Wal-Mart Bribery Scandal Puts an End to Big Business FCPA Reform Drive
26 Corporate Crime Reporter 18, May 1, 2012

In a blockbuster story last week, David Barstow of the New York Times reported that Wal-Mart paid more than $24 million in bribes in Mexico.

A Wal-Mart lawyer was tipped off to the bribery by a Wal-Mart Mexico executive who was in charge of paying the bribes.

Wal-Mart sent an investigator to Mexico – a former FBI special agent – who summed up his initial findings this way:

“There is reasonable suspicion to believe that Mexican and USA laws have been violated.”

The lead investigator recommended that Wal-Mart expand the investigation.

Instead, an examination by the New York Times found Wal-Mart's leaders shut it down.

Neither American nor Mexican law enforcement officials were notified, the Times reported.

Until the Times article was published last Sunday, the allegations and Wal-Mart's investigation had never been publicly disclosed.

Thomas Fox is a Foreign Corrupt Practice Act (FCPA) attorney based in Houston, Texas.

He also runs a popular blog – the FCPA Compliance and Ethics blog.

Fox says that the New York Times story on Wal-Mart bribery effectively ends the business lobby’s drive to “reform” the FCPA.

Fox says the Wal-Mart story is the biggest FCPA story he’s seen.

“This is the biggest,” Fox told Corporate Crime Reporter last week. “Not because of what happened in Mexico. We have seen that in several other cases where international operations have engaged in bribery. But here you have at least the allegations of this bribery going up to the corporate offices. And they didn’t thoroughly investigate, they didn’t self-disclose. They shut down the investigation. That may be the real quantum of difference here – the corporate home office involvement.”
Fox says that the U.S. business community – led by the Chamber of Commerce – has put forward over the past 18 months about five proposals to amend the FCPA.

“They are concerned or have complained that the exponential increase in enforcement since 2004 is not fair, not right,” Fox said. “They have suggested five areas for reform.”

“One is to add a compliance defense so that if a company has a compliance defense and someone, somewhere engages in corruption, the company will not be held liable.”

“Second is to do away with the doctrine of respondeat superior. That is a doctrine that says the master must answer for the acts of the servant. And that is how typically you would get to a corporation in anything from a personal injury action – a slip and fall at a grocery store or an accident at a factory – up to an FCPA violation.”

The proposed reform would do away with criminal liability for corporations for the acts of their persons and subsidiaries under the FCPA.

“The third reform would do away with successor liability,” Fox said. “In the FCPA context, if you buy a company, and that company had engaged in FCPA violations before you bought it – whether or not you knew about them – if you bought the company, you bought the FCPA violations.”

“Fourth is – clarify who is a foreign governmental official and what is a foreign governmental instrumentality under the FCPA. The business community has argued that state owned enterprises were not contemplated to be covered by the FCPA when it was enacted in 1977. A state owned enterprise is where a government has some or all of an ownership interest in an ongoing business enterprise like Saudi Aramco, Petrobas or Pemex. Those are companies that are recognized as being owned by the governments of their countries.”

“Under the FCPA, people who work for those companies are deemed foreign government officials under the FCPA. So, if you engage in bribery or corruption with one of those folks, that brings in an FCPA violation.”

“And finally, there was a proposal to create a safe harbor or exemption from FCPA prosecution. If you investigated a matter internally, determined you had an FCPA problem, turned it over to the government, and you had a compliance program in place, then somehow you would be shielded from being prosecuted under the FCPA.”

Prior to Sunday’s New York Times’ article on Wal-Mart, “the one that had the greatest debate to date is an FCPA compliance defense,” Fox said.

“Wal-Mart was perceived to have a very robust compliance program,” Fox said. “And yet they had massive bribery and cover-up in Mexico. So, should they be given some kind of benefit just because they had a good compliance program?”

“The Department of Justice’s position has been – companies already get credit for a compliance defense because it is written into the sentencing guidelines and prosecutor’s manual as factors to take into account.”

“That was the Department’s response before the Wal-Mart case. Afterwards, they will just hold up a picture of Wal-Mart and that will be the poster child.”

“Let’s look at respondeat superior. If the corporate office in Bentonville didn’t know about this, they have been getting profits out of Mexico since 2002 or 2004, so Wal-Mart clearly received benefits from any conduct that violated the FCPA.”

“This is going to do away with any claims that respondeat superior should disappear.”

“Foreign government official. It is going to be pretty clear that if you bribed people involved in providing building permits, building variances, or any of the things you need to construct a building, whether it is a commercial or a retail operation, those people are all governmental officials. That’s not something people need clarity on.”

“Successor liability issues don’t come up in the Wal-Mart case. This appears to be all internal growth to Wal-Mart, not a company they bought.

“Safe harbor defense. From the Times article, the corporate office knew about this since at least 2004. And they didn’t disclose to the relevant United States or Mexico authorities. Any hope that companies can get a safe harbor for self reporting is gone. The Wal-Mart case will show that U.S. companies are not self-reporting, they are keeping these things to themselves."

[For the complete question/answer format Interview with Thomas Fox see 26 Corporate Crime Reporter 18(13), April 30, 2012, print edition only.]



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