This post highlights FCPA and related information in Wal-Mart’s Global Compliance Program Report on FY 2015; its proxy statement; and its annual report.
The report covers a number of topics including FCPA and related anti-corruption matters.
In its recent annual report, Wal-Mart disclosed spending approximately $220 million over the past three years in global compliance program and organizational enhancements.
This significant investment in FCPA compliance should be relevant as a matter of law in the future if a non-executive employee or agent acts contrary to Wal-Mart’s policies and procedures and in violation of the FCPA. (See my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense“).
Compliance defense detractors say that such a defense will promote “check-a-box compliance” and a “race to the bottom.”
There is nothing “check-a-box” about spending approximately $220 million over the past threeyears on FCPA compliance enhancements nor can one credibly argue that if other companies follow Wal-Mart’s enhancements and approach that this is a “race to the bottom.”
The key policy issue is this.
Wal-Mart has engaged in FCPA compliance enhancements in reaction to its high-profile FCPA scrutiny.
Perhaps if there was a compliance defense more companies would be incentivized to engage in compliance enhancements pro-actively.
A compliance defense is thus not a “race to the bottom” it is a “race to the top” (see here for the prior post) and it is surprising how compliance defense detractors are unable or incapable of grasping this point.
In the recent Global Compliance Program Report, under the heading “People,” the report states in pertinent part:
“Anti-corruption is a particular area of emphasis for our compliance program. During FY15, we continued to develop our internal anti-corruption resources. For example, we supplemented our anti-corruption leadership team by recruiting anti-corruption directors in the eCommerce businesses at Walmart.com.br (Brazil) and Yihaodian.com (China). Working with Walmart’s global anti-corruption team, these new directors conduct due diligence, develop and provide anti-corruption training, and oversee the implementation of anti-corruption policies and procedures.
Also in FY14, Walmart began to appoint teams of compliance monitors in each of our international retail markets. These monitors (known as Continuous Improvement Teams) regularly visit our stores, assess the effectiveness of our compliance controls at store level, train our managers and associates on proper compliance procedures, and assist the operators in correcting any issues identified. During FY15, the Continuous Improvement Team completed over 5,500 assessments at our retail locations, identified any deviations from our policies and processes, and collaborated with our store operators to correct over 90% of those issues by year end.
In FY15 we expanded this concept by beginning to carry out a multi-year plan to establish teams of compliance monitors focused on anti-corruption policies and our related financial controls. As with the existing Continuous Improvement Teams, these monitors are designed to constantly assess and improve our performance. We began the process of appointing these internal anti-corruption monitors in FY14 and the monitors conducted their first assessments in FY15.
In light of the progress in building our internal anti-corruption capabilities, in FY15 we transitioned to our internal staff a number of activities that external consultants had been handling. This increases the capabilities of our internal anti-corruption team, which is critical to the effectiveness and long-term sustainability of our anti-corruption program.”
Under the heading “Policies and Processes,” the report states in pertinent part:
“[I]n FY14 the company designed an enhanced global anti-corruption training and communication program to further define target audiences for anti-corruption messaging and to more effectively teach anti-corruption principles. This program came to life over the past year in several ways, including:
Developing simplified anti-corruption messaging for use in our stores in five key markets;
Providing anti-corruption training to our associates around the world in seven languages;
Delivering communications from business leaders in each international market regarding integrity and anti-corruption;
Enhancing the ways in which we track our anti-corruption training efforts; and
Expanding our anti-corruption training beyond our associates to include key third parties who do business with Walmart. In FY15, we provided anti-corruption training to third-party partners in 10 international markets.”
Under the heading “Systems and Analytics,” the report states in pertinent part:
“With many retail locations and associates throughout the world, we have a wealth of data available to help us anticipate and identify compliance risks. Efficiently collecting and utilizing those data can be a challenge. In FY14, the company launched an ambitious effort to develop and deploy a number of global systems to assist with this task. In FY15, the company spent more than $40 million USD carrying out this effort and made significant progress in installing and utilizing these technologies. This included technology to:
Conduct due diligence research on third parties that may interact with governmental entities on our behalf. The technology, for instance, collects information from the third parties about their businesses and key personnel; it then searches various databases to identify adverse news stories, litigation, government sanctions, and politically exposed persons relating to the third parties and their key personnel.
Centralize the oversight of our license and permit applications and renewals. In FY15, we extended a global license-management system into 11 of our international retail markets. The expanded management system organizes the licensing and permitting requirements in each market, simplifies the process for applying for licenses, and provides a single repository for documentation associated with our licensing obligations. Our associates now have critical licensing information at their fingertips, along with analytics to predict and prepare for our licensing needs.”
