Between the Lines: Walmart In-House Lawyers Played Key Roles in Scandal
The documents also paint a picture of top Walmart executives, including its general counsel at the time, who were more concerned with growth than with exploring the red flags around them. At least eight Walmart executives have left the company in the wake of the scandal.
June 21, 2019 at 05:08 PM
5 minute read
A deep dive into government documents released Thursday surrounding the foreign bribery settlement with Walmart Inc. reveals that in-house lawyers at the company played key roles in both executing bribe schemes and exposing them.
The documents also paint a picture of top Walmart executives, including its general counsel at the time, who were more concerned with growth than with exploring the red flags around them. At least eight Walmart executives have left the company in the wake of the scandal.
Laura Perkins, a partner at Hughes Hubbard & Reed in Washington, D.C., noted that no Walmart executive was charged with wrongdoing. “The papers repeatedly make the point that while red flags may have been known and ignored [by the executives], the actual underlying conduct was not known,” said Perkins, a former assistant chief of the Foreign Corrupt Practices Act unit in the U.S. Department of Justice's criminal division.
The nearly 200 pages of documents include a cease and desist order and a statement of facts from the U.S. Securities and Exchange Commission. From the U.S. Department of Justice came criminal information filed against a Brazilian subsidiary; the subsidiary's plea agreement; the court judgment; a global nonprosecution agreement covering misconduct in Mexico, China, India and Brazil, along with another statement of facts.
Although the documents do not use the names of the in-house lawyers, nor the executives who either supported or ignored them, most of the players have been identified in other stories in Corporate Counsel and elsewhere.
For example, Sergio Cicero Zapata worked for Walmart as an in-house real estate attorney in Mexico from 1991 to 2004. He was the original whistleblower on the Mexico bribery scheme in 2005. That case eventually led Walmart headquarters to probe other foreign subsidiaries in an internal investigation that also found bribery problems in the other three countries.
The DOJ documents refer to Cicero as “Mexico Subsidiary Attorney.” The SEC papers call him “Mexico Subsidiary Lawyer A.” But his detailed story about paying bribes through third-party intermediaries on more than 300 projects is substantially the same in both documents. Cicero's statements implicate both the subsidiary's general counsel and its chief executive in the bribery scheme. As DOJ put it: “Mexico Subsidiary Lawyer A claimed that Mexico Subsidiary Executive A (the CEO), Mexico Subsidiary Internal Auditor, and Mexico Subsidiary Lawyer B (defined as the subsidiary's senior attorney)—who had been named Mexico Subsidiary's compliance officer after Mexico Subsidiary Lawyer A left Mexico Subsidiary—also participated in the scheme.”
Both the CEO and the Mexican general counsel have denied wrongdoing, and both have left Walmart after the bribe scheme was revealed.
While Cicero's descriptions of what the two men did—or didn't do—about the bribes, are damning, so is the government's portrait of the Walmart leadership in Bentonville, Arkansas, at the time.
The papers detail how Cicero reported the bribe scheme to the in-house legal department in Bentonville. The woman who received his whistleblower complaint in 2005 was Maritza Munich, then general counsel of Walmart International, who reported to corporate general counsel Thomas Mars.
Munich did a preliminary investigation into Cicero's allegations, found the red flags and recommended that Walmart hire independent investigators to continue. Mars squelched her recommendation.
Instead Mars assigned any further investigating to the general counsel of the Mexican subsidiary—even though that GC was a target of Cicero's complaint. The Mexican GC wrote a 2006 report stating, “that no evidence existed to substantiate that [the] Mexico subsidiary made unlawful payments to government officials.” Munich eventually resigned.
Mars later became chief administrative officer of Walmart. He left the company in 2013 and has repeatedly declined comment.
In 2012, Walmart brought in Jay Jorgensen as executive vice president and global chief ethics and compliance officer, to help build a state-of-the-art compliance program. Jorgensen, who left last December to become general counsel and chief compliance officer at the South Korean e-commerce company Coupang, was visiting in the U.S. when the Walmart settlement was announced.
He could not speak to what went on at the company prior to 2012. But he said he was part of meetings with the DOJ in which investigators focused on how Walmart's new program would handle whistleblower complaints or red flags.
“They really grilled us,” Jorgensen recalled. “We went through hundreds of pages of material. We had hired more than 2,000 compliance people. In the end they were impressed.”
He said a company can invest millions of dollars in a top compliance program and that's no guarantee that bad things won't happen. “But if you have a professional process, and monitor it and test it, then you can have credibility with the government that you are doing everything you can.”
Hughes Hubbard's Perkins agreed. The lessons for in-house counsel from the Walmart case are simple, she said: “Don't ignore red flags, and focus on the need for due diligence on third parties. That's the big takeaway here.”
Correction: The article incorrectly said Thomas Mars left the general counsel post in 2012, after The New York Times broke the Mexican bribery story. He left the post to become chief administrative officer in 2009.
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