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Wal-Mart Stores might spend hundreds of millions of dollars investigating $24 million (R186m) in alleged Mexican bribes as the US government weighs whether the company or executives also broke the law by covering up an internal probe, former federal prosecutors said.
The company said it was aiding US probes of payments as listed in the New York Times on April 21. The Times said Wal-Mart de Mexico failed to fully investigate the bribe claims and $16m in “donations” to Mexican local governments to fuel store expansion in the country up to 2005.
Wal-Mart disclosed the payments to the Department of Justice (DOJ) and Securities and Exchange Commission (SEC), according to a December 2011 regulatory filing, and said its outside advisers were briefing the agencies on its own probe.
Prosecutors would want to know why Wal-Mart didn’t fully examine claims in 2005 by a company lawyer that he funnelled bribes to Mexican officials, said Paul Pelletier, a former federal prosecutor.
“If somebody put the kibosh on the investigation, a good prosecutor would ask a lot of questions to figure out why,” said Pelletier of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, who previously supervised foreign bribery cases. “It may not be just about the bribery scheme anymore. The questions about why it was or wasn’t investigated fully are going to have potential legal ramifications for the company and individuals, which is why the company would want to dig in there.”
The DOJ is investigating potential criminal charges under the US Foreign Corrupt Practices Act (FCPA), according to a person familiar with the probe who wasn’t authorised to speak publicly. The FCPA bans payments by companies or their agents to foreign governments to obtain or retain business.
The probe will probably expand beyond Mexico if the company or government unearth red flags elsewhere or if the government questions both management’s response to reports of misconduct and its current compliance programme, said Amy Conway-Hatcher, a former federal prosecutor at Kaye Scholer in Washington.
“The investigation alone could cost Wal-Mart in the tens of millions of dollars or more, and that’s if it’s limited to Mexico,” Conway-Hatcher said. “The cost of a global investigation under these circumstances could rise into the hundreds of millions. This would not include penalties and fines if charges are brought.”
Government investigators, she said, “will look at the acts of individuals to see if they can prove violations of law, how high up it went, who knew about it, who authorised it and the extent to which there was any cover-up”.
In an FCPA crackdown, the government settled 57 cases against companies from 2005 through 2011, reaping $4.1 billion for the US treasury. In 2008, Siemens, Europe’s largest engineering company, agreed to pay $800m to the US and $814m to German authorities. Siemens also spent $1bn on lawyers and accountants and internal controls.
Wal-Mart hired the Jones Day law firm to investigate its Mexican operations, as well as auditing firm KPMG and law firm Greenberg Traurig for a compliance review of its global operations, said a person familiar with the matter.
The company also said it created a new position to monitor global compliance with the FCPA. The officer will be based in the retailer’s headquarters in Bentonville, Arkansas, the company said on Wednesday in a statement.
The Times reported that a former executive in Wal-Mart de Mexico’s real estate department, Sergio Cicero Zapata, e-mailed a former senior lawyer in September 2005 to describe how he had funnelled cash bribes to government officials through fixers known as “gestores”. Top executives, the paper reported, focused more on damage control than on uncovering misconduct.
Pelletier, who supervised more than 50 FCPA corporate probes at the DOJ from 2005 to 2011, said government investigations typically proceeded with one or two DOJ attorneys, one or two SEC attorneys, and a couple of agents from the Federal Bureau of Investigation. Outside law firms could use as many as 100 people for intensive document searches, he said.
“Prosecutors would want to know if false representations were made by an executive of the company to anybody, to whom they were made, how and when,” he said. “Those would be viewed in the context of whether they tried to prevent any government or regulatory body from learning of those cases.”
In a statement on April 21, Wal-Mart said: “We are committed to getting to the bottom of this matter. The audit committee and the outside advisers have at their disposal all the resources they may need to pursue a comprehensive and thorough investigation.”
It said allegations in the Times story, if true, “are not a reflection of who we are or what we stand for”.
Wal-Mart, which had sales of $444bn in fiscal 2012 and operates in 27 countries, said it was taking a “deep look” at its FCPA training and internal controls in every country.
Corporate investigations, which can take years in FCPA cases, are nearly always resolved through negotiation. The DOJ may agree to so-called deferred prosecution agreements, where prosecutors file criminal charges that they agree to withdraw after a period if the company meets required improvements in governance and compliance.
Prosecutors may also reach so-called non-prosecution agreements that require payment of penalties and improvements to compliance programmes. Many more investigations result in no prosecution at all.
The DOJ follows a nine-step guide on business prosecutions in examining cases. The criteria include the seriousness of the crimes, a company’s history of wrongdoing, the extent of its compliance programme, and its willingness to co-operate. - Bloomberg