Harvard Law School Executive Education
Milbank Associates Program
The Foreign Corrupt Practices Act: An Introduction
Professor Matthew C. Stephenson
Harvard Law School
Note to participants:
This 90 minute session will introduce the basics of the U.S. Foreign Corrupt
Practices Act (FCPA), and some of the issues that lawyers may confront when
representing clients whose business abroad may expose them to potential FCPA
liability. In particular, we will examine three key tasks with which lawyers may
assist their clients when dealing with FCPA issues:
(1) Prevention;
(2) Internal Investigation & Remediation;
(3) External Advocacy.
We will explore these issues using a case study of Walmart’s operations in Mexico.
The case study is divided into three parts, each of which is followed by discussion
questions. Please pause to consider the questions before proceeding to the next
part.
The session will be discussion-oriented, with a minimum of lecturing. So, please
think a bit about the discussion questions beforehand and come prepared to
participate in the conversation.
I look forward to meeting you.
1
FCPA Case Study: Walmart Goes to Mexico (Part A)
I.
The Rise of Walmart
Sam Walton was born in Kingfisher, Oklahoma in March 1918, and graduated
from the University of Missouri with a business degree in 1940.1 In 1945, after two
years working at the national retailer J.C. Penney, and three years of stateside
service in the U.S. Army, Walton purchased a Ben Franklin variety store in
Newport, Arkansas, with a $20,000 loan from his father-in-law.2 Within four years,
Walton’s innovative business strategies — which included direct negotiations with
manufacturers and regular monitoring of his competitors — transformed what had
been a money-losing store into the most profitable Ben Franklin store in Arkansas.3
After losing the lease on his Newport store in 1949, Walton opened a new Ben
Franklin franchise in Bentonville, Arkansas in 1951. 4 Two years later, Walton
added a second store in Fayetteville. 5 Within ten years, Walton expanded his
operation to become the nation’s largest Ben Franklin franchise owner, with sixteen
stores across three states.6
Recognizing that there was an unexploited market opportunity for discount
stores servicing small and rural communities, Walton partnered with his younger
brother to open their first Wal-Mart Discount City in Rogers, Arkansas in July
1962. 7 The brothers’ retail empire expanded rapidly, with twenty-four stores by
1967.8 Buoyed by this success, the Waltons incorporated Walmart in 1969 as WalMart Stores, Inc., and took the company public the following year.9 By that time,
the company already had 38 stores and annual sales of $44.2 million. 10 The
company’s growth over the next two decades was astronomical: by 1972 — the first
year Walmart was listed on the New York Stock Exchange — the company already
had 51 stores across five states;11 by 1980, the company had 276 stores all across
the United States, and had become the fastest company ever to reach $1 billion in
annual sales;12 and by 1990, the company was America’s largest and most profitable
retailer, with 1,402 stores and over $1 billion in after-tax profits. 13
By the early 1990s, Walmart had reached a turning point. Despite its enormous
growth and success over its first three decades, Walmart remained, in 1990, a
purely domestic operation. 14 But big change was afoot in Walmart’s Bentonville
headquarters. Concerned about saturated markets at home and potential
stagnation, Walmart’s senior executives set their eyes, and their ambitions, beyond
America’s borders. And Walmart’s leaders had a target in mind for the first move in
their campaign of international expansion: Mexico. But the Mexican business
environment presented some different challenges from those Walmart had
encountered during its meteoric rise in America.
II.
The Mexican Business Environment
2
Mexico achieved independence from Spain in 1821. 15 The country’s turbulent
first century was marked by factionalism, political repression, war, and, ultimately,
the bloody nineteen-year Mexican Revolution, which ended in 1929 when Plutarco
Elías Calles, leader of the victorious constitutional army, became Mexico’s first postrevolution President.16 Calles and his successor after 1934, Lázaro Cárdenas, laid
the groundwork for a “distinct Mexican path” to economic development, which
emphasized import-substitution and a heavy state role in the economy.17 Over the
roughly four decades from the early 1940s through the early 1980s, the Mexican
economy experienced sustained growth. 18 During this time, the government
nationalized a number of industries, most importantly petroleum, and expanded its
role in communications, finance, and various other sectors,19 while also adopting
protectionist trade policies that gave Mexican firms a captive domestic market.20
Mexico’s economic trajectory was abruptly redirected in August 1982, when —
due to a combination of fiscal irresponsibility and a drop in world oil prices — the
country announced that it would be unable to meet its foreign debt obligations.21 To
secure international assistance in responding to this debt crisis, Mexico was forced
to adopt wide-ranging reforms aimed at privatizing and diversifying its economy, as
well as attracting foreign direct investment.22 By 1990, the Mexican economy was
largely back on track. Indeed, the economic picture looked bright: inflation had
fallen, growth had returned, 23 and the United States, Mexico, and Canada had
begun negotiating the North American Free Trade Agreement (NAFTA),24 which
would create one of the largest free trade areas in the world.25 As Mexico liberalized
its economy, a huge influx of foreign capital seemed just around the bend.
However, although the business environment for foreign investors in Mexico had
improved considerably by the early 1990s, doing business in Mexico still posed
significant challenges. One of the chief hurdles was the country’s byzantine
bureaucracy. 26 As a civil law country, Mexico relies on extensive statutory and
regulatory codes to govern all aspects of business operations. 27 Oftentimes these
codes establish a number of overlapping administrative bodies, each with its
separate procedures and requirements.28 To conduct even the most basic business
tasks, a person or company often must file multiple applications and registrations
with various agencies, and “[u]ntil they have received the proper certificates,
licenses, permits, and other authorizing documents, businesspeople will generally
be unable to undertake such activities as opening a business bank account or
entering into a lease.”29 A company that wants to build a store or warehouse will
face an even more daunting set of bureaucratic hurdles, requiring applications for
construction licenses, environmental permits, soil studies, urban impact
assessments, traffic permits, and zoning certificates.30 If the proposed building site
is potentially archaeologically relevant, construction might be further complicated
by regulations calling for formal archaeological surveys and excavation.31 And the
machinery of the Mexican bureaucracy is notoriously slow, with permits regularly
3
taking months to wind their way through each stage in the process. (For example,
getting a simple building permit in Mexico takes an average of 81 days, almost two
months longer than it takes in the United States.32) And should any commercial
disputes regarding real estate transactions arise, the resulting litigation could take
several years to wind its way through the Mexican court system.33
The challenges posed by Mexico’s byzantine bureaucracy are not limited to
inefficiency and delay: a system in which perennially underpaid functionaries wield
tremendous discretionary authority under complex regulatory webs is a breeding
ground for corruption.34 For Mexican citizens, “the ubiquity of petty and arbitrary
regulation (known as the pequeño poder or little power) and the lack of
accountability of officials [makes] it virtually impossible to operate without
encountering requests for bribes.”35 Indeed, the petty bribe, known as la mordida or
“the bite” is regular a fact of life for anyone in Mexico who has to deal with the
official bureaucracy.36 Studies report that builders in Mexico often have to add 10%
to their budgets in order to provide funds with which to elicit approvals from
various municipal officials.37 More generally, 44% of companies report paying bribes
to Mexican public officials, most frequently at the municipal level, at a cost of
nearly 5% of their annual revenues.38 Of the 44% who paid bribes, 43% reported
doing so to circumvent slow and confusing procedures, while 32% attributed the
bribes to efforts to obtain licenses or permits and 21% to the desire to avoid abuses
of power by various governmental authorities.39 When a company failed to pay a
bribe, the consequences were sometimes severe: slower bureaucratic processes
(47%), fines (27%), loss of contracts (21%), and loss of police protection (7%).40
In order to address the problems inherent in navigating Mexico’s bloated and
graft-ridden bureaucracy, companies increasingly employ local attorneys familiar
with local rules and regulations. 41 These legal middlemen, known as gestores,
sometimes perform basic functions like holding a place in Mexico’s equivalent of the
DMV line, but gestores often serve as quasi-lobbyists who help the wheels of
bureaucracy turn more quickly.42 Importantly, while many gestores are legitimate
businessmen, they have played a starring role in several of Mexico’s corruption
scandals, often “operat[ing] in the shadows” and greasing the wheels of agencies,
departments, and offices with payoffs.43
III.
