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The Day After, Everyone's Talking About Wal-Mart
Over the weekend, The New York Times broke the story of a large-scale campaign of alleged bribery by the Mexican subsidiary of Wal-Mart Stores, along with what appears to be a company-wide cover-up. By Monday morning, the legal and business media had plenty to say about the report of corruption inside the company that topped the Fortune 500 in 2011.
Perhaps more ominously for Wal-Mart, the company will now face questions about its operations in countries beyond Mexico. Is it possible that similar practices to the ones alleged in the Times article existed elsewhere? Wal-Mart employs nearly 800,000 workers in 5,651 stores in 26 countries outside the U.S., according to the company. Before any resolution with U.S. authorities is possible, the company has to look under every stone for possible corruption, Richard Cassin, an FCPA lawyer, told Reuters. Are there any similar issues in China or other countries?
And then there is the likelihood of criminal charges by the U.S. and/or Mexican governments. The Wall Street Journal Law Blog notes, If the allegations are true, Wal-Mart begins with a weak bargaining position in dealing with the U.S. Department of Justice and the Securities and Exchange Commission. And since the company seems to have seriously bungled its initial internal investigation into the bribes, the Justice Department wont be content to let the company conduct an internal investigation and report to the government every few months, as is the case in many FCPA matters that start when a company comes to the government early to report potential problems.
There are a lot of people asking 'so what?' This is the way many parts of the world work, its 'pay for play.' Im from Chicago, where pay for play has been perfected at the city level. Less so among state officials, although they do keep trying; Rod Blagojevich is the fourth Illinois governor to go to prison, and the sixth to be charged with a crime during their tenure. But just because its the way to get things done, doesnt mean it should be.
And, of course, theres always the bottom line. Certainly, we are too early in the investigative process to fully map out how the bribery scandal will impact Wal-Mart's earnings or what sort of penalties the company might face, so any numbers being tossed around are speculative, at best. But a separate Forbes report ventures to guess that a U.S. government investigation and the diminishment of Wal-Marts position in Mexico could cost the company billions of dollars:
An UBS analysis of previous FCPA violations show a typical investigation slogs on for two to six years with little day-to-day impact on the offending companys operations. Past SEC and Justice Department penalties are usually about 1% to 2% of annual sales. In 2011, this would mean at least a $4.5 billion, or 77 cents per share, penalty for Wal-Mart, the worlds largest retailer and the biggest private employer in Mexico.
Stay tuned to CorpCounsel.com throughout the week, as our reporters and columnists contiunue to dig into the legal and business implications of the Wal-Mart bribery story.