Analysis: Walmart's Spend-and-Tell Strategy Paid Off in Bribery Settlement
June 26 2019 - 06:20PM
Dow Jones News
By Dylan Tokar
Quarter after quarter, the figure grew. By the time Walmart
reached a long-awaited settlement with U.S. authorities last week,
the company had amassed more than $900 million in costs from
compliance enhancements and internal investigations into foreign
bribery law violations in Mexico, Brazil, China and India.
The size of that figure -- and Walmart's publicity of it -- may
be among the reasons the retail giant received what some view as
lenient treatment. Government officials in late 2016 had sought $1
billion from the company, but after several years of negotiation
Walmart ultimately agreed to pay $282 million total in separate
agreements with the U.S. Justice Department and the Securities and
Exchange Commission.
"It's a great result for the company," said Joan Meyer, a former
government prosecutor and a white-collar defense lawyer at Pierce
Bainbridge Beck Price & Hecht LLP. "The fact that Walmart was
out there and publicly making it known it had spent $900 million on
compliance and investigations was smart. It was something that the
department had to consider in forming a resolution."
"Compliance with the FCPA and other anti-corruption laws is a
responsibility we take seriously," Randy Hargrove, a Walmart
spokesman, said. "That's why we've invested tremendous resources in
our Global Ethics and Compliance Program, including our enhanced
Global Anti-Corruption Compliance Program."
Companies don't receive reduced penalties simply by spending
large sums, but they often do get discounts for cooperating with
prosecutors and taking steps to address the root problems
underlying a bribery violation, including by strengthening
compliance programs.
As a result, it is common for companies to give presentations to
prosecutors about what a company is doing to strengthen its
compliance program. Walmart took the extra step of citing the costs
in financial disclosures, which may have helped to improve its
reputation with investors and regulators.
Fifteen months after alerting government authorities in 2011 to
potential Foreign Corrupt Practices Act violations, Walmart began
issuing quarterly disclosures on expenditures on legal costs,
including for compliance and internal investigations. It started
with an expenditure of $157 million in the fourth quarter of the
company's 2013 fiscal year, climbing to a peak of $282 million in
2014.
The majority of the $900 million Walmart paid in legal costs
wasn't spent directly on compliance. The bulk of it went to an
internal investigation led by lawyers at Jones Day and to
responding to inquiries from government investigators. From early
2012 until its most recent annual disclosure, the retailer spent
$509 million on investigations, according to a Walmart
representative.
The size of Walmart's legal costs is testament to the length of
the corruption probe, which was sparked by a series of articles by
the New York Times in 2012 detailing how Walmart had brushed aside
allegations by a whistleblower that centered on the company's
operations in Mexico. As the years went by, the probe grew to cover
misconduct in other countries where Walmart had undergone rapid
expansion.
Expenses related to Walmart's compliance program cost $235
million during the same period. The company says it didn't track
separate compliance and investigations expenses in financial
disclosures for the first year of the probe, when it spent $157
million.
Walmart now employs about 1,000 people in its compliance
department, including more than 100 monitors who have conducted at
least 16,000 in-store compliance assessments in international
markets since 2014, Walmart said in a statement.
The spend-and-tell strategy seems to have paid off. The Justice
Department, in announcing the settlement, acknowledged Walmart's
"significant remedial measures," highlighting the company's hiring
of a global chief compliance officer.
Prosecutors also noted that the company was conducting monthly
anticorruption monitoring and implementing enhanced controls around
the use of third-party intermediaries. Such language in charging
documents and government press releases is meant to broadcast to
other companies how they also can receive lenient treatment from
prosecutors.
The amount a company spends on compliance improvements isn't
typically part of conversations taking place between prosecutors
and company counsel -- at least not directly, said Ephraim Wernick,
a former assistant chief of the Justice Department's FCPA unit.
But Walmart's case was unique in terms of the length of the
investigation and its impact on the company, said Mr. Wernick, now
a lawyer at Vinson & Elkins LLP who said he didn't have any
involvement in the Walmart investigation or its outcome.
"Behind the scenes, is that something that DOJ takes into
account? I think you would have to," he said. "Because it at least
shows an effort by the company to play by the rules."
Write to Dylan Tokar at dylan.tokar@wsj.com
(END) Dow Jones Newswires
June 26, 2019 18:05 ET (22:05 GMT)
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