The Legal Risks of Foreign Corruption
The corruption that pervades the Mexican bureaucracy is of concern to
companies considering expansion into Mexico not only because of its direct costs or
ethical implications, but also because of the potential for legal liability under a U.S.
law called the Foreign Corrupt Practices Act (FCPA). Originally enacted in 1977
(and amended twice since then, most recently in 1998), the FCPA prohibits any firm
that issues securities on a U.S. exchange, or any officer, director, employee, or agent
of such issuer, from “mak[ing] use of the mails or any means or instrumentality of
4
interstate commerce corruptly in furtherance of an offer, payment, promise to pay,
or authorization of the payment of any money, or offer, gift, promise to give, or
authorization of the giving of anything of value” either directly to any foreign
official (or political party or candidate), or to “any person, while knowing that all or
a portion of such money or thing of value will be offered, given, or promised, directly
or indirectly, to any foreign official” for purposes of “(i) influencing any act or
decision of such foreign official . . . in his . . . official capacity, (ii) inducing such
foreign official . . . to do or omit to do any act in violation of the lawful duty of such
foreign official . . . , or (iii) securing any improper advantage,” in order “to assist
such issuer in obtaining or retaining business for or with, or directing business to,
any person.” 15 U.S.C. §78dd-1(a) (2012). (Parallel provisions of the act extend
essentially the same prohibition not only to issuers, but also to “domestic concerns”
that are not issuers, id. § 78dd-2(a), and to any person, even if not an issuer or
domestic concern, that commits a prohibited act while within the territory of the
United States, id. § 78dd-3(a).) FCPA enforcement authority is shared between the
Department of Justice (DOJ) and Securities & Exchange Commission (SEC), with
DOJ responsible for criminal enforcement, as well as civil enforcement against nonissuers, and the SEC responsible for civil enforcement against issuers.44
This anti-bribery prohibition seems fairly straightforward, but it contains a few
potential ambiguities. First, it prohibits payments to any “foreign official,” which
the Act defines as an “officer or employee of a foreign government or any
department, agency, or instrumentality thereof.” Id. § 78dd-1(f)(1)(A). The DOJ
interprets “instrumentality” broadly to include state-owned or state-controlled
entities,45 though some have argued that the DOJ’s interpretation is too sweeping,
and that the FCPA should not be interpreted to cover entities that do not perform a
government function (even if they have substantial state ownership). Second, the
FCPA prohibits offering or giving “anything of value,” id. § 78dd-1(a), a term that
includes not only cash or lavish entertainment, but may also include, for example,
donations to the foreign official’s favorite charity.46 Third, the FCPA’s anti-bribery
provision only prohibits payments to foreign officials that are made in order to
assist the briber “in obtaining or retaining business.” Id. § 78dd-1(a)(1)(B). The
DOJ, and some courts, interpret this “business purpose” prong broadly as applying
to payments made “to secure a wide variety of unfair business advantages.”47 This
broad interpretation would presumably bring within the ambit of the FCPA bribes
made, for example, to obtain favorable tax treatment (because lower taxes would
lead to more sales), 48 though critics have argued that the DOJ’s position is too
broad, and some courts have suggested that not all payments intended to secure
some sort of business advantage meet the FCPA’s “obtain or retain business”
element.49
In addition, there are questions about the mental state required for a civil or
criminal FCPA violation. On this issue, the FCPA includes two separate mental
state requirements for different portions of the anti-bribery provision. First, a
5
payment to a foreign official only violates the FCPA if the payment is made
“corruptly.” Id. § 78dd-1(a). Though the FCPA does not define “corruptly,” the
legislative history indicates that the payment must be intended to induce the
foreign official to misuse his official position. 50 Second, a defendant that made
payments to third parties while “knowing” that those payments would be used to
bribe foreign officials has violated the FCPA, id. § 78dd-1(a)(3); without the
requisite knowledge, payments to third parties would not give rise to FCPA liability
even if those payments were then channeled to government officials. According to
the Act, “[a] person’s state of mind is ‘knowing’ with respect to conduct [or] a
circumstance” if that person is either aware of the conduct or circumstance, or has a
firm belief that such conduct or circumstance is highly likely. Id. § 78dd-1(f)(2)(A).
The Act further states that the requisite knowledge “is established if a person is
aware of a high probability of the existence of such circumstance, unless the person
actually believes that such circumstance does not exist.” Id. § 78dd-1(f)(2)(B).
The FCPA contains one exception and two affirmative defenses to the above
prohibition on foreign bribery. The exception is for “routine governmental action”:
the anti-bribery provision does not apply “to any facilitating or expediting payment
to a foreign official . . . the purpose of which is to expedite or to secure the
performance of a routine governmental action,” id. § 78dd-1(b), where “routine
governmental action” is defined in the Act as “an action which is ordinarily and
commonly performed by a foreign official in (i) obtaining permits, licenses, or other
official documents to qualify a person to do business in a foreign country; (ii)
processing governmental papers, such as visas and work orders; (iii) providing
police protection, mail pick-up and delivery, or scheduling inspections associated
with contract performance or inspections related to transit of goods across country;
(iv) providing phone service, power and water supply, loading and unloading cargo,
or protecting perishable products or commodities from deterioration; or (v) actions of
a similar nature,” id. § 78dd-1(f)(3)(A). The Act further clarifies that “[t]he term
‘routine governmental action’ does not include any decision by a foreign official
whether, or on what terms, to award new business to or to continue business with a
particular party, or any action taken by a foreign official involved in the decisionmaking process to encourage a decision to award new business to or continue
business with a particular party.” Id. § 78dd-1(f)(3)(B) (emphasis added).
The first affirmative defense, which is rarely significant in practice, is available
if the issuer can show that the payment or offer was “lawful under the written laws
and regulations of the foreign official’s . . . country.” Id. § 78dd-1(c)(1). The second
affirmative defense is available to a defendant that can show that “the payment,
gift, offer, or promise of anything of value that was made, was a reasonable and
bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf
of a foreign official . . . and was directly related to (A) the promotion, demonstration,
or explanation of products or services; or (B) the execution or performance of a
contract with a foreign government or agency thereof.” Id. § 78dd-1(c)(2).
