My post two weeks ago discussed reports that Walmart is on the verge of reaching a settlement with the U.S. government regarding allegations that several of Walmart’s foreign subsidiaries violated the Foreign Corrupt Practices Act (FCPA), and that the total penalties that Walmart would pay would be around $300 million. That may sound like a big number, but it’s much smaller than the $1 billion penalty some commentators predicted when the investigation got under way, and only half of the $600 million the U.S. government was reportedly demanding as recently as last October.

As I write this, a settlement still hasn’t been formally announced, though it’s possible it will have been by the time this post is published. (I’m traveling this week, so I wrote this post a several days in advance and wasn’t able to update it to reflect any developments that may have occurred in the last 72 hours or so.) But let’s assume for the moment that the media reports are accurate, and that sometime this year – approximately six years after Walmart first disclosed to the SEC and DOJ that it might have an FCPA problem – the case settles for around $300 million. What would we learn from that?

Or perhaps I should frame the question more starkly, at the risk of oversimplification:

• There are a bunch of folks out there (the “FCPA Reform” crowd) who argue that the U.S. government’s approach to FCPA enforcement is out of control, with the government imposing enormous and unjustified costs on companies for relatively minor and/or unproven infractions. The government can do this, the argument goes, because the government has corporations over a barrel: most corporations can’t risk being indicted for FCPA violations, and so (the FCPA Reform crowd asserts) the government can and does extract exorbitant settlements with little regard to whether the government’s legal theories have an adequate basis in law and fact.
• Then there are a bunch of folks (lat’s call them the “FCPA, A-OK” crowd) who think that the aforementioned concerns are grossly exaggerated, and that in fact the U.S. government’s FCPA enforcement posture is reasonable, grounded in a plausible view of the law, and that allegations of overreaching don’t withstand critical scrutiny. (And then of course there are those who think that the government isn’t nearly aggressive enough in enforcing the FCPA, and that in fact both the resources devoted to investigation and enforcement, as well as the penalties, should be increased dramatically.)

If the Walmart settlement resembles what the most recent media reports predict, I think that both the “FCPA Reform” crowd and the “FCPA, A-OK” crowd can and will find material to support their positions.

Let’s start with the “FCPA Reform” advocates. I expect that these folks will emphasize the following three points if the Walmart settlement is as predicted:

• The actual misconduct was nowhere near as serious as originally reported. The low penalties demonstrate that much of the early media reporting was sensationalized, and much of the commentary on the case accepted those reports at face value.
• The fact that the government initially tried to insist on a $600 million penalty, even though in the end it tacitly acknowledged that the actual misconduct in the case only justifies a penalty half that size, is evidence that the government has a tendency to overreach.
• The government’s insistence on a soup-to-nuts investigation – one that ended up turning up less and/or less-serious misconduct than many predicted – imposed enormous costs on Walmart. Estimates of Walmart’s total expenditures due to the investigation are upwards of $800 million and climbing. That means Walmart’s expenses due to the investigation will end up being approximately three times higher than the actual penalties. This demonstrates the DOJ’s power to force companies to bear enormous costs out of all proportion to their actual wrongdoing.

What about the FCPA A-OK crowd? They could also find in the hypothesized Walmart settlement considerations that support their position:

• A $300 million penalty is still quite a large penalty, and an indication that Walmart indeed engaged in fairly serious misconduct. It only seems small because some of the initial predictions (and the government’s earlier settlement offer) involved much larger sums.
• That Walmart ended up spending a huge amount on the investigation – substantially more than on the actual penalties – isn’t necessarily a bad thing, for a couple of reasons. First, it’s worth pointing out that a sizeable chunk (though nowhere near the majority) of the estimated $800+ billion in investigation-related expenses consisted of investments in improving the company’s compliance program. (For example, of the $99 million Walmart reportedly spent on the investigation in 2016, about $19 million was actually for improvements to Walmart’s global compliance program, not on the investigation itself.) That’s money well spent (at least from a social perspective, and hopefully from Walmart’s perspective as well). Second, part of the reason that the investigation expenses and legal fees were so high is that the pre-2011 approach to compliance had been so lax. Walmart appears not to have had a terribly good idea what was going on in many of its foreign subsidiaries, even when there was plausible evidence that there might be FCPA problems.
• Perhaps more important than either of the above two arguments (which are mostly defensive), defenders of the government’s approach to FCPA enforcement can plausibly argue that, if the sequence of events leading to the hypothesized final settlement is roughly the timeline I sketched in my last post, then this undercuts the oft-repeated claim that the DOJ cares little about the actual legal merits of its position, and that the threat of an indictment gives it so much power that companies have no choice but to go along with the DOJ’s demands. Without denying that the company’s desire to avoid indictment gives the government substantial leverage, if Walmart settles for much less than the government initially wanted, it will show one or both of two things: (1) The government actually does care about whether it has both the evidence and the legal basis to back up the allegations that it uses as the basis for a settlement. If the government wanted to charge Walmart for misconduct in Mexico, but realized that the statute of limitations had run – and perhaps also looked for more evidence but couldn’t find it – and for that reason reduced the amount demanded in settlement negotiations, that would cut strongly against the claim that the government just charges ahead without caring much about whether its charges could be successfully prosecuted in court. (2) If, as reports suggest, Walmart pushed back – hard – against the government’s initial settlement offers, and successfully negotiated downward (by a lot) that shows – as Jordan argued a while back – that corporate FCPA defendants have considerably more negotiating power than the FCPA Reform crowd sometimes suggests.

I’m not quite sure where I come out on this (though as regular readers know, I tend to be more “Hawkish” on FCPA enforcement, and skeptical of some of the more aggressive arguments for FCPA “reform”). Let me suggest the following mixed lesson that one might draw, if the Walmart settlement is as predicted:

• On the one hand, the claim that the government can and does extract/extort absurd and disproportionate penalties in settlement negotiations may be greatly exaggerated. The government has considerable leverage, but so do the corporate defendants, and while the government may base its enforcement actions on aggressive legal theories, the government won’t insist on imposing penalties when it doesn’t think it has a colorable legal argument for the underlying violation.
• On the other hand, the costs of the FCPA investigations themselves, separate and apart from the penalties ultimately imposed, can be extremely high, and the government might perhaps be reasonably accused of insufficient sensitivity to the costs that its demands for internal investigation and related efforts may place on corporations. (That said, if – as some analysts have suggested – FCPA penalties are far too small to adequately deter bribery, the fact that companies may end up spending a lot on legal fees and other expenses may be a feature, not a bug, so long as there is a genuine underlying violation.)