For long-time readers, this post will take a familiar tone: you’re all wrong.
The FCPA Unit in the Fraud Section has a lot to do. At last count, there were over 80 companies facing FCPA investigation (all publicly disclosed), including HP, Avon, Weatherford, Ingersoll-Rand, News Corp., Archer Daniels Midland, and lots more. Household names. Plus, of course, Walmart.
I’ve advocated harsher penalties for corporations, and I’m second to only one (Alexandra Wrage) in my distaste for bribery.
But I hate the Walmart case.
In my humble opinion, Walmart should get a nominal fine via an NPA.
Maybe $2 million. Something like that. I’d prefer less—maybe a declination with undertakings? Totally private?—but I can’t see it happening.
You’d think I’d be salivating over the prospect of Walmart getting a massive fine. It’s a huge US multinational company which went overseas and bribed government officials in order to gain an improper advantage for the purpose of obtaining or retaining business. Straight out of 15 USC sec. 78dd-1(a). And like I said, I’ve advocated for larger fines.
Why do I hate the Walmart case so much? Let’s lay it out.
1. Walmart’s Bribes Were Arguably Facilitation Payments
This is going to be fact-dependent, and no one has all the facts right now. It’s likely even Walmart doesn’t have all the facts. But here are some. It’s an exception to the FCPA—not an affirmative defense; that’s important—when payments are made to secure routine government action. The exact wording of the statute is:
Subsections (a) and (g) of this section shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.
What’s important in that quote is what isn’t said: there’s no discussion of amounts, only purpose. So the fact that some of the payments that Walmart made were high (the number I keep hearing is upwards of $250,000) is neither here nor there. It’s what the payments were designed to get.
Here, the payments were designed to get building permits. It may be that the issuance of building permits is discretionary, but I’m guessing that it’s not so simple. There’s discretionary meaning that it’s truly a decision in contention. Like the decision to award a contract. Then there’s totally non-discretionary, like postal service. In the middle, there’s an area where something might technically be discretionary, but in reality, it’s either a rubber stamp, or it’s simply always one way. Building permits could be a case like this. It’s always worked out, as long as you wait long enough and do what you’re asked. Remember also that “obtaining permits” is one of the things specifically mentioned in the Act as falling under “routine governmental action.”
And that brings me to reason #2.
2. Walmart Didn’t Bring Its Corruption Into Mexico
There’s a reason that Mexico is #100 on the Transparency International Corruption Perceptions Index. In corporate-speak, it’s a “challenge” to do business there. In regular-person speak, I’m sorry to say that corruption is rampant. Not that I’d use the word “cesspit,” but if someone else were to, I wouldn’t correct them.
Just to give one example: if you want to get a copy of a judgment or filing, you need to tip the court clerk. This person is undeniably a government official, and you’re paying him or her money. No tip, no document. Law firms regularly pay these morditas; (“little bites”) and list them on invoices as “miscellaneous expenses.” [I'm sorry if this comes as a shock to you, and you've been paying---and mislabeling in your books and records---these payments].
Like I said, a challenging place to do business. I’ve never dealt with getting building permits and such in Mexico, but I’m ready to believe that there’s a “no payment, no permit” culture there. In other words, Walmart wasn’t a corrupt organization that had bribery in its DNA. It was responding to market conditions.
I can hear the cries now. No, I’m not excusing bribery. But give me a break. I’m an anti-bribery advocate, but I also like to think of myself as a realist. I don’t think a company should ever pay a bribe. But I also recognize that we’re not there yet. There are still places in the world where the wheels of business are greased by money.
Building permits in Mexico might be like that. If the only time a permit is denied is when there’s no payment, I have a hard time working up a visceral anger at the company paying it. Or thinking that the type of payment was for a discretionary benefit. I’m not saying it’s right (remember, I think Walmart should get fined something), but it’s also not the worst thing in the world.
There’s a combination aspect at work here too. I might not accept the “it’s how business gets done here” if it were a true “bribe,” as my gut interprets the word. I have a hard time seeing it as a bribe, so I’m quicker to accept the “it’s the market” excuse.
Again, I’m not saying it’s right, but I am saying that I’m going to save my anger for true bribery cases.
3. Where’s the Harm?
Anyone who has heard me speak on anti-corruption has likely heard my refrain: I hate bribery because it most heavily impacts that segment of the population that can least afford it. The poor, the disenfranchised, the marginalized, all get hit hardest. Roads deteriorate faster, buildings are built with substandard materials (some fall down, on people), small businesses can’t start up, employment rates fall, small bribes become a necessity for people who can’t afford them.
In one market, a new mother can’t get her baby from the nursery without greasing the nurse. As I’ve often said, say what you will about bribery, but can’t we all get together on the idea that “grease the nurse” shouldn’t exist as a concept? That things have gone too far?
So what was the harm to the populace in Mexico? That they can now buy quality goods at cheaper prices? Okay, in a theoretical sense, it perpetuates a culture of corruption that impacts other areas. I get it. But that’s a little too far outside the zone of causation for me to get pissed at Walmart over.
And that’s the bottom line for me. I can’t work up any visceral anger at Walmart. And if I—a person who hates bribery more than most—can’t work up anger at Walmart, I’d submit that their actions weren’t all that bad.
Two other considerations, one in each direction.
First, Walmart’s real problems, in my opinion, were in the corporate governance area rather than the bribery arena. The way the information was handled by Bentonville when it was presented to them is less than satisfactory.
But we haven’t yet criminalized lack of good corporate governance.
The result of Bentonville’s mishandling of the allegations to me should result in Walmart being given no self-disclosure credit. Maybe some undertakings to improve their investigations process. Schedule D stuff. Walmart should also revise their corporate policy to disallow facilitation payments globally.
The second consideration, which plays into why the DOJ should get out now, is something I mentioned up top: facilitation payments are not an affirmative defense, they’re an exception.
Which to me means that the burden of proof is on the government.
This is not an easy case by any stretch for the government. And Chuck Duross—who I’m assuming has taken a personal interest in the case, if not taken it over as one of his cases—is a reasonable guy. He’s not going to bring a case, or even recommend bringing a case, that he knows he can’t prove at trial.
Chuck’s integrity as a prosecutor is Walmart’s ace-in-the-hole.
It’s not going to be an easy case to make. Building permits are specifically mentioned, as I said. Even though there might be a discretionary element, that element is something that Congress had to consider before putting what they did in the statute.
And let’s not forget, for all the political pressure to be harsh on Walmart, there’s got to be a little bit of back-pressure too. After all, no one—especially not a career prosecutor—likes to have their agenda set by a newspaper, even the New York Times.
There’s a possibility there’s more to the story. The most dangerous thing for Walmart right now, in my opinion, is the investigation they’re forced to conduct. They might find something. If they find actual bribery, all bets are off.
Plus, the original article was in the New York Times. Say what you will about the Times—and I often think of subscribing just so that I can resign my subscription in protest—they set the journalistic agenda for the entire world. So every reporter in the entire world is looking at Walmart right now. It’s like the world’s most intrusive external auditor poking through your business, without the ethical constraints. So yes, Walmart has incentive to settle. They can’t afford to let it drag on like the News Corp. case.
So both Walmart and the DOJ have good reasons to want to end this soon (like now). Let’s all do the right thing and support a fair conclusion to this fiasco.