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6 Months : From May 2019 to Nov 2019
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 email@example.com
(END) Dow Jones Newswires
June 26, 2019 18:05 ET (22:05 GMT)
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