Bribery Case at Wal-Mart May Widen

May 18, 2012

The New York Times on May 17, 2012 released the following:


As Wal-Mart reported higher-than-expected first-quarter earnings on Thursday, it suggested in a regulatory filing that the scope of an internal investigation into bribery accusations had widened beyond the retailer’s subsidiary in Mexico.

The company reported that the audit committee of the Wal-Mart Stores board was examining possible violations of the Foreign Corrupt Practices Act and “other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México.” It was the first public disclosure by the company that the internal inquiry could involve additional subsidiaries, though none was named.

The regulatory filing also confirmed that Wal-Mart is the subject of investigations by the Securities and Exchange Commission and the Justice Department. And while Wal-Mart said in December that it did not expect the bribery accusations and their fallout to hurt the company, it backed away from that assertion on Thursday.

“Although the company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the company can provide no assurance that these matters will not be material to its business in the future,” the filing said.

A Wal-Mart spokesman, David Tovar, declined to comment further on the filing.

The disclosures on Thursday caught some analysts by surprise. Faye Landes, an analyst with Consumer Edge Research, wrote in a note to clients that the new information was “dramatic.”

“They can’t leave any stone unturned,” Ms. Landes said. “Now they have to make sure that everything is squeaky clean.”

The New York Times reported last month that Wal-Mart had found credible evidence that its Mexican subsidiary had paid bribes and that an internal inquiry into the matter had been suppressed at corporate headquarters in Arkansas.

Also on Thursday, two congressmen who are looking into Wal-Mart’s activities in Mexico said they had internal company documents that showed the company’s former general counsel had pushed for an investigation of some transactions in Mexico before she resigned in 2006.

Representatives Elijah E. Cummings and Henry A. Waxman reiterated a request that Wal-Mart brief them on the bribery accusations, and asked that Wal-Mart authorize the former general counsel to speak to them. Mr. Tovar said Wal-Mart had already scheduled an initial briefing with the congressmen’s staffs, and was working to schedule another session.

Egan-Jones Proxy Services, which advises institutional investors, recommended on Thursday that shareholders vote against re-electing Wal-Mart’s chief executive, Michael T. Duke, and a board member, H. Lee Scott Jr., in June because of accusations that they were involved in the bribery case.

In a call with investors, Mr. Duke said, “We are working aggressively to determine what happened, and we will take appropriate action if violations of the law or our policies occurred.” Asked in a call with reporters to give an update on the timeline of the investigation or expectations about June’s shareholder meeting, Mr. Tovar, the Wal-Mart spokesman, declined to comment.

Wal-Mart also warned in Thursday’s filing that its reputation could be affected by the bribery scandal, with inquiries from the media and law enforcement authorities affecting the “perception among certain audiences of its role as a corporate citizen.”

Possible outcomes include enforcement actions that could lead to fines or criminal convictions; judgments against the company from shareholder lawsuits; and costs from the government’s investigations, from its own investigation and from defending itself against the lawsuits, the filing said.

The company “cannot predict at this time the ultimate amount of all such costs.” Further, the inquiry could involve some senior executives, and that could “could impinge on the time they have available to devote to other matters relating to the business.”

David Strasser, an analyst for Janney Capital Markets, said in a note to clients that the market was getting comfortable with the impact of the bribery accusations. He said he believed the investigations would “be more about fines and perhaps personal repercussions, but the broader implications for the Wal-Mart franchise will remain somewhat modest.”

The new disclosures on Thursday came as Wal-Mart reported its quarterly results, which were higher than analysts had expected.

Profit rose 10 percent to $3.74 billion, or $1.09 a share, 5 cents per share more than analysts had expected. Revenue increased 8.6 percent to $112.3 billion.

In the United States, sales at stores open at least a year rose 2.6 percent versus the same quarter last year. That was the best quarterly same-store sales result in three years.

Charles M. Holley Jr., the chief financial officer, said in a call with reporters that while shoppers continued to be on tight budgets, they were responding to the wider array of merchandise and cheaper prices that Wal-Mart had been bringing in.

“We still see what we call the paycheck cycle,” he said, “where the customer has the cash and will spend money early when they get the paycheck, and as the paycheck runs out, it gets a little harder.”

Wal-Mart said its business in the United States was particularly strong in areas like hunting and fishing and in home and outdoor goods.

Apparel, which the company has long struggled with, posted its first positive comparable-store sales figure in six years. Mr. Holley said that the company’s focus on cheap prices had helped, and that women’s workout apparel, jeans and underwear were popular. “We sold a lot of underwear in the first quarter,” he said.

The company’s Sam’s Club warehouse unit posted a 5.3 percent increase in same-store sales, excluding fuel, helped by extra marketing efforts for its grocery business.

Internationally, sales grew 10.9 percent, adjusted for currency fluctuations.

Mr. Holley said that the Mexico investigation had so far not affected plans for store openings in Mexico and its overseas growth expectations.”


Douglas McNabb – McNabb Associates, P.C.’s
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The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at or at one of the offices listed above.

Weighing the Legal Ramifications of the Wal-Mart Bribery Case

April 24, 2012

The New York Times on April 23, 2012 released the following:


The United States government puts a premium on corporate cooperation in foreign bribery cases, relying on companies to conduct thorough internal investigations and voluntarily disclose any wrongdoing.

