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Mike Scher on Walmart: We’re talking about the future of the compliance profession

The Wall Street Journal reported Monday that the DOJ’s three-year investigation of Walmart in Mexico has uncovered little or no evidence of major bribery, and that the case may eventually be resolved without criminal charges and only a fine.

It was a stunning turn-around after a report from the New York Times in September 2012 that alleged that Walmart representatives paid at least $24 million in bribes to Mexican officials to secure permits for new stores, and then spent years covering up the payments.

The New York Times’ reporting, which won a Pulitzer Prize, seemed to trace the cover up back to Walmart’s headquarters in Bentonville, Arkansas, and deep into the C-suite.

There were also allegations along the way that Walmart executives silenced at least one compliance officer and several in-house investigators.

The DOJ investigation, however, found evidence that contradicted some of those original allegations, the Wall Street Journal said.

The New York Times this week stuck by its reporting. Deputy executive editor Matt Purdy said the original stories “were largely based on internal Walmart documents that described hundreds of suspect payments involving millions of dollars.”

The Wall Street Journal said it spoke to multiple sources at the DOJ. The extensive federal investigation and Walmart’s own $650 million internal probe found evidence of bribery only in India, the WSJ said, and then only relatively small payments, mostly under $200 each. The WSJ didn’t spell it out, but probably most of those were facilitating payments and not actionable under the antibribery provisions of the FCPA. Whether Walmart accurately recorded those payments in its books and records is another issue.

It’s an understatement to say the Walmart story is now confusing. The New York Times is a trusted news source. Its Walmart reporting seemed well sourced and solid. Walmart didn’t issue any real denials. Instead it launched its own investigation and took remedial measures in its compliance program. The Pulitzer Prize committee recognized the Times for excellence in investigative reporting.

And yet Walmart and its top executives may walk free.

Here’s my hope: That if the DOJ decides not to prosecute the company or any individuals, it will tell the public the reasons why. Usually the DOJ is silent and opaque. In this case, it needs to be open and transparent. It needs to answer some questions that many of us have.

Why, for example, did the former Walmart lawyer and compliance officer, Maritza Munich, leave the company? Why hasn’t the company allowed her to testify in shareholder suits or to congress?

Was her abrupt resignation itself a red flag ignored by Walmart’s board?

What was in the reports from her investigators (former FBI agents), and where are the reports today? Where are the investigators?

In its original story about Walmart in Mexico, the New York Times said:

Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart’s headquarters in Bentonville, Ark.

In a confidential report to his superiors, Wal-Mart’s lead investigator, a former F.B.I. special agent, summed up their initial findings this way: “There is reasonable suspicion to believe that Mexican and USA laws have been violated.”

The lead investigator recommended that Wal-Mart expand the investigation.

Instead, an examination by the New York Times found, Wal-Mart’s leaders shut it down.

No one wants to believe a cover up at Walmart became a cover up at the DOJ. No one wants to believe that protecting America’s biggest retailer became more important than prosecuting large-scale overseas bribery and a corporate cover up.

But if the DOJ decides not to prosecute the company or any individuals, and won’t explain its reasons, there will always be reasonable suspicions. And those suspicions will weaken both the rule of the law in general and the FCPA in particular.

I also have a larger concern for compliance officers.

Unless the DOJ is transparent in any decision not to prosecute Walmart, compliance officers everywhere will feel the chill. Should they do their jobs and risk their careers? Or should they retreat to the shadows and let those with all the power make the decisions?

Are the biggest corporations really too big to prosecute under the FCPA? If so, what’s the future for any compliance officer?

The outcome of the Walmart case is still unknown. But this much is clear: The Walmart case, and the way it’s ultimately handled by the DOJ, will be one of the most important events ever for compliance officers everywhere.


Michael Scher is a senior editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He can be contacted here.

