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: Continue reading

Guest Post: Expert Interviews on Corruption Control in Latin America

Today’s guest post is from Columbia University Professor Paul Lagunes, who this year is also a Visiting Fellow at Rice University’s Baker Institute for Public Policy:

Elections in Latin America are freer and fairer than they used to be, and, with rare exceptions, political power in the region is no longer monopolized by a single individual, junta, or party. From Chile to Mexico, legal reforms have promoted higher levels of government transparency and citizen participation. But in spite of these improvements, the region continues to grapple with systemic corruption. Not only are individuals asked to pay bribes by lower-level government officials, but scandals such as Lava Jato (“Car Wash”) in Brazil, La Estafa Maestra (“The Master Fraud”) in Mexico, and La Línea (“The Line”) in Guatemala have revealed grand corruption at the most senior levels, making the fight against corruption a top priority for the region.

Prompted by these concerns, I contributed to organizing a conference at Rice University’s Baker Institute for Public Policy on corruption control in Latin America, which has already been featured (with links to the conference videos) on this blog. Some of the conference panelists stayed long enough that we were able to interview them about their important work. Tony Payan, my colleague at the Baker Institute and an expert on U.S.-Mexico border issues, agreed to conduct the interviews.

The videos of these interviews are now publicly available, and are well worth viewing for those interested in hearing a diverse range of perspectives on the corruption challenges currently facing Latin America. In this post I will provide links to the interviews as well as a brief summary of their content. (There’s also an online website, where you can find all the interviews, here.) Continue reading

What Might We Learn from the (Predicted) Walmart Settlement?

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. Continue reading

Wake Me Up When the Walmart Case Actually Settles

Big news in the world of Foreign Corrupt Practices Act Enforcement! According to a report earlier this month in Bloomberg, the U.S. government’s investigation into allegations that Walmart’s subsidiaries abroad (particularly in Mexico, India, Brazil, and China) engaged in extensive bribery of public officials, is about to wrap up! “People familiar with the matter” report that the settlement is nearing finalization, and that Walmart will end up paying penalties that are much smaller than the U.S. government originally sought. All of us FCPA nerds should be on pins and needles awaiting the imminent announcement of the settlement, which should come out any day now…

… or maybe not. Maybe this time the news is for real, and we’re about to see a settlement announcement, in which case there will certainly be something important to write about. But at the moment, what I find more interesting is the succession of stories, spread out over a nearly two-year period, that suggested that a Walmart settlement was just around the corner. To recap:

  • In October 2015, the Wall Street Journal reported that, according to unnamed “people familiar with the probe,” the Walmart matter was about to be wrapped up–and the fine was going to be much smaller than originally predicted, because it turned out (according to the WSJ’s sources) that the FCPA violations were not as serious or widespread as had been previously reported.
  • Almost exactly one year later, in October 2016, Bloomberg reported (on the basis of conversations with “three people familiar with the matter”) that, contrary to the previous WSJ report, although the US government encountered difficulties making out the FCPA violations in Mexico (not so much because of lack of evidence of misconduct, but rather because the most egregious conduct was outside of the statute of limitations), the government had evidence of misconduct elsewhere, and was seeking a penalty of around $600 million. According to that report, Walmart was still resisting, but the report nonetheless indicated that the administration was “working to wrap up an agreement before a new administration takes over in January [2017].”
  • Approximately nine months later, Bloomberg’s latest report states that, “according to people familiar with the matter,” Walmart is preparing to settle the case for $300 million – about half of what the government sought.

Now, though my initial reaction, given this history, is to take reports of imminent settlement with a grain of salt, I hasten to add that none of these reports are inconsistent with each other, or with the claim in the most recent report that a settlement announcement is imminent. Indeed, one could reconstruct roughly the following timeline of events, which I think is probably the best way to understand what’s going on: Continue reading

The Walmart FCPA Investigation Revisited (Again): Some Musings and Speculations on the Most Recent Reports

Earlier this month, there was yet another intriguing story about new developments in the US government’s investigation into possible Foreign Corrupt Practices Act (FCPA) violations by the Walmart’s foreign operations. The Walmart case is probably the most high-profile (and controversial) FCPA case of the last decade, and the reports suggest that it may finally be lurching toward a conclusion, though the recent story raises as many questions than it answers.

Before proceeding to the most recent developments, here’s a quick, and admittedly oversimplified, recap: In 2005, Walmart received a report from a disgruntled former employee that its Mexican subsidiary had engaged in an extensive bribery scheme to pay off government officials to speed the opening of new stores. After internal investigation, however, Walmart’s executives decided in 2006 not to take meaningful action or disclose the apparent FCPA violations to the US government. In 2011, Walmart’s new general counsel initiated a review of Walmart’s anticorruption compliance worldwide; this audit revealed evidence of significant problems in several countries, including Mexico, China, Brazil, and India. Around the same time, Walmart learned that reporters from the New York Times were conducting an extensive investigation into bribery allegations involving Walmart’s Mexico operations. In attempt to get out in front of the story, in December 2011 Walmart disclosed to the DOJ and SEC potential FCPA problems in its Mexican subsidiary, but indicated that the problems were limited to a handful of discrete cases. In April and December 2012, the New York Times published two lengthy articles (here and here) detailing extensive bribery by Walmart’s Mexican subsidiary, orchestrated by the subsidiary’s CEO and general counsel—allegations that went far beyond the isolated incidents Walmart had disclosed the previous year. Since then, the DOJ and SEC investigation into Walmart’s alleged FCPA violations—not only in Mexico, but in other foreign subsidiaries as well—has been ongoing.