6
In addition to the anti-bribery prohibition, the FCPA contains two other
important provisions, which apply only to issuers. First, issuers are required to
“make and keep books, records, and accounts, which, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
issuer[.]” Id. § 78m(b)(2)(A). Second, issuers must “devise and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary (I) to permit preparation
of financial statements in conformity with generally accepted accounting principles
or any other criteria applicable to such statements, and (II) to maintain
accountability for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.” Id. § 78m(b)(2)(B). That
requirement, however, is qualified when an issuer holds less than 50% of the voting
power in a firm; in that case, the issuer is required only to “proceed in good faith to
use its influence, to the extent reasonable under the issuer's circumstances, to cause
such . . . firm to devise and maintain a system of internal accounting controls
consistent with” the above statutory requirement. Id. § 78m(b)(6). These “books and
record” and “internal controls” provisions are enforced civilly by the SEC, and
criminally by the DOJ.
One very important fact about FCPA enforcement is that, at least in the case of
corporate defendants, very few cases are actually litigated. (In fact, only two
companies have ever gone to trial against the Department of Justice in the 37 years
of the FCPA.51) As a result, there is very little case law authoritatively interpreting
the statute. Virtually all corporate FCPA enforcement actions are settled with the
DOJ through plea agreements (negotiated prior to charging), or through devices
called “deferred prosecution agreements” (DPAs) or “non-prosecution agreements”
(NPAs). In these settlements, negotiated between the DOJ and the company, the
company usually admits to some form of wrongdoing and pays fines or penalties,
and sometimes agrees to retain a third-party “monitor” to oversee the corporation’s
compliance program for some period of years. In return, the government usually
agrees either not to file charges (in the case of an NPA) or, in the case of a DPA, to
file charges but agree to dismiss them pending fulfillment of the terms of the
agreement. In the case of a guilty plea, the government will generally agree to
recommend a particular sentence to the court i . Avoiding a formal criminal
indictment is valuable to corporate defendants, as even an indictment could be very
damaging to the firm, leading to a significant drop in share value. Furthermore,
i SEC FCPA enforcement actions, which are often coordinated with DOJ, typically end with
either an administrative cease-and-desist order or the filing of a settled civil complaint.
Traditionally, the SEC did not require issuers to admit or deny the allegations contained in
the cease-and-desist orders or civil complaints.
7
litigating an FCPA case would be lengthy and costly for the firm—and carries with
it the risk of astronomical penalties if the firm is unsuccessful. (Of course, on the
other side, the government is also eager to settle these cases, as its budget and staff
are limited.)
When negotiating settlements with firms accused of FCPA violations, the DOJ
and SEC have declared they will take a number of factors into account when
determining an appropriate resolution to the case. These factors include:
 The seriousness of the alleged violations;
 The pervasiveness of the wrongdoing within the corporation, including the
complicity in or toleration of the misconduct by corporate management;
 The corporation’s history of similar misconduct;
 The corporation’s voluntary disclosure of wrongdoing and its cooperation in
the government’s investigation; and
 The effectiveness of the corporation’s pre-existing compliance program, as
well as the remedial actions taken after the violations were discovered.52
With respect to that last factor, the government has emphasized its position that
“a company’s failure to prevent every single violation does not necessarily mean
that a particular company’s compliance program was not generally effective,” and
that the government does not mean to “hold companies to a standard of
perfection.” 53 Rather, the DOJ and SEC have declared, “[a]n assessment of a
company’s compliance program, including its design and good faith implementation
and enforcement, is an important part of the government’s assessment of whether a
violation occurred, and if so, what action should be taken. In appropriate
circumstances, DOJ and SEC may decline to pursue charges against a company
based on the company’s effective compliance program . . . even when that program
did not prevent the particular underlying FCPA violation that gave rise to the
investigation.” 54 The government has eschewed any “formulaic requirements”
regarding compliance programs in favor of a “common-sense and pragmatic
approach” that looks to a number of factors, including:55
 Tone from the top: commitment from senior management and a clearly
articulated policy against corruption;
 A clear, concise, and accessible code of conduct;
 Effective policies and procedures for internal compliance, including proper
internal controls, risk assessment, auditing practices, reporting systems,
training, and disciplinary practices;
 Adequate resources devoted to compliance; and
 Due diligence and appropriate monitoring for third party agents.56
For these reasons, any company considering expanding into any foreign
jurisdiction—particularly one, like Mexico, with a reputation for corruption
problems—would need to be aware of the risks of FCPA liability. And indeed, even
by 1990 (well before the substantial increase in FCPA enforcement that started
8
around 2000 and continues to this day), bribery by U.S. firms in Mexico had
resulted in substantial fines for FCPA violations: In 1982 and 1983, DOJ brought
charges against several companies and individuals for bribing officials at Pemex,
Mexico’s state-owned petroleum monopoly. 57 According to DOJ, five companies
conspired to pay certain Pemex officials a percentage-based kickback on every
purchase order that Pemex placed for the defendants’ equipment. The companies
attempted to hide their conduct through the use of a third-party Mexican agent to
funnel the bribe payments and various misleading accounting procedures, including
describing the bribes as “commissions” and submitting false invoices. As a result of
the scheme, the conspirators received purchase orders for various types of
equipment in excess of $225 million, and paid out bribes totaling nearly $10 million.
IV.
Walmart Expands Into Mexico
In 1991, despite the legal and business risks associated with international
expansion, Walmart made its first move into the Mexican retail market. In a
pattern the company would repeat time and again throughout the world, Walmart’s
first foray into the new market took the form of a joint venture with an existing
retail chain, in this case Grupo Cifra S.A. 58 Two years later, in October 1993,
Walmart opened its first namesake store in the country, choosing the working-class
neighborhood of Ixtapalapa in Mexico City.59 This store — which, at 244,000 square
feet, was the largest Walmart in the world — was an immediate success, attracting
more than 35,000 Mexican shoppers daily.60 Indeed, the success of this store became
a powerful symbol of the benefits of free trade with Mexico during the debates over
NAFTA, which Congress ratified barely a month after the store opened.61
NAFTA accelerated Walmart’s Mexican expansion, and in 1997, Walmart’s
confidence in its Mexican operations manifested itself in the purchase of a majority
position in Cifra. 62 Within Walmart’s stateside ranks, tours of duty in Mexico
became an interesting advancement option.63 Pleasantly surprised that Walmart’s
culture had meshed so well with “Latin passion,” as one Fortune article remarked,64
Walmart completed the “Walmartization” of its Mexican brand in 2000 by renaming
its Mexican venture Walmart de México (Walmex). 65 Ultimately, in light of its
successful expansion into Mexico (and also Canada), Walmart began to replicate its
expansion program in the United Kingdom, Germany, Japan, and Brazil.66
In 2002, Eduardo Castro-Wright, who had been recruited from Honeywell,
became the CEO of Walmex.67 Right away, Castro-Wright set aggressive growth
goals for Walmex, calling for opening record numbers of stores in record times. For
Walmex’s new CEO, the goal was market dominance, and the key was simple:
“build hundreds of stores so fast that competitors would not have time to react.”68 In
pursuing this aggressive expansion, Walmex, like many other firms doing business
in Mexico, hired gestores to help navigate the Mexican bureaucracy and obtain the
necessary permits, licenses, and zoning decisions. In at least some cases, the
9
selection of and liaison with these gestores was delegated to legal personnel in
Walmex’s real estate division. For example, Walmex real estate lawyer Sergio
Cicero Zapata was authorized to hire two of his former law school classmates who
had small law practices in Mexico City, Pablo Algeria Con Alonso and Jose Manuel
Aguirre Juarez, to help the company overcome bureaucratic obstacles.