In its recent proxy statement, Wal-Mart disclosed as follows.
“The Audit Committee held 15 meetings in fiscal 2015, seven of which related primarily to its ongoing FCPA-related investigation and compliance matters.”
“[E]ach member of the Audit Committee received an additional fee during fiscal 2015. Since 2011, the Audit Committee has been conducting an internal investigation into, among other things, alleged violations of the [FCPA] and other alleged crimes or misconduct in connection with certain foreign subsidiaries, and whether prior allegations of such violations and/or misconduct were appropriately handled by Walmart. The Audit Committee and Walmart have engaged outside counsel from a number of law firms and other advisors who are assisting in the ongoing investigation of these matters. This investigation continues to result in a significant increase in the workload of the Audit Committee members, and during fiscal 2015, the Audit Committee conducted seven additional meetings primarily related to the investigation. Audit Committee members also received frequent updates regarding the investigation via conference calls and other means of communication with outside counsel and other advisors. In light of this continuing significant additional time commitment, in November 2014, the [ Compensation, Nominating and Governance Committee] and Board approved an additional fee of $37,500 payable to each Audit Committee member other than the Audit Committee Chair, and an additional fee of $50,000 payable to the Audit Committee Chair. These additional fees may be received in the form of cash, Shares (with the number of Shares determined based on the closing price of Shares on the NYSE on the payment date), deferred in stock units, or deferred into an interest-credited cash account.”
In its recent annual report, Wal-Mart disclosed as follows.
“The Audit Committee (the “Audit Committee”) of the Board of Directors of the Company, which is composed solely of independent directors, is conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México, S.A.B. de C.V. (“Walmex”), and whether prior allegations of such violations and/or misconduct were appropriately handled by the Company. The Audit Committee and the Company have engaged outside counsel from a number of law firms and other advisors who are assisting in the on-going investigation of these matters.
The Company is also conducting a voluntary global review of its policies, practices and internal controls for FCPA compliance. The Company is engaged in strengthening its global anti-corruption compliance program through appropriate remedial anti-corruption measures. In November 2011, the Company voluntarily disclosed that investigative activity to the U.S. Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”). Since the implementation of the global review and the enhanced anti-corruption compliance program, the Audit Committee and the Company have identified or been made aware of additional allegations regarding potential violations of the FCPA. When such allegations are reported or identified, the Audit Committee and the Company, together with their third party advisors, conduct inquiries and when warranted based on those inquiries, open investigations. Inquiries or investigations regarding allegations of potential FCPA violations have been commenced in a number of foreign markets where the Company operates, including, but not limited to, Brazil, China and India.
The Company has been informed by the DOJ and the SEC that it is also the subject of their respective investigations into possible violations of the FCPA. The Company is cooperating with the investigations by the DOJ and the SEC. A number of federal and local government agencies in Mexico have also initiated investigations of these matters. Walmex is cooperating with the Mexican governmental agencies conducting these investigations. Furthermore, lawsuits relating to the matters under investigation have been filed by several of the Company’s shareholders against it, certain of its current directors, certain of its former directors, certain of its current and former officers and certain of Walmex’s current and former officers.
The Company could be exposed to a variety of negative consequences as a result of the matters noted above. There could be one or more enforcement actions in respect of the matters that are the subject of some or all of the on-going government investigations, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders, debarment or other relief, criminal convictions and/or penalties. The shareholder lawsuits may result in judgments against the Company and its current and former directors and officers named in those proceedings. The Company cannot predict at this time the outcome or impact of the government investigations, the shareholder lawsuits, or its own internal investigations and review. In addition, the Company has incurred and expects to continue to incur costs in responding to requests for information or subpoenas seeking documents, testimony and other information in connection with the government investigations, in defending the shareholder lawsuits, and in conducting the review and investigations. These costs will be expensed as incurred. For the fiscal years ended January 31, 2015, 2014 and 2013, the Company incurred the following third-party expenses in connection with the FCPA investigation and related matters:
These matters may require the involvement of certain members of the Company’s senior management that could impinge on the time they have available to devote to other matters relating to the business. The Company expects that there will be on-going media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the Company’s role as a corporate citizen.
The Company’s process of assessing and responding to the governmental investigations and the shareholder lawsuits continues. While the Company believes that it is probable that it will incur a loss from these matters, given the on-going nature and complexity of the review, inquiries and investigations, the Company cannot reasonably estimate any loss or range of loss that may arise from these matters. Although the Company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the Company can provide no assurance that these matters will not be material to its business in the future.”