3 Compliance Lessons from the Wal-Mart Bribery Scandal

Imagine yourself sitting in the corporate headquarters of Wal-Mart Stores Inc. in Bentonville, Arkansas, in 2005. You have recently been promoted to head your company’s international operations. On your desk you have a series of reports, made by a former Walmart in-house counsel, of an alleged bribery scheme at your company’s operations in Mexico. One of the emails concerning the matter ends with “PS: Welcome to Wal-Mart international” [PDF].

This appears to be the situation in late 2005 faced by Mike Duke, who now serves as CEO of Walmart. Sergio Cicero Zapata, a former in-house counsel for Walmart de Mexico (Walmex) dismissed after 28 years of service, had recently met with Walmart’s external counsel and alleged that bribes were paid to Mexican officials to expedite the company’s expansion in Mexico. Internal Walmart emails and memos detailing Mr. Zapata’s allegations were recently made public as a result of a Congressional investigation into the company. These documents offer a rare glimpse inside a company’s internal communications as a potential U.S. Foreign Corrupt Practices Act (FCPA) issue unfolds.

Last month, Walmart stated that the company incurred “$157 million of professional fees and expenses” in the last fiscal year related to an ongoing FCPA investigation, and expects to pay an additional $40 – 45 million in the first quarter of fiscal 2014. Congress is also investigating the matter and, in January, requested that Duke explain his knowledge of the bribery allegations.

Walmart could have avoided many of these costs by implementing a few basic FCPA compliance processes: ensuring a proper tone from the top, conducting proper due diligence on all third parties, and carefully monitoring foreign subsidiary compliance with antibribery laws. Below are some of the key compliance takeaways from the internal Walmart documents:

1. The Goal Justifies the Means

According to Zapata’s interview, Walmart followed a policy of “the goal justifies the means,” including sponsoring irregular payments. “The basic premise was to make whatever was necessary to obtain the result,” Zapata said, describing aggressive growth goals and the need for Walmart to open new sites in record time.

To control the bribery risks faced by the company, in-house counsel must ensure that the proper tone is set at the highest level. In-house counsel should meet regularly with foreign subsidiaries, conduct in-person training on anticorruption compliance policies and procedures, and make it clear to all employees that corruption will not be tolerated by headquarters.

A hotline or other internal whistleblower mechanism should be available to all employees, and they should be confident that management will quickly respond to serious bribery allegations. Exit interviews are another important means of assuring employees have an internal opportunity to air any grievances—disgruntled employees will report externally if they believe internal reports are not taken seriously.

“When he left the company he was angry at the lack of recognition of his work, in addition to the fact that nobody asked him to stay even after 28 years of work,” observed the attorney who interviewed Zapata. “Nobody called [him] when he left the company, something that he resented after 28 years of service.”

Your company’s employees know what you need to know. Make sure you’re ready to hear it.

2. Third Parties Used to Keep the Company from Direct Involvement in Corrupt Activity