Under Castro-Wright’s leadership, Walmex’s growth exploded, with the company
meeting its seemingly unrealistic growth goals between 2002 and 2005. This success
made Walmex’s hard-charging CEO a rising star. But Castro-Wright’s tenure was
not blemish-free. In fact, in 2003, a confidential investigation by Kroll, Inc.,
commissioned by Walmart, discovered that Walmex “had systematically increased
its sales by helping favored high-volume customers evade sales taxes.”69 According
to Kroll’s final report, “[Walmex] executives had failed to enforce their own anticorruption polices, ignored internal audits that raised red flags and even
disregarded local press accounts” accusing Walmex of tax fraud.70 (Walmex would
later pay $34.3 million to settle the resulting tax liability.) Following the tax
investigation, Walmart headquarters asked Kroll to examine Walmex’s internal
audit and antifraud units. That report was not flattering; it denounced the units as
“ineffective” and noted that many employees accused of wrongdoing had not even
been questioned. In fact, several received promotions after suspicions of fraudulent
conduct had emerged.
In 2004, at the urging of the new General Counsel of Walmart International,
Walmart strengthened its anti-corruption policy by issuing new guidelines that
prohibited employees from offering anything of value to foreign officials on behalf of
Walmart. The guidelines further required employees and third-party agents to
report the first sign of corruption, and to “[n]ever cover up or ignore an ethics
problem.”71 Yet despite this new anticorruption policy, questions continued to arise
about Walmex’s operations. For example, in March 2004, executives at Walmex
received an internal audit that documented how Walmex’s “two primary gestores
had been paid millions to make ‘facilitating payments’ for new store permits all over
Mexico.” 72 While the report did not examine how the money had been used to
“facilitate” the permits, it demonstrated that these gestor payments had “ris[en]
rapidly, roughly in line with [Walmex’s] accelerating growth.” 73 The draft audit
report recommended notifying Walmart headquarters in Bentonville of the issue.
However, Walmex’s chief auditor overrode the decision and deleted the
recommendation. Castro-Wright responded to the report by instructing the relevant
Walmex personnel to diversify the gestores that were being used to assist with
permitting and licensing for new stores. Shortly thereafter, the author of the draft
audit report was let go by Walmex.
Additionally, in the fall of 2004, Walmex sparked a public backlash in Mexico as
it moved forward with plans to build a new store near temple ruins in the town of
San Juan Teotihuacán.74 For many, the approval of Walmex’s plan to build a store
10
so close to a protected historical site, and the lack of proper archaeological
safeguards in Walmex’s construction efforts, suggested that corruption had played a
role in the approval process.
It is not clear whether news of the 2004 audit report or construction controversy
ever reached Walmart headquarters in Bentonville. Either way, the company never
took any actions to investigate or address either issue, and these incidents did not
cast much of a shadow over Castro-Wright’s soaring reputation at Walmart. Indeed,
in recognition of his success at Walmex, Castro-Wright was promoted to a senior
position at Walmart in the United States in early 2005, as head of all of Walmart’s
U.S. stores. For many analysts, this promotion signaled that Castro-Wright was
being groomed to take over as CEO of Walmart. After all, Castro-Wright had
become a legend in Bentonville; in just three years, he had transformed Walmex
into a superpower. Indeed, Walmart’s decision to go abroad in 1991—spearheaded
by its operations in Mexico—was paying huge dividends for the company: while
Walmart’s domestic sales slumped, its international operations now generated 26%
of the company’s business,75 and approximately one out of every five Walmart stores
was located in Mexico.76
Discussion Questions:
1. What are the most serious FCPA compliance risks for Walmart as it expands
into Mexico? How would you advise the company to go about assessing the
risks, both in general and with respect to particular aspects of it expansion
program, such as the initial use of a joint venture partnership, and the use of
gestores to facilitate the permitting process?
2. How would you advise Walmart to structure its compliance program to
address the widespread corruption problem in Mexico? What, if anything,
should the company do differently, either with respect to its compliance policy
or with respect to its Mexican expansion plans more generally?
3. Suppose that Walmart got hold of the 2004 draft audit report indicating that
two gestores hired by Walmex (Walmart’s Mexican subsidiary) had made
thousands of “facilitating payments” to Mexican bureaucrats for new store
permits. How would you advise Walmart to respond to this information?
11
FCPA Case Study: Walmart Goes to Mexico (Part B)
I.
The Tip-Off and the Internal Investigation
In September 2005, Maritza Munich, the General Counsel of Walmart
International, received an “alarming email” from Sergio Cicero Zapata, a lawyer
who had spent nearly ten years in Walmex’s real estate department.77 According to
Cicero — who had parted ways with Walmex in September 2004 after being passed
over for General Counsel of the Mexican subsidiary — Walmex had for years
orchestrated a systematic campaign of bribery in order to establish market
dominance in Mexico. This scheme allegedly reached the upper echelons of Walmex,
implicating “its board chairman, its general counsel, its chief auditor and its top
real estate executive.” 78 Perhaps most importantly, the scheme was directed by
Walmex’s CEO. Providing names, dates, and amounts, Cicero claimed that he had
helped funnel millions in bribes to officials all over Mexico at the direction of
Walmex officials, all in order to secure permits and licenses as quickly as possible.
Munich moved quickly to investigate these allegations. First, “she hired Juan
Francisco Torres-Landa, a prominent Harvard-trained lawyer in Mexico City, to
debrief Mr. Cicero.”79 Over the next few weeks, Torres-Landa interviewed Cicero on
three separate occasions in Mexico, with Munich flying in to attend the third
meeting. During these sessions, Cicero expounded at length upon the systematic
bribery campaign carried out by Walmex at the direction of its former CEO,
Eduardo Castro-Wright, in order to meet his aggressive growth goals. According to
Cicero, “Castro-Wright had encouraged the payments for a specific strategic
purpose. The idea, he said, was to build hundreds of new stores so fast that
competitors would not have time to react. Bribes, he explained, accelerated growth.
They got zoning maps changed. They made environmental objections vanish.
Permits that typically took months to process magically materialized in days. ‘What
we were buying was time, he said.’”80
According to Cicero, the bribe scheme was run through gestores, two of whom,
Pablo Algeria Con Alonso and Jose Manuel Aguirre Juarez, Cicero himself had
hired. Together, the three of them planned out whom to bribe in order to obtain
permits, licenses, and favorable administrative actions for various Walmex
construction projects. After drawing out a strategy, Walmex’s written policies
permitted Cicero to entrust the gestores with up to $280,000 to expedite a single
permit. In exchange for a 6% cut, the gestores would “deliver envelopes of cash to . . .
mayors and city council members, obscure urban planners, low-level bureaucrats
who issued permits — anyone with the power to thwart Wal-Mart’s growth.”81 To
simultaneously permit discreet monitoring of the bribes while burying them in
Walmex’s accounting system, the team developed a system of secret codes known to
only a handful of Walmex executives. The gestores would submit invoices to Walmex
12
that contained short, ambiguous descriptions, while coded text on the invoice
conveyed the purpose of the specific payoffs. At the end of each month, a detailed
accounting of the “facilitating payments” was made available to Walmex’s leaders
before the payments were scrubbed in the official accounting records as legal fees.
