Walmart's $900 million compliance costs caused FCPA probe’s major financial impact

Walmart's compliance, investigatory and remediation efforts have already cost the retailing giant more than triple the $282 million it must pay the US to resolve Foreign Corrupt Practices Act violations. Retaining a high-profile independent monitor and otherwise meeting the terms of a non-prosecution agreement will add to the compliance costs.

Walmart spent about $900 million on internal investigations, compliance programs and "organizational enhancements" while it was under investigation by the US Justice Department and the Securities and Exchange Commission for FCPA violations in four countries. According to government documents, from 2000 until 2011 Walmart executives were informed of corrupt practices by third parties in the countries or lax internal controls that were inadequate to detect or prevent bribery.

It was Walmart's attempt to correct those deficiencies that drove much of the $900 million expenditure over the course of seven years. Walmart self-reported possible Foreign Corrupt Practices Act violations in 2012 and was the subject of a New York Times exposé into allegations of Mexican bribery that year. In 2017 Walmart reported that it had recorded an accrual of $283 million in anticipation of payments to the US government.

That settlement on Thursday resulted in a $183 million civil penalty imposed by DOJ. To settle the SEC case Walmart agreed to disgorge $119 million of profit gained as a result of bribery and to pay $25 million interest payment. Walmart must make two annual reports to the SEC on the progress of its remediation efforts.

Independent monitor

Walmart is also required to retain an independent monitor to assess and report on the progress and effectiveness of those programs. Louis Freeh, the FBI's director from 1993 to 2001, will serve as Walmart's independent monitor for two years. Freeh, the principal of Freeh Group International Solutions, was retained by FIFA in 2011 to investigate bribery within world soccer's governing body.

Alexandra Wrage, president of anticorruption group TRACE International, said that the shorter term of the monitorship may reflect some credit that DOJ extended for Walmart's effort. Monitors are often retained for three years in FCPA resolutions.

"Appointment of a monitor isn’t unusual in cases where the company was not the first to disclose the problem to the authorities, as was the case with the Mexico matters," Wrage said. "The monitor’s two-year term in this case may reflect Walmart’s subsequent voluntary disclosure of the issues in Brazil, India and China and its cooperation with the government’s investigation. But the scope and duration of the conduct at issue probably convinced the DOJ that some degree of independent oversight was still needed.

"The Walmart case stands out primarily for procedural reasons: the length of the negotiations, the wild swings in the proposed settlement amount, and the publicity around the case," said Wrage. "Substantively, the case stands as a reminder that aggressive growth targets combined with a foot-dragging approach to oversight and training can be a recipe for disaster."

The compliance $900 million buys

The following chart details the annual FCPA-related expenditures that Walmart reported to the SEC for the fiscal years ending each Jan. 31. In the first quarter of its current fiscal year Walmart spent $4 million on the case. The figures below do not include a separate and distinct $160 million settlement of a lawsuit in which shareholders claimed Walmart misrepresented information about its compliance program and about the bribery scheme.

A Walmart statement released at the time of the settlement gives a view of what it has been doing with the money.

Its global ethics and compliance program is led by Daniel Trujillo, executive vice president and global chief ethics and compliance officer, which Walmart has designated its "Global CECO." Some markets have their own dedicated CECO, as does Flipkart, Walmart's e-commerce subsidiary in India. They all report to Walmart's top executives through Trujillo. Internationally Walmart assigned 1,000 employees to ethics and compliance duties, the firm said. In its corporate headquarters in Bentonville, Arkansas, the headcount is 100.

"The Global Anti-Corruption Compliance team in Bentonville and Anti-Corruption Compliance teams in the markets develop and oversee the implementation of the anti-corruption policy and procedures, conduct due diligence on third-party intermediaries, participate in an annual risk assessment, develop and provide anti-corruption training and messaging, and monitor and evaluate the program and remediate any findings," Walmart said.

Walmart now has 100 employees serving on teams of compliance monitors, which it calls "Continuous Improvement Teams." Since 2014, these teams have conducted 16,000 compliance assessments.

Walmart also pulled back on its use of third-party intermediaries in foreign countries and established an audit system that includes reviewing due diligence documents and "financial records relating to Walmart transactions," the firm said. It has established its own Web portal for due diligence on the intermediaries. Improper payments by third parties were major elements of the FCPA violations subject to last week's settlements.

Employees serving as subject matter experts are also stationed in foreign markets to address specific issues, Walmart said. One such issue is licensing and permitting for stores. Walmart in fiscal year 2015 established a centralized database of licenses and permits and maintains records on more than 50,000 of them.