What Was the Holdup on the Walmart FCPA Settlement? Some Wild Guesses

Most Foreign Corrupt Practices Act (FCPA) cases don’t attract much attention outside of a relatively small circle of lawyers, compliance specialists, anticorruption activists, and other FCPA nerds. But every once in a while a case comes along that gets a bit more attention from the mainstream media, or at least from the general business press. The Walmart case is one such example. The greater attention to that case is probably due to some combination of the Pulitzer Prize winning New York Times reporting on bribes allegedly paid by Walmart’s Mexican subsidiaries—allegations that helped get this case rolling—as well as the fact that the retail giant is more of a household name than, say, Alcatel or Och-Ziff.

As most readers of this blog (a group in which I imagine FCPA nerds are overrepresented) are likely aware, the Walmart case finally settled in late June, with the total monetary penalties coming to about $283 million. I already did a bunch of blog posts on the Walmart case while it was in process—including, perhaps most relevant now, a piece two years ago reflecting on what lessons we might learn if the case settled for somewhere in the neighborhood of about $300 million, which several news outlets had declared was about to happen. And since the announcement of the settlement this past June 20, there’s been no shortage of commentary on the case in the FCPA blogosphere (see, for example, here, here, here, and here). So I don’t have too much to add to the discussion.

I did, however, want to address one relatively small but intriguing puzzle. As I just mentioned, back in May 2017, news outlets reported that the Walmart case was on the verge of settling, for somewhere in the vicinity of $300 million. Over two years later, in June 2019, the Walmart case settled… for an amount very close to $300 million. So, what was the holdup? If the parties had basically worked out the amount that Walmart was going to have to pay back in May 2017, why did it take another two years to finalize the settlement? Neither side has an obvious incentive to delay: Walmart would like to put this behind it and stop paying its expensive lawyers, and the DOJ and SEC’s respective FCPA units have limited staff and a ton to do, and would also like to get the case over and done with. It’s possible that the delay was due to haggling over the exact penalty amount, or that Walmart thought maybe it could get a better deal from the Trump Administration and so decided to hold out, or perhaps there was some last-minute development that one side or the other thought might justify substantial shift in the settlement amount, even if in the end it didn’t. But I would guess (and it really is just a guess) that the two-year delay was due to one or both of the following two factors:

