On April 21, 2012, The New York Times published a widely read exposé regarding allegations that Wal-Mart violated the Foreign Corrupt Practices Act in connection with the extraordinary growth of its Wal-Mart de Mexico subsidiary.1 The story, which combines one of the world’s largest corporations and one of the government’s leading law enforcement priorities, spread like wildfire.2 Wal-Mart’s stock price dropped 4.7 percent the first trading day after the story was published and a total of 5.5 percent for the week ending April 27. It appears all but certain that Wal-Mart will be facing years of government investigations and civil litigation brought by disgruntled shareholders.
Buried in the Times article was a reference to possible tax violations. Specifically, the article describes allegations that “Wal-Mart de Mexico…’purified’ the bribes in accounting records as simple legal fees,” that the company purportedly disregarded press reports “that Wal-Mart de Mexico was ‘carrying out a tax fraud,’” and that it ultimately paid $34.3 million in back taxes. While FCPA violations are frequently investigated jointly by the Department of Justice, which has jurisdiction over criminal violations of the act, and the SEC, which commonly charges violations of the FCPA under the books and records provisions of the federal securities laws, the Times article raises the specter that companies making corrupt payments to foreign officials could be subject to inquiries by the Internal Revenue Service. Whether such a risk materializes depends in large part on the deductibility of the payments in question.
Tax Charges
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