The old DC adage, never do anything you wouldn’t want to see reported on the front page of the New York Times, must have taken on a very personal meaning to the senior management and directors of Wal-Mart and News Corp. Both companies have become targets of criminal investigations of possible violations of the Foreign Corrupt Practices Act (FCPA), 15 U.S.C. § 78dd-1 et seq., only to see the allegations of misconduct splashed across the front pages of the Old Gray Lady. The FCPA, which prohibits US companies and even foreign companies with substantial ties to the US from bribing foreign government officials to win or keep business overseas, has been around since the late 1970’s but was only sparingly invoked until about a decade ago, when the US Department of Justice (DoJ) and the Securities & Exchange Commission (SEC) dusted off the statute and began bringing major cases against multinationals for alleged wrongdoing around the globe. For DoJ and the SEC, enforcement of the FCPA has been a huge success story, leading to billions of dollars in fines against companies and stiff jail terms for executives who orchestrated the bribery schemes.
News stories this past April broke allegations that executives at Wal-Mart de Mexico, the largest foreign subsidiary of US-based Wal-Mart Stores, Inc., had bribed Mexican officials to secure construction permits. In a similar vein, News Corp., already reeling from the hacking scandal that last year toppled the company’s UK-based tabloid News of the World, has come under criminal investigation, as announced by DoJ, based on bribes allegedly paid to UK police and military in exchange for tips.
Press coverage of the Wal-Mart and News Corp episodes has focused less on the bribery allegations themselves than on the initial steps senior management and board directors took to investigate internally upon first learning of the allegations. In both instances, the early investigation, and senior management and the board’s roles in them, has come under withering criticism from many corners, with some going so far as to suggest perceived defeciencies in the early investigations may be grounds for charges of obstruction of justice.
In the face of this external scrutiny, companies should be focusing on how they conduct their own internal scrutiny. Although diligent internal investigation will not necessarily inoculate a company against liability under the FCPA, it can help reduce the likelihood of an actual prosecution and mitigate any penalties. Conversely, a fumbled internal inquiry can raise the stakes and the risk to the company and its executives and board members considerably. In Wal-Mart’s case, for instance, the New York Times has reported that a former executive of Wal-Mart de Mexico advised Wal-Mart’s US management in 2005 that executives at the subsidiary had been systematically bribing Mexican officials to win construction permits in Mexico. Also according to the New York Times, the ensuing internal investigation turned up suspect payments in excess of $24 million and indications of concealment, but abruptly ceased without meaningful follow up or disclosure to the authorities. Then, some years later, in December 2011, Wal-Mart notified the Justice Department that it was conducting an internal investigation of possible FCPA violations by Wal-Mart de Mexico. The New York Times suggested that this notification to DoJ was prompted only by the Times itself approaching Wal-Mart about the allegations. When the company disclosed its ongoing inquiries in its SEC filings, its shares took a serious hit.
The allegations against Wal-Mart may very well prove unfounded and the company and the people caught up in the controversy are not only entitled to the presumption of innocence but deserve the public’s reservation of judgment—after all, it would not be the first time, nor would it be the last, that salacious allegations of misconduct in the press turn out to be little more than a mix of rumor, conjecture and misstatements. Whatever the truth of the current reports concerning Wal-Mart or future reports about other companies, the reality is that companies have a very limited window in which to investigate properly, rectify, and self-report possible violations of the FCPA before risks and penalties escalate.
Of course, Wal-Mart and News Corp. are but two of the countless companies facing potential FCPA exposure. DoJ and the SEC now have units specially dedicated to FCPA cases and the Justice Department is getting more investigative support from the Federal Bureau of Investigation. Last year, FCPA enforcement actions reached 48, the second-highest level in the 34-year history of the Act, down from an unprecedented 74 actions in 2010.
Several business groups, including the US Chamber of Commerce, are rightly questioning whether the FCPA is too vague in certain respects and too unforgiving in others. These groups are seeking greater guidance from DoJ and the SEC to help companies comply and get credit for self-disclosures, and have even asked Congress to intervene. One idea is to codify into law credit for prompt discovery, proper internal investigation and disclosure to the authorities. DoJ and the SEC tell companies that they will receive credit for thorough internal investigations and prompt and accurate self-disclosures. Nonetheless, it is not unusual for companies to question what benefit they have actually received when law enforcement chooses to impose a harsh fine and threaten jail time for some executives in the wake of a self-report. Codifying the benefits of self-disclosure—rather than leaving them purely to the discretion of prosecutors—would help encourage companies to detect and report problems they find, secure in the knowledge that they will receive appropriate credit from law enforcement for doing the right thing.
Unless and until Congress finally acts, companies should be organizing their legislative strategies even while implementing internal protocols and, as and if issues arise, conducting thorough, professional internal investigations that will help mitigate their risk in the meantime.