What Wal-Mart’s Mexican Bribery Scandal Means to Corporate Compliance & the FCPA

(Wal-Mart Bribery Allegations: Initial Impressions by Thomas Fox)

In a stunning revelation this weekend, the New York Times reported on millions of dollars in bribes spent by Wal-Mart de Mexico – and covered up by Wal-Mart’s board and senior management – to support the unit’s rapid expansion to market dominance in Mexico.

If the allegations are true, the bribery and ensuing cover-up could be very costly for the retailer, including significant fines, policy and procedure changes, and the departure of executives involved (who could face jail time for their actions).

For your reference, five preliminary observations from anti-corruption lawyers Thomas Fox and Michael Volkov:

1. FCPA Reform might be dead

“… the first thing that struck me is that this case will sound the death knell for any efforts to amend the Foreign Corrupt Practices Act (FCPA). Whether you believe such efforts constitute badly needed reform because the Department of Justice has gone too far in enforcement; that any amendments would water down the FCPA and simply make bribery easier; or perhaps some minor clarification of certain terms and definitions is needed; I think you can kiss all of that good-bye.” (Fox)

2. Compliance programs are not effective without commitment from senior management:

“The Wal-Mart story is an important reminder that no matter how good your anti-corruption compliance program, a company’s commitment to its program, with the support of the board and senior management, is critical to the effectiveness of a compliance program. For large companies that frequently tout their ‘Cadillac’ compliance programs, this is an important reminder of the problems that can easily develop and frustrate compliance efforts. Every large company, no matter how effective they believe their compliance programs are, needs to review, audit and confirm the operation of their compliance program. They need to make sure their compliance program is working effectively.” (Volkov)

3. Compliance programs require independent investigation to succeed:

“At its core, the New York Times report demonstrates two significant failures in a compliance program. First, the New York Times report shows the danger to compliance when senior management and the board are not committed to compliance — in fact, the report suggests that senior management sought to prevent a full and fair investigation of the actions in Mexico. Second, the report shows how important it is for senior management to appoint and support an independent investigation.” (Volkov)

4. Self-reporting only works when there is follow-up:

“Wal-Mart corporate was made aware of the allegations set forth in the NYT article in 2004 and chose not to self-report. As noted in the article ‘Neither American nor Mexican law enforcement officials were notified. None of Wal-Mart de Mexico’s leaders were disciplined…’. How’s that for transparency in a publicly held US company? If a company as ethical as Wal-Mart will not self-disclose, what does that say about the rest of corporate America and its thinking on self-disclosure?” (Fox)

5. The DOJ will need to change tactics:

“The Department of Justice now faces an important test. They cannot just simply rely on a law firm conducted internal investigation to unearth the truth. With allegations stretching to the highest levels of Wal-Mart, the Justice Department has to conduct its own investigation and not rely on an internal investigation conducted by Wal-Mart’s counsel.” (Volkov)

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See also5 Characteristics of an Effective Corporate Compliance Program

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