Wal-Mart reportedly close to a $300 million settlement of FCPA probe

by Kim Souza (ksouza@talkbusiness.net) 685 views 

Wal-Mart Stores may soon settle a lengthy federal investigation by the U.S. Justice Department and Securities and Exchange Commission regarding allegations of the Federal Corrupt Practices Act violations.

The allegations stem from business dealings in Mexico, China and several other countries. Bloomberg is reporting that Wal-Mart is preparing to pay roughly $300 million to settle this matter, though it’s unclear when the deal will be announced.

Wal-Mart declined to comment on the reported settlement, but the retailer recently noted in its Global Ethics and Compliance Report the “discussions are preliminary and the company cannot predict the timing and financial impact of a possible resolution.”

Talk Business & Politics reached out to Mike Koehler, a lawyer and professor on FCPA matters, for his response on the possible settlement and the now six-year timeline for this investigation. Koehler said he’s not surprised by the $300 million settlement as reported by Bloomberg, because he has predicted all the along the settlement would be positively impacted by Wal-Mart’s efforts to “do the right thing since late 2011.”

He said settlements are a reflection of a number of factors and the most important is the net financial benefit gained from alleged improper payments. Kohler believes the federal government’s case against Wal-Mart was relatively weak on evidence but wide in scope, which is why it continued for six years. He also said the $837 million Wal-Mart has spent on reinforcement and counsel looks “eye popping” over the past six years, but the ratio between these pre-enforcement action professional fees and expenses and the potential settlement amount (a 2.5% ratio) is very common.

Koehler said pre-enforcement spending in most cases is the largest financial hit to a company under FCPA scrutiny. Pre-enforcement spending by Wal-Mart is about 2.5 times the estimated settlement amount. He said that’s not usual given at least two mitigating circumstances that will shave points off the sentencing guidelines. He said Wal-Mart has complied and fully cooperated after self-reporting the alleged misconduct in late 2011. But more importantly the company has implemented remedial measures to ensure better safeguards and investing more than $250 million on internal compliance protocol and employee training.

Koehler expects the settlement will be made public in the next 45 to 60 days. The Justice Department and SEC will release settlement terms to public. He said there may not be a lot of transparency into how the settlement was calculated. The retailer will make its plea and that is public. Wal-Mart cannot keep the settlement sealed, he said.

Koehler added that Wal-Mart has largely been a punching bag regarding FCPA matters over the past several years when the retailer has really been a leader in the industry through creating better protocols. He said Wal-Mart has also been more transparent than most with regard to its spending on FCPA matters.

The SEC requires Wal-Mart to make disclosures in its filings so investors will be aware of the risks associated with this investigation. Koehler said Wal-Mart did far more than that minimum reporting by publishing an annual Global Ethics and Compliance Report since 2015 as mandated by the board of directors the prior year.

Wal-Mart’s audit committee comprised of board members have been actively trying to resolve this FCPA probe. In the retailer’s recent Proxy filing, Wal-Mart paid the audit committee chairman an extra $57,500 and audit committee members were paid $45,000 more for the extra time spent regarding with outside counsel and other advisors in FCPA-related matters last year.

Koehler predicts there will be pundits who claim President Donald Trump helped Wal-Mart avoid a blockbuster settlement, but from his experience litigating and teaching FCPA law, he believes Wal-Mart’s fine will likely be lower because the merits of the case are weak and whatever wrongs happened in 2005, 2006 and 2007 have long been corrected.