Probe continues in Wal-Mart bribery case, may face sizeable fines

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In April the newspaper reported that Wal-Mart had stifled an internal probe into bribery at its Mexican affiliate Walmex, but gave the impression that many of the bribes paid may have been used to facilitate approval processes already in motion.

“I think the Times story, if it is true, changes the perception of the Wal-Mart matter from being about facilitating payments to something larger than that,” said Danforth Newcomb, an expert on US Foreign Corrupt Practices Act (FCPA) who defends such cases at the law firm Shearman & Sterling.

The latest story describes, for example, $765,000 in bribes that helped Wal-Mart build a refrigerated distribution center in an environmentally fragile area where electricity was scarce and smaller developers were turned away. It also describes in detail how Wal-Mart allegedly paid $52,000 to change a zoning map so it could open a store near the ancient pyramids in Teotihuacan.

It is difficult to put a ballpark figure on any settlement, especially because the US investigation into Wal-Mart is in early stages, but experts said it could rival other major FCPA cases.

In the largest FCPA case to date, Siemens paid $800 million to resolve allegations of widespread bribery in 2008. In other sizeable cases, KBR and its former parent Halliburton paid $579 million in 2009, and BAE Systems paid $400 million in 2010.

Wal-Mart declined to provide additional comment on Tuesday. On Monday, Wal-Mart said that the allegations in the Times report have been part of the investigation of potential FCPA violations the company began conducting more than a year ago.

The company is cooperating with the US Justice Department and the U.S. Securities and Exchange Commission on the matter.

Representatives of the SEC and DOJ declined to comment.

POTENTIAL FINES

The Justice Department usually calculates fines in foreign bribery cases by either levying a per-violation fine or a penalty tied to the profits a company earned through the alleged bribery. Related SEC settlements usually also involve disgorging profits earned due to the bribery. Including Walmex’s profits at stores throughout Mexico could prove a sizable fine. It is unclear how many of the roughly 2,000 locations in Mexico could be included. In 2011, Walmex posted gross profit of nearly 83.7 billion pesos.

In 2004, the year in which it allegedly pushed for zoning to open the store near the ancient pyramids, Walmex’s gross profit was 28.84 billion pesos. The 2011 results include Central America.

When calculating potential fines, prosecutors take into account how widespread the conduct was, and whether senior management knew about it or were involved in any way. Wal-Mart has said it is investigating allegations related to its operations in Brazil, India, and China.

“Wal-Mart de Mexico didn’t stumble into a bit of bribery. If the allegations are correct, it used systematic bribery as part of its business strategy as a way to grow,” said Richard Cassin, an FCPA expert and author of a popular FCPA blog.

The company’s costs to conduct the entire investigation – which already stand at $100 million – could be larger than its eventual fines, lawyers said.

Wal-Mart has also been proactive with other measures that could blunt some of the demands from authorities. When settling FCPA cases, companies are usually required to make some management changes and overhaul their compliance programs.

In October the company said it reorganized its compliance department and created a new global chief compliance officer position as part of an overhaul of its anti-corruption efforts.

It said then that it spent more than $30 million to update its anti-corruption program, named a new chief compliance officer for Wal-Mart International and a new vice president of global investigations, which are both new positions for the company. It also previously created a new global FCPA compliance officer position.

Reuters

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