  • Haggling over the statement of facts. In the end, the facts to which Walmart admitted don’t seem as damaging as one might have thought they would be, based on earlier media coverage of the case. Walmart was not required to admit that it, or its foreign subsidiaries, paid bribes to foreign government officials. Rather, Walmart (and its Brazilian subsidiary) acknowledged violations of the FCPA’s accounting provisions—failing to maintain adequate internal controls, and (in the case of the Brazilian subsidiaries) causing false statements to appear in Walmart’s books and records. One might interpret this as showing that the Walmart didn’t actually pay any bribes (at least not within the statute of limitations period), or at least that the government didn’t have any evidence that Walmart paid bribes. That’s certainly one possible explanation. But it’s also worth keeping in mind that the statements of fact that appear in FCPA settlements and plea bargains are themselves the subject of negotiation—often intense negotiation—between the parties, even on points where the characterization of the company’s conduct in the statement of facts would not affect the dollar amount that the company has to pay. I gather (based on reliable sources on both the government side and the company side) that in FCPA cases, the company would strongly prefer to admit to violating the FCPA’s accounting provisions rather than the FCPA’s anti-bribery provisions, even when this makes no difference to the penalties the company will have to pay. Indeed, I’ve been told (though I can’t disclose the source) that in some instances a company might even be willing to pay a somewhat higher penalty if the government only requires it to admit accounting violations, rather than acknowledging that the company or its agents paid bribes. Why this is the case itself presents something of a puzzle, and one that might deserve more extended consideration (perhaps in a future blog post). But if this is correct, then it’s at least possible that part of the two-year hold-up had to do with the government wanting Walmart to admit that it (or its subsidiaries) bribed foreign officials, but Walmart insisting (ultimately successfully, or so it would seem) that it would only admit that it failed to have adequate procedures in place to prevent bribery—without admitting that any such bribes were actually paid. (And, in the case of the Brazilian subsidiary, the sub admitted that it falsely recorded payments to an intermediary as payments to a contractor, but didn’t admit that the intermediary was paying bribes, even though it seems fairly obvious from the recitation of facts that this is exactly what was going on and that the sub knew it.)
  • The corporate monitor issue. The final settlement includes not just a $283 million penalty, but also the requirement that Walmart retain an independent corporate monitor for two years to ensure that Walmart’s “compliance program is operating effectively and adequately tested to ensure that it meets minimum elements set forth in the [DOJ’s] Corporate Compliance Program.” There’s a debate about the effectiveness and appropriateness of independent corporate monitors, and I’m not going to get into the details of that debate right now, but one important fact about corporate monitors: companies hate them. Companies really want to avoid having a monitor appointed, and if that turns out not to be possible, the company would like to keep the monitorship as short as possible and its scope as narrow as possible. It may well be that as of May 2017, Walmart and the US government had reached consensus on the appropriate monetary penalties, but had not reached an agreement regarding the imposition of the monitor. In the end, the settlement requires Walmart to retain an independent monitor for two years. It’s possible that it took close to two additional years to hammer out that part of the agreement, and on this point it looks like the US government got what it wanted… but maybe not entirely. It’s possible that the government initially wanted to impose a monitor for a longer period, and Walmart negotiated it down to two years. Also, as some commentators have noted, the settlement provisions on the monitorship are not the usual boilerplate, but appear more narrowly drawn that what we’ve seen in other cases, which suggests that Walmart successfully negotiated a somewhat narrower monitorship than the US government may have wanted at the outset. But still, Walmart almost certainly tried to convince the US not to impose a monitor at all, and on this point Walmart was unsuccessful.
  • As long as I’m engaging in wild speculation, perhaps these issues were both in play: Maybe by May 2017 the parties were in agreement that Walmart was going to have to pay somewhere in the neighborhood of $300 million, but the US government wanted Walmart to admit that it (or its agents or subsidiaries) paid bribes and to impose an independent monitor, whereas Walmart wanted to limit the factual admissions to accounting violations and didn’t want a monitor—and after approximately two years of additional negotiations, the parties reached a settlement in which Walmart wouldn’t have to acknowledge any actual bribery (at least not since 2005), but would have to put up with a monitor for a two-year term, though with a somewhat more restricted mandate than is typical.

If any of this is even close to right (or actually, even if it isn’t at all accurate in this particular case), it serves as a reminder of two more general facts about FCPA settlements that sometimes don’t get enough attention:

  • First, the statement of facts is itself the subject of negotiation, and shouldn’t be treated as a straightforward, objective summary of what actually happened (or even what the government thinks it has evidence to support).
  • Second, the monetary penalty, though very important and highly salient, is only one part of the total remedial package, and when evaluating a settlement in terms of how onerous it is on the company, one must also take into account other factors, including whether (and on what terms) the company must retain an independent monitor.

Again, I’m speculating wildly, and without first-hand inside information, on why it took an additional two years to finalize the settlement after the penalty amount seems to have been worked out back in May 2017. I may well be wrong, and I’d very much welcome others to weigh in on what they think might have been going on behind the scenes.

11 thoughts on “What Was the Holdup on the Walmart FCPA Settlement? Some Wild Guesses

  1. It was not the monitor as the monitor already began his work (based on public reporting) approximately approximately 9 months ago and the NPA explicitly references this (i.e. “Company agreed to retain a Monitor prior to the date on which the Agreement is executed.”). It is not uncommon for a company to disclose a settlement amount and actual resolution to follow months (and in some cases many months later). I chalk the delay up to yet another example of the government not facing any meaningful time constraints in these matters given that companies waive or toll statute of limitation defenses.

    • Good point about the monitor! I’d missed that–thanks for bringing to my attention. I suppose it’s possible that haggling over the monitor might still explain the first year-plus of delay (from mid-2017 until mid-to-late 2018), but doesn’t explain why so much more time passed after the monitor started his work.

      Of course you’re right that there’s sometimes a gap of several months between the time a company discloses a settlement and when the actual resolution is officially announced, but in this case I still think there’s a puzzle: (1) Walmart didn’t actually announce a settlement in May 2017; rather, sources leaked to media outlets that a settlement would be announced very soon, but then that didn’t happen. (2) We’re talking about a delay of over two years, which (as far as I know–please correct me if I’m wrong) is NOT typical.