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  1. Well phrased, Michael. Couldn't agree more in all respects. Let's wait and see and hope for transparency

  2. Although I have no specific information on the matter, it seems reasonable to me that NYTimes reporters were able to conduct an effective and truthful investigation that the US government, for a host of legal reasons, could not conduct in a foreign country or in this country. If DOJ could not muster sufficient evidence to win a criminal conviction, then it should not prosecute. That does not mean the NYTimes was wrong, only that DOJ's hands may have been tied legally. For example, the Times reporters filed Freedom of Information requests in Mexico; I do not know whether the DOJ can gather evidence that way. The Times obtained confidential interviews with key figures who allegedly had committed crimes; they might have responded differently to the government and invoked constitutional and procedural privileges. There are just lots of reasons why something can happen and yet a prosecutor believes it cannot bring a successful prosecution. News reporting and criminal prosecution are different animals. I agree that the implications for the compliance professional are daunting, especially when they themselves are vulnerable to criminal prosecution for failing to implement compliance programs to detect and prevent possible crimes.

  3. Why isn't anyone discussing the rush to judgment here? The NYT was highly critical of Walmart long before this case came to light and working under the assumption that Walmart is a big bad retailer, steered its investigation to its foregone conclusion. This blog and its readers, surprised by this revelation, are now also making bad assumptions. Maybe the Walmart compliance program actually worked to reduce the exposure. I am hopeful that is the case thereby making our jobs even more critical.

  4. It is quite possible that some bribery might be involved, but the issue it is to prove it. That is a different history. Not much has been said after the publication from the New York Time in México.

  5. The compliance industry needs to be very aware of surface only treatments which appear to address the issue – like whitewashed fences. In China, many people have been expelled from the party having been accused of bribery but only a few have been convicted and sent to prison. In truth, a party expulsion only looks like the individual is being 'punished' for being caught and not for doing wrong. So if the Wal-Mart story ends here, it would be a whitewashed fence, nothing more, perhaps?? Thank you Mr Scher for this great article.

  6. Very valid and important points indeed; thank you, Michael!

  7. The FCPA blog is thoughtful and a valuable commentary on this important but mystifying matter. But it suffers from the assumption that the NYT would not have been wrong. The author may turn out to be correct, but nothing known now warrants any such conclusion. Indeed, the NYT record of tainted journalism is enough reason to withhold judgement until there is a record to judge.

    Nevertheless, I commend the author for seeing the implications of the matter for the compliance community and culture, and second his demand for more than the usual accountability of the DOJ. Only the DOJ has the capacity to create an information platform from which these two incompatible accounts can be sorted.

  8. When I was a Federal Prosecutor, in every instance, without exception, that something about one of my cases (or that I otherwise had knowledge of) appeared in the New York Times it was either entirely false or slanted to support a particular political worldview. I would trust the DOJ over the NYT, even in this administration.

  9. I am not surprised over the Walmart de México episode. I was in México during October/November 2013 at the height of investigations were proceedings. Even though I had nothing to do with this episode, I came across variety of configurations and conflicts. My colleagues and friends in my network were of the opinion and they insisted on it since they were locals and live with these kinds of episodes.
    Having lived and worked in Latin America for over two and half decades, I am quite well aware of their culture, habits, customs, traditions and even brotherly, family ties when it comes to dealing with contracts and business operations where the saying goes “no paga no suena música” (you don’t pay, you do not get to hear the music) . When it gets to permisolgía (obtaining permits) of whatever nature of the transaction, whether it is for construction, obtaining tax clearance certificates or even getting a visa or an extension to the existing visa, the saying goes “hay que bajar la mula”.(you have to down the donkey to deal with it).
    I have seen, witnessed, endured and sustained these kinds of situations particularly when it comes to a foreign owned unit when it tries to do business in this part of the world.
    It is beyond my comprehension to understand how DOJ's three-year investigation of Walmart in Mexico has uncovered little or no evidence of major bribery. When it was well known in professional and even Mexican government circles (extra official level) that Walmart has been in México since 1990’s building stores at a rapid rate without paying to hear the music?
    I am also not naïve to believe the political and economic impact such as creation jobs, adding value to GNP to the both sides of the border.
    I am equally eager to know and learn how DOJ rationalizes “little or no evidence of major bribery” when $24+ million worth known known payments were made to pull permits. I have great respect for DOJ since I learnt quite a lot from its peers not excluding McNulty Memorandum etc.
    Were all these payments were characterized as facilitation payments which is the gateway to get out of FCPA gauntlet?

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