Learn from Wal-Mart: Beware bribery law

In late April, The New York Times reported that Wal-Mart’s Mexican subsidiary paid millions of dollars in alleged bribes to Mexican officials to gain approval and other favorable treatment for new stores. Wal-Mart allegedly discovered the payments in 2005, but bottled up its internal investigation.
The payments are now the subject of U.S. Department of Justice and Securities and Exchange Commission investigations into potential violations of the Foreign Corrupt Practices Act – or FCPA – a federal law which outlaws bribes by U.S. companies and others to foreign officials to obtain or retain business. For its part, Wal-Mart announced that it is conducting an internal investigation, that it voluntarily disclosed certain matters to DOJ and the SEC in November. Wal-Mart admits that it may face U.S. and other charges, and that it is a defendant in numerous civil suits based on the alleged payoffs. Wal-Mart says that it “will not tolerate noncompliance with FCPA.”
Some critics of the FCPA say it puts U.S. companies at a disadvantage with their foreign rivals, and that banning bribery in some countries is unrealistic. The U.S. Chamber of Commerce has proposed substantially amending the act. But the U.S. government continues to state that prosecuting corruption under the FCPA and other laws is a top priority. And Congress has seemingly granted bounties to FCPA whistleblowers.
So given the potential criminal and civil penalties for FCPA violations (in one noted case, Siemens and subsidiaries agreed to pay a $450 million criminal fine and to disgorge $350 million in profits; several individuals have received jail sentences for FCPA violations), businesses should be aware of the act.
The FCPA
The FCPA makes it a crime for U.S. companies and citizens, or anyone acting in the U.S., with “corrupt” intent, to pay, offer to pay, or promise to pay anything of value to a “foreign official” for the purpose of obtaining or retaining business. So, for example, a U.S. company depositing $10 million in the personal offshore account of Country X’s oil minister in return for the minister’s grant to the company of drilling rights would be unlawful. But it is not always that simple.
&#8226 Who is a “foreign official”? Foreign officials include not only officers or employees of a foreign government, but also officers and employees of a public international organization (think of the World Bank), foreign political parties and candidates for public office.
&#8226 In many countries, businesses are state-owned. The Justice Department’s view (now being challenged in court) is that all employees of a government-owned business – including, for example, the health care providers working in a state-owned hospital – are “foreign officials.”
&#8226 Payments barred by the FCPA are not limited to multimillion dollar wire transfers to an offshore bank account or the delivery of cash in a briefcase. Sending a foreign official’s family on an all-expenses paid trip to Disneyworld may violate the act.
&#8226 The attempt to get business does not have to succeed.
&#8226 The business sought does not have to be with the foreign government. A payment to a foreign official to have the foreign official influence a private company to award business may violate the act.
&#8226 Payments that do not violate the FCPA may violate other U.S. law, as well as the law of the foreign country.
The FCPA does permit “facilitating payments” for “routine governmental action.” But this is a narrow, difficult-to-establish exception. It is not a broad license to pay off foreign officials. When in doubt, seek legal counsel or assume that the “facilitating payments” exception does not apply. In addition to its anti-bribery provisions, the FCPA requires companies that trade on U.S. exchanges to keep accurate books and records, and to devise and maintain internal accounting controls. So covering up bribes in the company’s books can itself violate the act.
What’s A Company to Do?
If a company discovers that it has committed an FCPA violation, it must stop any illegal conduct. And particularly if other provisions of law do not require a public disclosure, the company must decide whether to make a voluntary disclosure to government officials in the hope of obtaining more favorable treatment. The government has often made nonprosecution or deferred-prosecution agreements with companies who confessed their FCPA sins. Those companies paid criminal fines and suffered other penalties, but they were spared criminal convictions.
Many companies, of course, hope not to get to that point. Internal controls, detection procedures, training employees on FCPA compliance and periodic internal investigations help. So does common sense.
If a foreign official suggests that the company use the official’s brother as its agent, or an agent asks for a cash payment upfront, with the only explanation being “you don’t want to know” or “doing business is expensive,” that might be a good time to walk away. &#8226


Andrew Prescott is a Nixon Peabody LLP partner in the Providence office. Gordon Lang is also a partner with the firm and is based in the Washington, D.C., office.

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