmart’s Mexican division and Lee Scott Jr., who was Walmart’s Chief Executive Officer (CEO). These departures probably went some way in allowing Walmart to achieve the final result it did.
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 email@example.com.
© Thomas R. Fox, 2019