Indications that Wal-Mart Stores may have taken steps to keep an internal investigation from digging deeper into $24 million in questionable payments — and later promoting an executive who may have been implicated in them — may affect how the government decides to proceed against the giant retailer.

Wal-Mart first disclosed in December that it had started “a voluntary internal review of its policies, procedures and internal controls pertaining to its global anticorruption compliance program.” That review was the result of reporting by The New York Times about bribery by Wal-Mart de México to secure permits and approvals to build new stores.

The company’s disclosures did not give any information about where the foreign bribery issues had arisen, only that the focus was on whether “permitting, licensing and inspections were in compliance with the U.S. Foreign Corrupt Practices Act.” Wal-Mart said it had informed the Justice Department and the Securities and Exchange Commission about the internal investigation, and the company issued a statement in response to the Times article that its outside advisers “have and will continue to meet with the D.O.J. and S.E.C. to report on the progress of the investigation.”

Companies caught up in investigations of foreign bribery often seek to exert a measure of control over the flow of information by meeting early and often with government investigators in an effort to establish credibility regarding the scope and integrity of the investigation, usually sharing the results as quickly as possible. If corporate counsel can demonstrate its reliability, then the Justice Department and the S.E.C. are more likely to accept the findings of the internal investigation without conducting an independent review.

Cooperation is also important because it is a significant factor for prosecutors in deciding how to resolve a case. The Justice Department has allowed companies to pay reduced fines and avoid a guilty plea to criminal charges by entering into deferred or nonprosecution agreements because they came forward voluntarily and readily provided information.

While Wal-Mart may be angling for the same type of resolution, it is questionable whether being prodded by The Times’s reporting to start an internal investigation shows that it took affirmative steps to address a problem. The company had dropped its earlier investigation, and likely would have let that sleeping dog lie if not for potential media scrutiny.

The Times article also raises two significant red flags for investigators that may cause them to take a more aggressive approach in the case. First, the Mexican bribery involved senior management at the subsidiary, not just low-level employees operating on their own. One factor cited in the Justice Department guidelines for deciding whether to charge a business organization is the “pervasiveness of wrongdoing within the corporation,” and the most important consideration “is the role and conduct of management.”

Second, Wal-Mart’s own investigators raised questions about $16 million in “contributions” and “donations” to local governments, but there was no further review of those payments. Simply ignoring these types of transfers is sure to raise questions for the government about whether the company can claim it had an effective compliance program back in 2005 when these issue first came to light, another important consideration in determining whether to file charges.

Wal-Mart also pointed out twice in its statement that the payments in Mexico took place more than six years ago. That may be an effort to explain why it may be unable to conduct a complete investigation. Whether the excuse will fly with the Justice Department and the S.E.C. remains to be seen.

The time lag may present a problem if the Justice Department wants to prosecute any individuals for bribery of Mexican officials. The statute of limitations for a violation of the Foreign Corrupt Practices Act is five years. The limitations period can be extended if the government was seeking evidence from a foreign country, but that does not appear to be the case because Wal-Mart only disclosed the issue in late 2011. So charges related to conduct before 2007 may be lost due to the passage of time.

One way the government can try to avoid the statute of limitations is to charge a conspiracy, which only requires that one act in furtherance of the criminal agreement take place within the last five years. If active steps by Wal-Mart executives to cover up payments to foreign officials occurred in 2007 or later, then prosecutors might be able to pursue that charge.

The statute of limitations will not work as much in Wal-Mart’s favor, however, because the company is required to annually file financial statements covering the previous five years. It is likely that questionable payments were not properly reflected on the company’s books and records. So even if no charges can be brought for any foreign bribery, at a minimum it could be charged with violating the accounting provisions of federal securities law for not properly disclosing the payments made by Wal-Mart de México.

Another potential avenue that prosecutors are likely to investigate is obstruction of justice under 18 U.S.C. § 1519, which was added by the Sarbanes-Oxley Act. If there is evidence that anyone at the company covered up or destroyed records “with the intent to impede, obstruct, or influence” a future investigation, that could be grounds for a criminal charge.

One factor working against Wal-Mart is that the Justice Department may be looking for a prominent case to demonstrate the need for vigorous enforcement of the Foreign Corrupt Practices Act as a response to recent criticisms of the law. The Chamber of Commerce, which hired a former attorney general, Michael B. Mukasey, to lobby for changes to the statute, has argued that aggressive application of the law has caused companies to shy away from overseas investments for fear of being scrutinized.

The Times article makes it clear that Wal-Mart appeared to be more concerned with protecting its fast-growing Mexican operation than with thoroughly investigating allegations that corruption helped fuel its success. Prosecutors can make an example of Wal-Mart to show that the Justice Department will not tolerate foreign bribery, even by a leading American company. That would bolster the argument that revising the statute would send the wrong message to the rest of the world.

The payments at issue are comparatively paltry, perhaps totaling less than $50 million, although that number could increase as the internal investigation moves forward. The ultimate cost to Wal-Mart for the legal and accounting fees for the investigation, along with any monetary penalties the Justice Department and the S.E.C. may seek, will probably far exceed the bribes.”

18 U.S.C. § 1519


Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment


To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at or at one of the offices listed above.