There have been quite a few twists and turns in the story. Perhaps the most dramatic was the Wall Street Journal’s surprising report, from almost exactly one year ago. The highlights from that report included the claims (from “people familiar with the probe”) that (1)the investigation was nearly complete (and, by implication, the case would be resolved soon); (2) the US government’s investigation had found “few signs of major misconduct in Mexico”; and (3) although the investigation had uncovered evidence of “widespread but relatively small payments” in India, the Walmart case turned out to be “a much smaller case than investigators first expected” that “wouldn’t be likely to result in any sizeable penalty.”

The first of those three claims has been refuted by the passage of time—it’s more than a year after the WSJ story, and the case has still not been resolved. The latter two claims are flatly contradicted by the more recent report published by Bloomberg (also based on anonymous “people familiar with the matter”). According to the Bloomberg report: Continue reading

Does an FCPA Violation Require a Quid Pro Quo? Further Developments in the JP Morgan “Sons & Daughters” Case

One of the Foreign Corrupt Practices Act cases we’ve been paying relatively more attention to here on GAB is the investigation of JP Morgan’s hiring practices in Asia (mainly China), in connection to allegations that JP Morgan provided lucrative employment opportunities to the children of powerful Chinese officials–both in the government and at state-owned enterprises (SOEs)–in exchange for business. A couple weeks back the Wall Street Journal published a story about the case, indicating that the government and JP Morgan were likely to reach an agreement soon in which the firm would pay around $200 million to settle the allegations. (The WSJ story is behind a paywall, but Thomas Fox has a nice succinct summary of both of the case generally and of the recent developments reported by WSJ.)

I’ll admit that my first reaction, on seeing the WSJ report, was skepticism that we were actually on the verge of seeing a settlement announcement. After all, the last time the WSJ broke a story about an imminent settlement of an FCPA case we’ve been following here on GAB, it was a story about the Walmart investigation last October; that report said that “most of the work had been completed,” and hinted that the announcement of a (smaller-than-expected) settlement was imminent. It’s now nine months later… and still no settlement. Apparently the Walmart case may have gotten more complicated since the WSJ‘s October report, but still, I think there are sometimes good reasons to season these inside scoops with the appropriate grains of salt. But, back to the reports on JP Morgan’s Asian hiring practices.

To me the most interesting feature of the recent report concerns the legal issue that is reportedly the sticking point between the government and JP Morgan. That issue is not the question whether an SOE official is a “foreign official” for FCPA purposes: According to the WSJ report, JP Morgan is not disputing the government’s position that SOE executives, at least in this case, are foreign officials, even though that issue is a major focus of critics who believe the government’s interpretation of the FCPA is too broad. And, the question whether a job for a relative counts as “anything of value”–the question that provoked the extended blog debate between Professor Andrew Spalding and me, as well as a good chunk of the other commentary on the case–also does not seem to be something that JP Morgan is contesting. Rather, at least according to the WSJ report, the big question seems to be whether an offer of a job to an official’s relative, given with the intent to influence that official’s exercise of her duties, is a violation of the FCPA even if there is no quid pro quo–at least if the conduct takes place in a country where preferential hiring for official’s relatives is “standard business practice.”

This seems to be to be a legitimately hard legal question, and one where I’m not yet sure what I think. As our regular readers may know, I’m generally fairly “hawkish” on FCPA enforcement, usually sympathizing with the government’s broad reading. And the text of the FCPA can certainly be read not to require any quid pro quo–indeed, that might be the more natural reading. But in contrast to some of the other accusations of alleged overreach lodged against the US FCPA enforcement agencies, here (if the reports are to be believed) the argument on the other side is fairly strong, both as a matter of law and as a matter of policy. In the end, I think I still come down on the government’s side, both on the legal question and the policy issue. But I’m genuinely conflicted, and would very much like to hear what others think on this one. Continue reading

Is the Walmart Case Not Such a Big Deal After All?

Last week I published a post with some conjectures as to why the DOJ’s investigation into alleged Foreign Corrupt Practices Act violations by Walmart – triggered by New York Times reports, published in 2012, of widespread bribes paid by Walmart’s Mexican subsidiary, Wal-Mex – might be taking a long time to resolve. I noted that there was as yet no evidence of an especially lengthy investigation, compared to the norm in big FCPA cases, but I nevertheless speculated that perhaps the case might take a long time because the seriousness of the misconduct, coupled with Walmart’s failure to disclose (or even to conduct a reasonable internal investigation), meant that the DOJ was going to insist on particularly severe penalties (which Walmart’s lawyers might be resisting). But I may have been completely wrong about that: According to a report in this past Sunday’s Wall Street Journal, the Walmart investigation is likely to be wrapped up soon, and the fine may be much smaller than expected, in part because (at least according to the sources for WSJ report) the bribery violations in Mexico were not as extensive as many (myself included) had thought.

It’s important to emphasize that the WSJ report has not been confirmed by the Justice Department, Walmart, or any other source. It may well turn out to be inaccurate. But let’s suppose for the moment that it’s (mostly) right. Suppose we see a Walmart settlement within the next few months in which the extent of (admitted) violations, and/or the severity of the penalties, are much lower than expected. What to make of this? A few thoughts: Continue reading