      Your point about the government not being constrained by the statute of limitations while the case is in-process is of course correct, but I don’t think it’s a fully satisfactory explanation, since the government also wants to clear cases off its docket and announce settlements and move on, and it’s hard for me to believe they’d sit on this for over two years (or even over one year) if there wasn’t some other issue that was still being haggled over or ironed out.

  2. Great post; thanks! I imagine the haggling over the statement of facts, and particularly the not admitting to bribery part, is that such an admission would open the company up to litigation and perhaps criminal liability in the countries where the bribery occurred.

    If my speculation is correct, as a citizen of Mexico I think this is very unfortunate, since the publicity and high-profile of FCPA cases are often the only real pressure put on local authorities to investigate. Exhibit 1 is the Walmart case.

    This is particularly disheartening: “[T]he Company received partial cooperation credit for the conduct in Mexico because, in the view of the Fraud Section and the Office, Walmart did not timely provide documents and information to the Fraud Section and the Office in response to certain requests and did not deconflict with the Fraud Section and the Office’s request to interview one witness before the Company interviewed that witness.”

    One would hope that the DOJ and SEC would at least take these local implications into consideration, but my cursory reading of the NPA does not indicate that this is the case.

    • Criminal liability does not just hop and skip and jump around a corporate hierachy. What bribery / criminal liability exactly do you want Walmart Inc. to admit to given the government’s allegations (or even based on the non-lawyer journalist media reports)?

      • I was responding to Matthew’s point that the delay may have been due to haggling over this issue. If his view is correct that the statement of facts is itself the subject of intense negotiations, not necessarily a reflection of reality, then my point stands. I do not “want” Walmart to admit to anything; I only saying that if the DOJ or SEC use criminal liability as a bargaining chip, it may have consequences beyond the US that are not necessarily desirable.

  3. If I have learned anything in doing FCPA searches literally every day for 10 years running it is not to believe much of anything reported in the media through unnamed sources, etc. regarding the FCPA.

    Walmart disclosed the settlement amount in November 2017. The “delay” is on the longer end, but not that atypical. I haven’t run the numbers of every action, but off the top of my head I recall that there have been certain instances where the delay between disclosure of settlement amount to actual settlement day has been 6-12 months.

    • The time gaps still seem so long that I can’t shake the suspicion that there was still some more significant negotiating that took place after the dollar amount had been basically nailed down by mid-2017, but perhaps you’re right that there isn’t actually a puzzle here, and that delays of this length, though a bit unusual, don’t have any explanation beyond the usual friction and administrative delay common to almost large bureaucracies.

      I’d be curious what others with expertise in this area think, and what the quantitive data suggest about the typical time gaps in comparable cases.

  4. Pingback: This Week in FCPA-Episode 162 – the Halfway to ‘Take it Back’ edition - Compliance ReportCompliance Report

  5. I’m not an FCPA expert, but the July 2 FCPA Blog post caught my eye: “Walmart compliance honcho nominated to federal bench.” Is it possible that this nomination was part of the bargain, or a reward for a job well done? Is this an example of a revolving door?

    • I don’t know much about this, but my strong intuition is that this appointment was _not_ in any way part of the bargain between the DOJ/SEC and Walmart. This is partly because the career people at DOJ and SEC are highly professional and wouldn’t get involved in anything so crude. It’s partly because there’s so little institutional contact between the FCPA prosecutors and the people in government who screen and help select federal judge candidates. And it’s partly because I’m having a hard time seeing what the “deal” would be in this case, since by most accounts Walmart got a more favorable settlement than originally expected.

      There IS a “revolving door” issue in this context, but it’s more that lots of DOJ/SEC FCPA lawyers go on to careers in private practice representing clients in FCPA matters, and that in some instances some of the more senior appointees in the relevant divisions (such as the DOJ Fraud Section) are private lawyers whose clients include companies and individuals allegedly involved in possible FCPA violations. I don’t think this particular form of the revolving door is all that pernicious, especially when compared to others, but there’s a debate about that, and reasonable people can disagree.

      In the case you mention involving the Walmart compliance officer, I don’t know anything about the individual involved, but I’d guess that it’s more that this person is a well-connected Republican lawyer.

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