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Walmart Unlikely To Face Formal Criminal Prosecution Over Bribery Allegations, Say Experts

Posted: 04/23/2012 6:53 pm Updated: 04/24/2012 5:55 pm

Walmart

Despite public embarrassment and blistering headlines, Walmart will likely escape criminal charges over allegations the retailer bribed officials in Mexico, according to an examination of similar cases prosecuted by the U.S. government. If recent history holds true, the Department of Justice will settle the matter without formally prosecuting the retailer under the government's anti-bribery statute.

Two congressmen announced an investigationMonday into reports that Walmart's Mexican subsidiary, Wal Mart de Mexico, had paid $24 million in bribes to local officials in order to quickly obtain permits as part of a broader, successful, strategy to dominate the Mexican market. Rather than aggressively pursue an investigation into the wrongdoing, executives at Walmart's corporate headquarters in Bentonville, Ark., decided instead to sweep the internal inquiry under the rug, according to a detailed investigation published Sunday in The New York Times .

The allegations sent the company's shares 4.7 percent lower to $59.54 in New York Stock Exchange trading on Monday. Whether the giant chain sustains permanent damage depends on how it handles a looming U.S. investigation. Company officials, including the former head of the Mexican subsidiary, Eduardo Castro-Wright, potentially may face criminal charges. But unless the government radically departs from past policy, the company itself will almost certainly avoid criminal charges. Regardless, it could take years before any investigation is complete.

Bribing foreign officials is illegal under the U.S. Foreign Corrupt Practices Act. Both the Securities and Exchange Commission and the Department of Justice can bring civil cases against companies and individuals under the law, and the Justice Department may also bring criminal cases. In recent years, the Justice Department has increased the number and scale of its actions. The Justice Department has collected more than $3 billion in fines from multinational corporations since 2008, including the huge defense contractor BAE Systems, the automaker Daimler AG, and the health care product manufacturer Johnson & Johnson.

But most of these companies were never formally prosecuted, even in cases the Justice Department describes as egregious. Since 2010, 29 of 32 cases brought by the Justice Department were resolved either with a non-prosecution agreement, or a deferred-prosecution agreement -- methods for resolving cases without actually filing charges.

Michael Koehler, a law professor at Butler University in Indiana who has written extensively about the Foreign Corrupt Practices Act, argued that anyone concerned with U.S. justice should object to how the Justice Department resolves cases, "because they are never subjected to judicial scrutiny."

As a result, Koehler said, "companies are both under-prosecuted and over-prosecuted."

Details of investigations are often kept under wraps, decisions about how fines are negotiated are kept secret, and judges are not invited to consider whether a deal is fair. If this approach sounds familiar, it is because the Securities and Exchange Commission (which can also bring civil cases under the Foreign Corrupt Practices Act) often settles cases similarly: companies and individuals usually "neither admit nor deny" wrongdoing as part of a settlement hammered out behind closed doors. (Settlements, at least, are subject to judicial scrutiny, though as Judge Jed Rakoff is learning, a judge's power to reject a settlement agreement is at best limited).

Government agencies also may consider whether a contractor was prosecuted under the Foreign Corrupt Practices Act when deciding to award new contracts, or continue existing ones. This matters less for Walmart, still a small player in government contracting, with about $2.8 million in contracts, according to USAspending.gov. But companies like BAE depend on government money. In 2010, the company paid $400 million to settle an enforcement action resulting from allegations the company bribed a Saudi official to win a lucrative fighter jet contract. A few months later, the FBI, which investigated the bribery, awarded BAE a $40 million contract.

It's too early to say what types of cases might be brought against Walmart or its executives. An internal investigation, likely headed by an outside law firm, is underway. In December, the company disclosed in an SEC filing that it had started a voluntary review of its global anti-corruption program. (The review apparently was prompted by New York Times inquiries.)

As improbable as it may sound, the Walmart scandal is at first blush fairly tame in the recent history of global bribery.

The alleged wrongdoing, Koehler said, doesn't measure up to alleged corporate malfeasance at companies that include Siemens, which paid a record $1.6 billion fine in 2008 to resolve a case the Justice Department described as "unprecedented in scale and geographic reach." The corruption at Siemens involved more than $1.4 billion bribes paid to government officials from around the world, the government said. And the payments were approved by top company executives. With Walmart, U.S. executives apparently were kept in the dark until after payments made by Walmart de Mexico, had stopped.

"Walmart is never going to be top-10" case under the Foreign Corrupt Practices Act, Koehler said. "The payments were just to get permits and licenses to open stores."

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