Armed with three interviews’ worth of notes on Cicero’s allegations, Munich
pushed for a follow-on investigation, circulating a lengthy memo to members of
Walmart’s senior management. Walmart then hired the law firm Willkie Farr &
Gallagher to conduct an investigation. But when Willkie recommended that
Walmart carry out a “spare-no-expense investigation” — a four-month plan that
“called for tracing all payments to anyone who had helped [Walmex] obtain permits
for the previous five years” and interviewing any person who might have relevant
information, including members of Walmex’s board — the company balked. 82
Instead, Walmart’s leadership decided that Willkie would supervise a more limited
investigation performed by in-house staff. Under the revised plan, Walmart’s
Corporate Investigations Unit (CIU) would conduct a two-week preliminary inquiry,
even though CIU — an office traditionally “assigned to chasing shoplifting rings
and corrupt vendors” — had only four special investigators who concentrated on
complex corporate fraud. The investigators were also ordered to review only a few
years, rather than the five suggested by Willkie, and to engage in interviews only
when it was “absolutely essential to establishing the ‘bona fides’ of Mr. Cicero.”83
In November 2005, CIU dispatched Ronald Halter, a Spanish-speaking veteran
of the FBI, and Bob Ainley, a senior auditor, to Walmex’s headquarters in Mexico
City. In reviewing Walmex’s electronic records, the CIU team quickly found
evidence that not only corroborated Cicero’s account, but indicated that the
corruption scheme was potentially much broader than he had known: these records
showed that between 2003 and 2005, Walmex had disbursed more than $8 million
to Alonso and Juarez and “was making hefty ‘contributions’ and ‘donations’ directly
to governments all over Mexico — nearly $16 million in all since 2003.” 84 In
addition, the CIU auditors found copies of the internal Walmex audit report from
2004, with indications that the chief auditor had removed the recommendation that
Walmex contact Bentonville. An interview with the auditor who was fired in 2004
after preparing the internal Walmex audit report also brought to light allegations
that the Walmex General Counsel, Jose Luis Rodríguezmacedo Rivera, who was
still in place, had worked to keep Bentonville out of the loop and had removed
various bribery-related allegations from the final report, including findings that
Walmart had given gift cards to officials in towns where stores were under
construction.
After returning to Bentonville in December 2005, Halter and Ainley drafted
extensive confidential reports for Walmart’s top executives. After concluding that
there was reasonable suspicion of criminal violations and that “there was simply ‘no
defendable explanation’ for the millions of dollars in gestor payments,” Halter
13
offered an “action plan” for a full-scale follow-on investigation.85 Halter wanted to
reconstruct Cicero’s computer history, hire private investigators to interview and
surveil the gestores, and conduct adversarial interviews with Walmex executives.
II.
Decision Time in Bentonville
In early 2006, with CIU’s investigative reports in hand, Walmart’s executive
leadership found itself at a crossroads. Simply put, the company needed to decide
whether to approve a full-scale investigation into a bribery scheme allegedly
perpetrated by Walmart’s most successful foreign subsidiary, and allegedly
masterminded by the man being groomed to take over as Walmart’s CEO.86 On the
one hand, CIU’s report was damning. On the other hand, many within the company
thought that CIU’s approach to alleged compliance problems was overly zealous and
displayed an ignorance of the demands and moral ambiguities of international
business. This resentful attitude toward CIU was reinforced by Walmex officials
who repeatedly contacted Bentonville to accuse Cicero of fraud, to criticize the
investigators’ tactics, and to urge an end to the investigation.
At a meeting called by Walmart CEO H. Lee Scott, Jr. on February 3, 2006, the
Walmart leadership’s discontent with CIU boiled over, with Walmart’s top
executives criticizing CIU’s overly aggressive “law enforcement approach.”87 After
rejecting the investigation plan proposed by Halter in December, the leadership
informed the Vice President for Global Security, Aviation & Travel, Kenneth H.
Senser, that he had 24 hours to develop a “‘modified protocol’ for internal
investigations.” 88 That new plan proved to be highly bureaucratic, requiring
frequent “case reviews,” and mandating cost studies to determine whether full-scale
investigations were justified. The lesson from the top was clear: CIU’s top priority
was to put an end to its “adversarial interactions” and win back the trust of
Walmart executives. 89 With respect to the Walmex investigation in particular,
Walmart headquarters ordered CIU to transfer control of the investigation to the
Walmex General Counsel, even though Cicero had implicated him in the bribery
scheme. The decision to pass the investigation back to Walmex contravened even
the new “modified protocol” — under which CIU was to investigate all “significant”
cases — and was vociferously opposed by Munich, who resigned from the company
in protest.90 Within a few days, Walmart’s General Counsel packed up CIU’s files
and shipped them to Mexico City.
Perhaps not surprisingly, Walmex’s General Counsel wrapped up the
investigation in a few weeks. In a six-page report, Rodríguezmacedo noted that
Walmex officials had authorized millions in payments to the gestores, but failed to
explain the nature of the payments. Instead, his report focused on attacking
Cicero’s credibility and accusing him of pocketing the funds. Though he called for an
end to the use of gestores and “a renewed commitment to Walmart’s anticorruption
14
policy,” he recommended no disciplinary action against any Walmex employees. In
May 2006, Walmart notified Walmex that it considered the matter closed.91
Discussion Questions:
1. Did Walmart make the right decision in rejecting Willkie Farr & Gallagher’s
recommendation for a full-blown, no-holds-barred investigation in 2005?
What about its decision to reject CIU’s recommendation for a more extensive
follow-up investigation? What are the potential benefits and costs of these
extensive investigations? What are the proper goals of an internal
investigation, and how effectively did Walmart achieve those goals?
2. How should Walmart have handled the issue of gestores payments by
Walmex while the investigation was ongoing? (This is not merely
hypothetical. For instance, in October 2005, as Torres-Landa was debriefing
Cicero, executives in Walmex’s real estate department requested that
$14,000 be released to a gestor in order to secure a construction permit.)
What about the personnel who were implicated? Should the company have
fired them immediately?
3. Suppose you were advising the Walmart senior executives who met in
February 2006 about the company’s potential FCPA liability. How would you
have advised them regarding potential FCPA exposure at the 2006 meeting?
Would you have advised Walmart at that point to disclose the potential FCPA
violations to the Department of Justice and the Securities and Exchange
Commission? What considerations should go into that decision?
15
FCPA Case Study: Walmart Goes to Mexico (Part C)
I.
