Published by Law360.com, June 15, 2012
In late April 2012, the New York Times broke a front-page story about Wal-mart and its potential exposure under the Foreign Corrupt Practices Act ("FCPA") in Mexico. According to the NYT, top executives at Wal-mart de Mexico shut down an internal investigation of wide-spread bribery of local Mexican officials in 2005, only to revive it and disclose it to the US Department of Justice in 2011 after learning about the NYT's own investigation of the same bribery allegations. Putting aside difficult news cycles, what other challenges lie ahead for Wal-mart under the FCPA?
The FCPA, which prohibits the bribery of foreign officials and imposes "books and records" requirements on certain covered entities, has become "second only to fighting terrorism in terms of priority" at the Department of Justice ("DOJ") and "at the vanguard of (FCPA's) enforcement" at the Securities and Exchange Commission.1 The DOJ and the SEC have collected a total of $1.8 billion in civil penalties, fines, disgorgement, and prejudgment interest from enforcement actions under the FCPA and $652 million in 2011. Lawyers who handle cross-border mergers and acquisitions correlate increased FCPA enforcement activity to significant increase in transactional costs, post-transaction integration costs, direct compliance and investigation costs, and the abandonment of legitimate transactions.2
Internal investigations can cost a lot of money. Whatever its motive, in 2005 Wal-mart opted for a lower budget preliminary inquiry by in-house investigators in lieu of an "independent, spare-no-expense investigation major corporations routinely undertake when confronted with allegations of serious wrongdoing by top executives" recommended by an outside law firm.3 This do-over in 2011 could quickly exceed $100 million, if measured by past investigations.4 For example, Avon Products, the international cosmetics juggernaut, spent $59 million in 2009 for legal fees and costs to conduct an internal FCPA investigation, another $95 million in 2010, and another $22.5 million for the first quarter of 2011.
Avon's internal investigation was launched in 2008, with the oversight of the company's Audit Committee, after receiving an allegation that travel, entertainment and other expenditures were made in connection with Avon's China operations, presumably to influence the lifting in 2006 of government restrictions on direct selling so the company could conduct...