Wal-Mart unveils first foreign corruption compliance report

by The City Wire staff (info@thecitywire.com) 54 views 

A new report from Wal-Mart Stores Inc. reveals that the retailer has spent $439 million in legal fees and other costs in the past two years associated with investigations of alleged violations of the U.S. Foreign Corrupt Practices Act.

Plenty of eyes have been waiting to see just how much retail Wal-Mart might disclose in its first Global Compliance Report as mandated by the Wal-Mart Board audit committee last year. The report comes in the wake of allegations of bribery and corruption in prior years within the retailer’s international expansion efforts in Mexico, India, Brazil and China.

Wal-Mart said during its February earnings call compliance costs for this year would range between $200 million and $240 million, a figure that also includes the company’s internal compliance overhaul. Last year Wal-Mart spent $282 million on FCPA legal dealings on top of the $157 million costs in 2012, the year the probe in Mexico began and was expanded to India, China and Brazil.

Since the FCPA allegations were self-reported by Wal-Mart in December 2011 and the April 2012 in-depth story by the New York Times, Wal-Mart execs have vowed to investigate the allegations and deal swiftly with any individual who might be implicated. At the same time Wal-Mart moved to strengthen its internal global compliance protocol, focusing on training and procedures to prevent any shortcuts or other possible violations in the future.

A year ago, the board’s audit committee established a set of compliance objectives to be accomplished during the fiscal year ended Jan. 31, 2014. To demonstrate Wal-Mart’s commitment to compliance, a portion of executive compensation could be withheld should executives fail to achieve their compliance objectives. The recent proxy filing showed there was no reduction of incentive pay related to compliance goals not being met.

These compliance objectives can be grouped into three critical areas: people, policies and processes, and systems. The goals were set in collaboration between the audit committee and its counsel and top management, the report notes.

“Compliance with FCPA and other anti-corruption laws remained a key priority for the company. Wal-Mart hired a number of anti-corruption directors and other anti-corruption staff in both its global headquarters and in its International retail markets during the year. The anti-corruption director for each market reports to a dedicated anti-corruption team in Wal-Mart’s home office in Bentonville, which is led by the company’s global anti-corruption compliance officer. Collectively, this global team is charged with conducting due diligence, developing and providing anti-corruption training, and overseeing the implementation of the company’s anti-corruption policies and procedures throughout the world,” the company noted in its report.

Wal-Mart said it continued to work with external anti-corruption compliance experts reviewing, assessing and developing its anti-corruption program during the year. In fiscal 2014, the company spent more than $109 million on enhancements to its global anti-corruption compliance program and financial controls, according to the report. With the addition of new anti-corruption resources, the company said it transitioned some anti-corruption compliance work from external consultants to internal staff during fiscal 2014. This is seen as “critical to promoting the long-term sustainability and capability of the company’s anti-corruption compliance team.”

The company said it added 10 market level chief compliance officers in its international division during fiscal 2014. This was accomplished by new hires and internal transfers. These compliance officers will lead the compliance team in the company’s retail markets. Regional compliance officers were put in place to support the organization within Latin America; Asia; Africa, Canada, and the U.K.

The compliance teams identify and coordinate common standards and procedures, share best practices, provide training and monitoring, and support each other in matters relating to their areas of expertise among 14 subject matter areas from anti-corruption to food safety and trade.

Including the costs incurred in fiscal 2014, the company estimates it will spend more than $100 million on compliance systems enhancements around the globe over the course of the next several years.

Wal-Mart said the federal probe into its international operations will take as long as it takes. The retailer has no control over that external investigation that has been ongoing since December 2011.

Executives implicated in the corruption allegations are slowly fading from the retailer’s daily operations.
• Eduardo Castro Wright was linked the bribery allegations in Mexico, a market that he grew to prominence. Castro Wright quietly retired in July 2012. 

* Tom Mars, former chief administrative officer, exited Wal-Mart in March 2013 after 11 years. He served as general council during the period under scrutiny for FCPA violations. From 2002 to 2009, Mars was involved in an investigation into bribery allegations regarding a Wal-Mart store built near the Mexican pyramids, according to company emails released in earlier this year by Congressional members. Internal emails mentioned in a New York Times April report connect Mars to the matter as the senior corporate lawyer who briefed top executives such as former CEO Mike Duke in 2005 on the Mexican bribery allegations.

* Former CEO Mike Duke, headed up Walmart International during the time under investigation. He retired as CEO on Jan. 31, but remains on the Wal-Mart Board.

* Former CEO Lee Scott was CEO of Wal-Mart Stores during the time under investigation. Scott is exiting his service on the board of directors in June.