The Story Breaks
In the spring of 2011, Jeffrey Gearhart, who had served as Walmart’s General
Counsel since 2009,92 initiated a worldwide review of the company’s anti-corruption
compliance program. 93 (Gearhart made this decision after learning in February
2011 that Tyson Foods, Inc., a food processing company with headquarters in
Springdale, Arkansas, had paid a $4 million penalty to resolve criminal charges
that the company had paid $90,000 over three years to inspectors from Mexico’s
Department of Agriculture. 94 ) As part of this review, “Wal-mart hired the
accounting firm KPMG and the law firm Greenberg Traurig to . . . conduct[]
interviews and spot checks of record systems to check whether Wal-Mart’s
subsidiaries were carrying out required compliance procedures.”95 The audit focused
initially on Mexico, China, and Brazil, “the countries Wal-Mart executives
considered the most likely source of problems.” 96 By June 2011, the audit had
revealed “significant weaknesses” in the Walmart subsidiaries operating in those
three countries, including that background checks were not being performed on
many third-party agents as required by the company policy.97 In response to these
preliminary findings, Walmart’s Audit Committee expanded the audit to include all
of Walmart’s foreign subsidiaries.98
Unfortunately for Walmart, its potential compliance problems did not remain
confidential for long. In late 2011, the company learned that the New York Times
was conducting an extensive investigation into allegations that Walmex had bribed
Mexican officials. 99 With revelation of the allegations now seemingly inevitable,
Walmart disclosed its potential compliance problems to the Department of Justice
(DOJ) and the Securities & Exchange Commission (SEC) in December 2011. 100
When meeting with the government, however, Walmart stressed that its problems
were limited to discrete cases. 101 Soon thereafter, Walmart publicly disclosed its
investigation for the first time in a 10-Q filed with the SEC.102 According to the
filing, Walmart did not believe “these matters will have a material adverse effect on
[the company’s] business, financial condition, results of operations or cash flows.”103
After disclosing its internal investigation, Walmart moved quickly to take
remedial actions in Mexico. As a first step, Walmart “rapidly escalated its internal
investigation,” hiring Jones Day to perform a second line of inquiry — apart from
the general global compliance review being conducted by KPMG and Greenberg
Traurig — “into specific accusations of bribery and corruption.”104 Second, building
on the compliance reforms that had been initiated in the spring of 2011, Walmart
reportedly focused on building “robust policies and procedures; internal controls;
training; enhanced audit procedures; and internal issue escalation and remediation
protocols.” 105 Third, to improve the company’s ability to police corruption by top
16
executives in the subsidiaries, Walmart altered company policy such that all incountry general counsels would report to the general counsel of Walmart
International rather than to the subsidiary’s CEO. 106 In addition, Walmart
appointed an FCPA compliance director in Mexico, who would report directly to
Bentonville and thereby circumvent Walmex’s executive chain of command. 107
These remediation efforts, however, could not prevent the firestorm to come.
In April 2012, the New York Times published a lengthy article depicting what it
called “a struggle that pitted the company’s much publicized commitment to the
highest moral and ethical standards against its relentless pursuit of growth.” 108
Amidst a compelling narrative that would later capture a Pulitzer Prize for its
authors, 109 the article provided a detailed account not only of Walmex’s bribery
scheme, but also of the apparent cover-up by Walmart officers that began in late
2005. 110 The consequences for Walmart were swift and significant. Within days
Walmart lost $10 billion in market capitalization when its stock price fell 5%.111 The
following month, Walmart was confronted with a class action suit — the first in an
anticipated wave of collateral litigation — that alleged the company had violated
securities laws in making false and misleading statements regarding its compliance
program.112 By June 2012, reports indicated that the allegations were beginning to
impact Walmex’s business operations, as the company acknowledged that it had cut
its projections for new store developments in 2012 by 23%.113
II.
Damage Control
For a while after the New York Times ran its exposé in April 2012, Walmart
“enjoyed the image of a global corporation subjected to shake down by the locals,
with their culture of corruption and payoffs.”114 In fact, some observers defended the
company’s actions in Mexico, suggesting that they constituted permissible
facilitation payments made to obtain licenses to which Walmex was entitled.115 To
show the company’s robust commitment to rooting out corruption, Walmart took a
number of steps over the ensuing months, including firing Rodríguezmacedo as
General Counsel of Walmex116 and announcing that it would expand its internal
FCPA investigation to include Brazil, China, and India. 117 Soon thereafter, the
company dismissed the CFO of its Indian joint venture over allegations of various
improprieties.118 Lastly, in December 2012, Walmart expanded the general counsel’s
job responsibilities “to include oversight of compliance, ethics and investigations, as
well as Legal, in order to further strengthen and leverage these key disciplines.”119
Unfortunately, Walmart’s damage control measures appeared to unravel in
December 2012 when the New York Times published a follow-up report entitled The
Bribery Aisle: How Wal-Mart Got Its Way in Mexico.120 In this lengthy article, two
reporters recounted how, in 2003 and 2004, Walmex executives used $200,000 to
systematically bribe their way around zoning, archaeological, and other restrictions
in order to build a store near sacred Aztec ruins in Teotihuacán, Mexico.121 This
17
article’s depiction of Walmex as a “corruption provocateur” undermined the image,
which Walmart had been trying to cultivate, that Walmex was the victim of a
corrupt system in which it had made, at worst, small facilitating payments. 122
According to the New York Times, Walmex “was not the reluctant victim of a
corrupt culture that insisted on bribes as the cost of doing business. Rather,
[Walmex] was an aggressive and creative corrupter, offering large payoffs to get
what the law otherwise prohibited. It used bribes to subvert democratic governance
. . . [and] to circumvent regulatory safeguards that protect Mexican citizens from
unsafe construction. It used bribes to outflank rivals.”123
III.
The Government Investigation
As a result of the New York Times reporting, the U.S. government is currently
investigating Walmart’s operations in several countries, including Mexico. The legal
costs to Walmart of the FCPA investigation, already in the hundreds of millions,
continue to grow. 124 As noted earlier (see Part A), it is extremely unlikely that
Walmart will want to litigate FCPA charges in court, given both the costs of
litigation and the potential damage to the company’s reputation and share price.
The goal of Walmart’s attorneys, therefore, is to help the company achieve the best
possible negotiated resolution with the government.
There are a number of possible outcomes for these negotiations. Will Walmart be
charged or just its subsidiaries? Will the company be charged with bribery,
accounting violations, conspiracy, or some combination of the three? Will it be a
DPA, NPA, or a guilty plea? How long will the terms of the negotiated resolution
apply? Will the company need to hire a corporate monitor? How big will the
financial penalty be? These and other issues remain to be resolved, and negotiations
are ongoing.
Discussion Questions:
1. If you represented Walmart in its negotiations with the DOJ and SEC, what
arguments would you make to try to limit the company’s liability? What
resolution would you propose? What resolution would you advise the
company to be prepared to live with?
2. What other steps can and should the company take now to reduce its present
and future liability for FCPA violations?
3. Going forward, what lessons would you take away from Walmart’s experience
in Mexico?
18
For general background on the origins and rise of Walmart, see The Rise of Wal-Mart, FRONTLINE
(Nov. 16, 2004), http://www.pbs.org/wgbh/pages/frontline/shows/walmart/transform/cron.html.
2 Id.
3 Id.
4 Id.
5 Id.
6 Id.
7 Id.
8 History Timeline, WALMART.COM, http://corporate.walmart.com/our-story/history/history-timeline
(last visited Jan. 20, 2014).
9 Id.
10 The Rise of Wal-Mart, supra note 1.
11 See WAL-MART STORES, INC., ANNUAL REPORT: YEAR ENDED JANUARY 31, 1972, at 1, 6 (1972),
available
at
http://c46b2bcc0db5865f5a7691c2ff8eba65983a1c33d367b8503d02.r78.cf2.rackcdn.com/d7/59/6c7fd9ab40abb6a3d9bd5ed31c30/197
2-annual-report-for-walmart-stores-inc_130180408175232425.pdf; History Timeline, supra note 8.
