Walmart Breaks Rules, Then Seeks to Change Them

It’s becoming increasingly clear that, after Walmart allegedly violated federal law by bribing Mexican officials, it began working behind the scenes to weaken the very law that it allegedly broke. Sure, this is a violation of the company’s internal ethics policy (“Never cover up or ignore an ethics problem”). However, if the allegations are true, Walmart also appears to have violated the U.S. Foreign Corrupt Practices Act.

The Foreign Corrupt Practices Act (FCPA) was passed in 1977 and forbids American companies and their agents from offering bribes to foreign government officials. Walmart is accused of doing just that to the tune of $24 million during the course of Walmex’s rapid expansion in Mexico, under the leadership of Eduardo Castro-Wright. The Department of Justice and the Securities and Exchange Commission share responsibility for enforcing the law.

The New York Times reports that Walmart officials were first made aware of the alleged bribery in September 2005, but by February 2006, the case had been handed off to one of the very Walmex officials implicated in the scandal, who promptly ended the investigation. The New York Times reports that top Walmart executives, including then-CEO Lee Scott, current CEO Mike Duke (head of Walmart International at the time), and board chair Rob Walton were all made aware of the accusations.

Since then, Walmart has been involved in behind-the-scenes efforts to weaken the law it may ultimately be prosecuted under. Reuters explains,

Wal-Mart executives have, though, been active in a lobbying group that is pushing to scale back the FCPA. A 2010 tax return for the U.S. Chamber Institute for Legal Reform lists Jeff Gearhart, Wal-Mart’s general counsel since 2009, and Thomas Hyde, who retired in August 2010 as Wal-Mart corporate secretary, as two of 40 people who served as board members.

At its 2010 Annual Legal Reform Summit, the U.S. Chamber Institute for Legal Reform unveiled its “Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act” paper, outlining “reforms” to the FCPA that it continues to call for, including things like clarifying the definition of a foreign official and limiting a company’s liability for the actions of its subsidiaries. As Harvard law professor David Kennedy said today in the Washington Post, “In the guise of clarifying, they are gutting the law.”

More recently, in February of this year, the Institute for Legal Reform sent a letter to the DOJ and SEC about forthcoming guidance on how the FCPA should be enforced. Signers of the letter included the Institute for Legal Reform, the Retail Industry Leaders Association, and the National Foreign Trade Council among others. Walmart is associated with each of these three groups.

A week and a half before the New York Times story broke, the Institute for Legal Reform was still active on FCPA reform. An April 11 press release from the Chamber explains, “The U.S. Chamber Institute for Legal Reform today hosted a roundtable discussion on the Foreign Corrupt Practices Act (FCPA), and forthcoming guidance from the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) on enforcement of the statute.” Representatives from the DOJ and SEC were present. The Retail Industry Leaders Association (RILA) also participated in the meeting.

Additionally, Walmart may have been doing its own lobbying on the FCPA. The company’s federal lobbying reports are often word-for-word the same, but in the fourth quarter of 2011—the period during which the New York Times notified the company of its upcoming exposé—the company expanded its report of Trade lobbying to include the line, “Discussions regarding investments overseas.” The same detail appears in the company’s disclosure report for the first quarter of 2012 as well. Walmart’s Trade lobbying included visits to the SEC, a key agency in enforcing the FCPA.

Walmart certainly has a lot to lose in this case. The company’s stock is slipping, its reputation is badly damaged, and fines are based on the profits enabled by the bribes. As former CEO Lee Scott said at the company’s October 2007 analyst meeting,

We, as a company, are committed to ethical and responsible methods of running our business. We will not position ourselves in a market in which we would jeopardize that. The Foreign Corrupt Practices Act is the only act that requires the incarceration of the CEO. And we are not going to do that.

Except he was only half right.

What do you think?