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Wal-Mart Bribery Allegations: What Legal Problems, Penalties Could it Face?

April 25, 2012 at 12:00 AM EST
More than $24 million was involved in allegations of Wal-Mart's Mexico bribery, according to a recent New York Times investigation. Judy Woodruff and Indiana University's Joseph Hoffman discuss Wal-Mart's internal inquiry into whether employees violated federal law and the parameters of the Foreign Corrupt Practices law.
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JEFFREY BROWN: And we turn to the still unfolding story of Wal-Mart and allegations of bribery in Mexico.

Judy Woodruff has more.

JUDY WOODRUFF: With more than 2,000 stores throughout the country, Mexico is an important foreign market for Wal-Mart. But a New York Times investigation has raised troubling questions over Wal-Mart’s dominance there and how it came to be.

Among some of the findings: Former executives for the company orchestrated a campaign of bribery to obtain construction permits and build stores more quickly during the past decade, a paper trail of bribery documenting payments of more than $24 million, and top executives of the company seemed to shut down an internal investigation until recently.

Wal-Mart is now conducting an inquiry into whether employees may have violated the Foreign Corrupt Practices Act. That’s a federal law that makes it a crime for American companies to bribe foreign officials.

Bloomberg News also reports the company is the subject of a criminal probe by the U.S. Justice Department.

We look more closely at the law and potential violations with Joseph Hoffmann. He’s a professor of law at the Indiana University Maurer School of Law.

And we thank you for being with us.

JOSEPH HOFFMANN, Indiana University Maurer School of Law: Thanks for the invitation.

JUDY WOODRUFF: First of all, Professor Hoffmann, tell us what — more of what is in the Foreign Corrupt Practices Act. What does it say?

JOSEPH HOFFMANN: So, the FCPA, Foreign Corrupt Practices Act, was enacted in 1977 in the wake of a number of corporate bribery scandals, including the Lockheed scandal.

And the act has two major provisions, one of which prohibits a variety of corporations and individuals within U.S. jurisdiction from paying bribes to foreign government officials. And the other provision, major provision, requires issuers of U.S. stock, stock issued through the U.S. Securities and Exchange Commission procedures, requires those corporations to maintain transparent accounting records, so that bribes can be identified.

JUDY WOODRUFF: And based on the reporting by The New York Times, a story that came out a couple of days ago, what parts of the law is it that Wal-Mart is allegedly supposed to have violated?

JOSEPH HOFFMANN: Well, of course, we won’t know for sure until the Justice Department completes its investigation and actually decides whether to go forward with an enforcement action.

But The New York Times’ allegations conceivably could go to both parts of the FCPA. In other words, what The New York Times reports are that Wal-Mart de Mexico was paying bribes to obtain permits and other sorts of approvals from Mexican government officials, and in addition that the accounting used by Wal-Mart’s Mexican subsidiary was specifically designed to hide these payments, just the opposite of the kind of transparency that would be required by the FCPA accounting rules.

JUDY WOODRUFF: Now, explain the difference between a payment in order to get business or in order to get a permit or a license, a payment that’s legal and one that’s considered a bribe. How is that defined in the law?

JOSEPH HOFFMANN: Well, basically, any payment made to a foreign government official in an effort to try to get them to do something that is either against the rules of law of that country or an effort to get them to exercise their discretion to allow an American company to expand or to do business or even to maintain business in that foreign country would be classified as a bribe.

Now, the FCPA has a specific exception for what are called facilitating payments. These are generally described as payments that are made to facilitate or to speed up the issuance of a permit that would already be something the company would be entitled to get under law, or, for example, to turn on a utility, like the company wants to get the electric turned on or the water.

These are facilitating payments, and they are not considered to be bribes. But if you read The New York Times story carefully, a number of the allegations go way beyond anything that could reasonably be described as facilitating payments.

For example, payments to get zoning approvals, these are not automatic. They’re not something that the company’s entitled to. They involve exercises of discretion by local government officials, and payment to get those zoning approvals would be a bribe.

JUDY WOODRUFF: So, in other words, there’s a pretty clear distinction in the law between what would be considered within the boundaries of what’s legal and what would be beyond.

JOSEPH HOFFMANN: I wouldn’t describe it as a clear distinction, Judy.

I think, actually, there’s a pretty good case to be made that the distinction can get pretty fuzzy at times, but some of what’s alleged in The New York Times story, if it turns out to be true, will clearly be over that line, as fuzzy as it may be.

JUDY WOODRUFF: Now, what about — in talking to you earlier today, you indicated one potential problem the government could have, the Justice Department could have is the statute of limitations, that there’s a five-year limit. Explain how they could come into play here.

JOSEPH HOFFMANN: Right.

So, The New York Times story doesn’t specifically identify any actions such as bribes paid or cover-ups of — in the accounting sense that took place any later than 2006. And, of course, that’s more than five years ago as of right now. The statute would normally preclude the government from starting an enforcement action for activities that took place more than five years ago.

But there are ways to get around that. And one of those ways is if the Justice Department can allege and prove that there was a conspiracy within Wal-Mart to not only pay the bribes, but also to cover up the bribes that were being paid in Mexico. If there was a conspiracy and if there was any action taken in furtherance of that conspiracy within the past five years — that could be something relatively minor, like an e-mail saying, have you taken care of those books? Have you taken care of those records?

Anything like that, that happened within the past five years would open up the whole thing to a conspiracy — charge that would get around the statute of limitations problem.

JUDY WOODRUFF: And just finally — and, again, acknowledging all this is hypothetical — this is now based on a news report. There is an investigation under way, but it’s not known.

But if it were proven what is alleged in the article, give us a sense of the size of the penalties or punishments.

JOSEPH HOFFMANN: You know, it’s really hard to put a maximum dollar figure on that.

In the past few days, I have seen estimates ranging from the tens of millions up to billions of dollars. The statute and related statutes provide that, as a criminal matter, Wal-Mart could be fined twice the amount of profits that they expected or sought to gain from the payment of the bribes.

That’s a pretty substantial figure. That would clearly — if all of the allegations in the Times story were true, that could clearly run into a very significant sum of money. But, obviously, we have to wait and see what the investigation brings out.

JUDY WOODRUFF: Professor Joseph Hoffmann, Indiana University School of Law, we thank you very much.

JOSEPH HOFFMANN: You’re welcome.