12 See History Timeline, supra note 8; The Rise of Wal-Mart, supra note 1.
13 Thomas C. Hayes, Company News; Wal-Mart Net Jumps by 31.8%, N.Y. TIMES (Feb. 28, 1990),
http://www.nytimes.com/1990/02/28/business/company-news-wal-mart-net-jumps-by-31.8.html.
14 See The Rise of Wal-Mart, supra note 1 (noting that Walmart did not open its first international
store until 1991).
15
See
The
Border:
1821
Mexican
Independence
From
Spain,
PBS,
http://www.pbs.org/kpbs/theborder/history/timeline/3.html (last visited Jan. 20, 2014).
16 See JAMES L. NOLAN, MEXICO BUSINESS: THE PORTABLE ENCYCLOPEDIA FOR DOING BUSINESS IN
MEXICO 4–5 (2d ed. 1998).
17 ORG. FOR ECON. CO-OPERATION AND DEV., OECD ECONOMIC SURVEYS: MEXICO 13, 143 (19911992) [hereinafter OECD ECONOMIC SURVEYS]; see also NOLAN, supra note 16, at 5.
18 See OECD ECONOMIC SURVEYS, supra note 17, at 11.
19 See NOLAN, supra note 16, at 5–6.
20 See OECD ECONOMIC SURVEYS, supra note 17, at 15.
21 See NOLAN, supra note 16, at 6; OECD ECONOMIC SURVEYS, supra note 17, at 16–17.
22 See NOLAN, supra note 16, at 6–7; OECD ECONOMIC SURVEYS, supra note 17, at 23, 45, 180.
23 See OECD ECONOMIC SURVEYS, supra note 17, at 11.
24 M. ANGELES VILLARREAL, CONG. RESEARCH SERV., RL34733, NAFTA AND THE MEXICAN ECONOMY
1 (2010) (noting then-Mexican President Carlos Salinas de Gortari approached then-U.S. President
George H.W. Bush about the possibility of negotiating a free trade agreement in 1990).
25 Int’l Trade Admin.,
NAFTA Partners Lead Strong U.S. Export Growth, TRADE.GOV,
http://www.trade.gov/press/publications/newsletters/ita_0706/nafta_0706.asp (last visited Jan. 20,
2014).
26 For a brief discussion of the regulatory challenges faced by companies seeking to do business in
Mexico, from which this discussion is drawn, see NOLAN, supra note 16, at 255.
27 Id.
28 Id.
29 Id.
30 See id. at 211; David Barstow & Alejandra Xanic von Bertrab, The Bribery Aisle: How Wal-Mart
TIMES
(Dec.
17,
2012),
Used
Payoffs
to
Get
Its
Way
in
Mexico,
N.Y.
http://www.nytimes.com/2012/12/18/business/walmart-bribes-teotihuacan.html.
31 See Barstow & von Bertrab, supra note 30.
32
Walmart’s
Mexican
Morass,
ECONOMIST
(Apr.
28,
2012),
http://www.economist.com/node/21553451.
1
19
See U.S STATE DEP’T, BUREAU OF ECON. & BUS. AFFAIRS, 2013 INVESTMENT CLIMATE STATEMENT
– MEXICO (2013), available at http://www.state.gov/e/eb/rls/othr/ics/2013/204693.htm.
34 See generally STEPHEN D. MORRIS, CORRUPTION & POLITICS IN CONTEMPORARY MEXICO xv-xviii
(1991); NOLAN, supra note 16, at 16–17, 211; Stephen D. Morris, Corruption and the Mexican
Political System: Continuity and Change, 20 THIRD WORLD Q. 623 (1999); Sylvia Longmire, Mexican
(Aug.
7,
2009),
History
101:
Why
is
Mexico
So
Corrupt?,
EXAMINER.COM
http://www.examiner.com/article/mexican-history-101-why-is-mexico-so-corrupt.
35 NOLAN, supra note 16, at 16.
36 Id.
37 Walmart’s Mexican Morass, supra note 32.
38 Mexico
Country Profile, BUSINESS ANTI-CORRUPTION PORTAL, http://www.business-anticorruption.com/country-profiles/the-americas/mexico/snapshot.aspx (last visited Jan. 17, 2014).
39 Id.
40 Id.
41 NOLAN, supra note 16, at 255; see also David Barstow, Vast Mexico Bribery Case Hushed Up by
TIMES
(Apr.
21,
2012),
Wal-Mart
After
Top-Level
Struggle,
N.Y.
http://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquirysilenced.html?pagewanted=all&_r=0.
42 See Barstow, supra note 41.
43 Id.
44 U.S. DEP’T OF JUSTICE & SEC. & EXCH. COMM’N, A RESOURCE GUIDE TO THE U.S. FOREIGN
CORRUPT PRACTICES ACT 4, 69 (2012) [hereinafter FCPA RESOURCE GUIDE], available at
http://www.justice.gov/criminal/fraud/fcpa/guide.pdf.
45 Id. at 20–21.
46 Id. at 14–19.
47 Id. at 14.
48 See, e.g., United States v. Kay, 359 F.3d 738, 755 (5th Cir. 2004).
49 Id. at 756 (noting that while “bribes paid to foreign officials in consideration for unlawful evasion
of customs duties and sales takes could fall within the purview of the FCPA’s proscription,” these
bribes would “not automatically constitute a violation of the FCPA: It still must be shown that the
bribery was intended to produce an effect — here, through tax savings — that would ‘assist in
obtaining or retaining business’”).
50 FCPA RESOURCE GUIDE, supra note 44, at 14.
51 Mike Koehler, FCPA 101, FCPA PROFESSOR, http://www.fcpaprofessor.com/fcpa-101 (last visited
Jan. 18, 2014).
52 FCPA RESOURCE GUIDE, supra note 44, at 53.
53 Id. at 56.
54 Id.
55 Id.
56 Id. at 56–62.
57 See United States v. King, No. 83-CR-020 (D.D.C. 1983); United States v. Applied Process
Products Overseas, Inc.; No. 83-CR-004 (D.D.C. 1983); United States v. Gary D. Bateman (D.D.C.
1983); United States v. Int’l Harvester Co., No. 82-CR-244 (S.D. Tex. 1982); United States v.
Crawford Enters., Inc., No. 82-CR-224 (S.D. Tex. 1982); United States v. Ruston Gas Turbines, Inc.,
No. 82-CR-207 (S.D. Tex. 1982); United States v. C.E. Miller Corp., (C.D. Cal. 1982). Materials from
each case are available at http://www.justice.gov/criminal/fraud/fcpa/cases/a.html.
58 For background on Walmart’s decision to move into Mexico and its role in the NAFTA debate,
see When Wal-Mart Went to Mexico, HARV. U. PRESS BLOG (Apr. 26, 2012),
http://harvardpress.typepad.com/hup_publicity/2012/04/wal-mart-in-mexico-bethany-moreton.html
(excerpting BETHANY MORETON, TO SERVE GOD AND WAL-MART (2009)). See also History Timeline,
supra note 8.
59 When Wal-Mart Went to Mexico, supra note 58.
33
20
Id.
Id.
62 See id.
63 Id.
64 Id.
65
See
Our
Locations:
Mexico,
WALMART.COM,
http://corporate.walmart.com/ourstory/locations/mexico (last visited Jan. 20, 2014).
66 See When Wal-Mart Went to Mexico, supra note 58.
67 The remainder of the discussion herein draws heavily from investigative reporting by the New
York Times. See Barstow, supra note 41; Barstow & von Bertrab, supra note 30.
68 Barstow, supra note 41.
69 Id.
70 Id.
71 Id.
72 Id. (emphasis added).
73 Id.
74 For an account of the specific story mentioned in this paragraph, see Barstow & von Bertrab,
supra note 30.
75 Anne D’Innocenzio, Wal-Mart Profits Rise, but U.S. Sales Still Slump, HUFFINGTON POST (Aug.
16,
2011,
3:43
PM),
http://www.huffingtonpost.com/2011/08/16/walmart-profits-up-butus_n_928030.html.
76 David Barstow, supra note 41.
77 Part B of this case study is drawn from the Pulitzer Prize-winning investigative reporting of New
York Times reporters David Barstow and Alejandra Xanic von Bertrab. See David Barstow, Vast
Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle, N.Y. TIMES (Apr. 21, 2012),
http://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquirysilenced.html?pagewanted=all&_r=0. For a follow-on story, cited elsewhere in this case study, see
David Barstow & Alejandra Xanic von Bertrab, The Bribery Aisle: How Wal-Mart Used Payoffs to Get
Its Way in Mexico, N.Y. TIMES (Dec. 17, 2012), http://www.nytimes.com/2012/12/18/business/walmartbribes-teotihuacan.html.
78 Barstow, supra note 1.
79 Id.
80 Id.
81 Id.
82 Id.
83 Id.
84 Id.
85 Id. (emphasis added).
86 See Jenny Mero & Matthew Boyle, Rising Star: Eduardo Castro-Wright, Wal-Mart, CNNMONEY
(Jan.
24,
2006,
1:23
PM),
http://money.cnn.com/2006/01/23/magazines/fortune/stars_castrowright_fortune_060206/ (noting that
Castro-Wright, who had turned Walmex “into [Mexico’s] best retailer and a jewel of Wal-Mart’s $56
billion international arm,” was regarded as being on a “very short list to succeed [then-CEO] Scott”).
87 Barstow, supra note 1.
88 Id.
89 Id.
90 Id.
91 Id.
92 Jeffrey J. Gearhart: Executive Vice President, Global Governance and Corporate Secretary,
http://corporate.walmart.com/our-story/leadership/executive-management/jeffWALMART.COM,
gearhart/ (last visited Jan. 21, 2014).
60
61
21
Stephanie Clifford & David Barstow, Wal-Mart Inquiry Reflects Alarm on Corruption, N.Y.
TIMES (Nov. 15, 2012), http://www.nytimes.com/2012/11/16/business/wal-mart-expands-foreignbribery-investigation.html?pagewanted=all&_r=0.
94 See id.; Press Release, U.S. Dep’t of Justice, Tyson Foods Inc. Agrees to Pay $4 Million Criminal
Penalty to Resolve Foreign Bribery Allegations (Feb. 10, 2011), available at
http://www.justice.gov/opa/pr/2011/February/11-crm-171.html.
95 Clifford & Barstow, supra note 93.
96 Id.
97 Id.
98 Id.
99 Id.
100 Richard L. Cassin, Walmart Joins Our Corporate Investigations List, FCPA BLOG (Dec. 12,
2011,
3:28
AM),
http://www.fcpablog.com/blog/2011/12/12/walmart-joins-our-corporateinvestigations-list.html.
101 David Barstow, Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle,
N.Y. TIMES (Apr. 21, 2012), http://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-abribe-inquiry-silenced.html?pagewanted=all&_r=0.
102 See Cassin, supra note 100.
103 Id.
104 Clifford & Barstow, supra note 93.
105 David Tovar, Walmart Statement in Response to Recent New York Times Article About
Compliance with the U.S. Foreign Corrupt Practices Act, WALMART.COM (Apr. 21, 2012),
http://news.walmart.com/news-archive/2012/04/21/walmart-statement-in-response-to-recent-newyork-times-article-about-compliance-with-the-us-foreign-corrupt-practices-act.
106 Clifford & Barstow, supra note 93.
107 See Tovar, supra note 105.
108 Barstow, supra note 101.
109
2013
Journalism
Pulitzer
Winners,
N.Y.
TIMES
(Apr.
15,
2013),
http://www.nytimes.com/2013/04/16/business/media/2013-journalism-pulitzer-winners.html?_r=0.
110 See Barstow, supra note 101.
111 Justin Lahart, Wal-Mart’s Mexican Mess, WALL ST. J. (Apr. 23, 2012, 6:59 PM),
http://online.wsj.com/news/articles/SB10001424052702303978104577362322760689462.
112 See Richard L. Cassin, In New Class Action Complaint, Sam Walton Speaks, FCPA BLOG (May
8, 2012, 10:18 AM), http://www.fcpablog.com/blog/2012/5/8/in-new-class-action-complaint-samwalton-speaks.html.
113 Jonathan J. Levin & Carlos M. Rodriguez, Wal-Mart de Mexico Plunges After Cutting Expansion
Plan, BLOOMBERG BUSINESSWEEK (June 21, 2012), http://www.businessweek.com/news/2012-0620/wal-mart-de-mexico-cuts-expansion-plan-amid-bribery-probe.
114 See Michael Scher, Wal-Mart Will Test FCPA Enforcement in New Ways, FCPA BLOG (Dec. 19,
2012, 4:10 AM), http://www.fcpablog.com/blog/2012/12/19/wal-mart-will-test-fcpa-enforcement-innew-ways.html.
115 Id.
116 Samuel Rubenfeld, Corruption Currents: Wal-Mart FCPA Probe Focuses on Mexico Amid Report
of Cover-Up, WALL ST. J. (Apr. 23, 2012, 7:09 AM), http://blogs.wsj.com/corruptioncurrents/2012/04/23/wal-mart-fcpa-probe-focuses-on-mexico-amid-report-of-cover-up/.
117 Andy Spalding, Wal-Mart’s Expanding Investigation Reveals FCPA as Trade Policy, FCPA BLOG
(Nov. 15, 2012, 2:28 PM), http://www.fcpablog.com/blog/2012/11/15/wal-marts-expandinginvestigation-reveals-fcpa-as-trade-poli.html.
118 Wal-Mart India Unit Suspends CFO, Others Pending Probe, REUTERS (Nov. 23, 2012, 3:03 PM),
http://www.reuters.com/article/2012/11/23/us-walmart-india-probe-idUSBRE8AM02M20121123.
119 Jeffrey J. Gearhart: Executive Vice President, Global Governance and Corporate Secretary, supra
note 92.
93
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David Barstow & Alejanda Xanic von Bertrab, The Bribery Aisle: How Wal-Mart Got Its Way in
Mexico, N.Y. TIMES (Dec. 17, 2012), http://www.nytimes.com/2012/12/18/business/walmart-bribesteotihuacan.html.
121 See id.
122 Scher, supra note 114.
123 Barstow & von Bertrab, supra note 120.
124 See Mark Friedman, Wal-Mart’s Costs Connected to Mexican Bribery Case Reach $400M, ARK.
BUSINESS (Dec. 9, 2013, 12:00 AM), http://www.arkansasbusiness.com/article/96030/wal-marts-costsconnected-to-mexican-bribery-case-reach-400m?page=all.
120
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