Wal-Mart Could Face Steep Penalties: Attorney

Wal-Mart stock has been under siege due to revelations regarding bribes allegedly paid by its Mexican subsidiary to local officials.

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One in five Wal-Mart stores is now in Mexico, where Wal-Mart de Mexico (Wal-Mex) employs more than 200,000 people.

The alleged scheme, if true, would be a major violation of The Foreign Corrupt Practices Act, a U.S. law that prohibits bribes to foreign officials. As is often the case in high profile transgressions, a cover-up is also alleged.

According to The New York Times, the internal investigation was conducted by one of the participants in the alleged scheme, the Wal-Mex general counsel, who found no wrongdoing and shut the probe down. The Times also contends that knowledge of the alleged bribery went to the highest levels, including then CEO H. Lee Scott and current CEO Michael T. Duke.

We spoke with Stephen Binhak, a white-collar criminal defense attorney in private practice in Miami, and an expert on the FCPA. He was formerly with Greenberg, Traurig; was an Assistant US Attorney; and was also Associate Independent Counsel to Ken Starr on the Pres. Clinton impeachment investigation.

LRS: The FCPA is a little-known law to many. Is it little used?

Binhak: It's quite well known in some circles. Sophisticated international businesspeople know about it. And it can be very scary.

LRS: Scary? Please explain.

Binhak: The government is very active in this area. And the penalties can be very steep.

LRS: What kind of trouble might Wal-Mart be in?

Binhak: What's most concerning is that the person who signed off on stopping the investigation was involved in the alleged bribery. It appears they found out, started looking at it, then stopped. There wasn't proper segregation of authority. If you do an internal investigation, or in deciding to proceed or stop, the best practice is to have that investigation be fully independent.

The first choice is a full investigation by an independent outside counsel or team, aided by independent accountants and so on. The second choice is that it be done by a portion of the company that is independent, a legal department or an audit division.

LRS: What might the penalties be?

Binhak: There are three different categories. First is criminal. Anyone who paid a bribe or signed off on or helped facilitate a bribe could be criminally liable under the FCPA, depending on the statute of limitations.

Second is civil suits, by shareholders. Companies are supposed to file all material information, including litigation risks, etc. If people knew and didn't report, there are shareholders who will say if I had known, I would have sold my stock. Shareholders could also sue for breach of fiduciary duty.

Third is a hybrid category, an enforcement action, such as from the SEC, if Wal-Mart made a misstatement or a false statement.

LRS: Let's go back to the statute of limitations issue. The bribery that's been alleged occurred in 2005. It's now 2012.

Binhak: The statute of limitations on FCPA violations is five years. If there's a conspiracy, a continuing scheme, that would extend the statute. If the cover up continued past 2005, that's obstruction of justice. If they changed any books or records after 2005, that's accounting fraud. Very often, in this sort of situation, other crimes are added on, like money laundering, or mail or wire fraud.

LRS: Could Wal-Mart executives go to jail?

Binhak: People do go to jail for [the above]. The maximum penalty is five years for each count. But there are often multiple counts. Plus if there's a conspiracy, that's five years. If you add in a money-laundering charge, that's 20 years. And a mail or wire fraud is 30 years.

In addition to the statutory penalties, all this depends on the federal sentencing guidelines, which factor in how much money was involved.

It's rare to bring a single count of FCPA. Usually they bring it in conjunction with other counts. So the time can add up very easily.

LRS: Is there anything special about the part of the world in which this allegedly occurred?

Binhak: In the less-developed areas of the world, a bribe is a more common way of doing business. In some countries, the judiciary isn't that strong.

Building permits, getting things through customs, getting your trucks down the highway... If it's common practice to do business with bribes, this is a very scary law. The home office is subject to prosecution for what is happening in distant parts of the world.

Trying to uphold American standards is very admirable but in the real world, it gets more complicated. There's pressure to compete, so the knowledge may not come back to the U.S., or there might be a little bit of a blind eye back home

Also, in the U.S. we distinguish between a bribe and a gratuity. A bribe is paying someone something to do something they wouldn't otherwise do. A gratuity is paying someone for doing something they did or would have done anyway. If you pay someone who gets you a building permit faster, is that a bribe ?

LRS: Does an FCPA investigation usually require a whistleblower?

Binhak: It is not necessarily true that you need a whistleblower, but that's probably the easiest way. It can be someone who's worried about their own conduct. Sometimes people do it to get the whistleblower award, especially in the case of publicly held companies, which are obligated to police themselves under Sarbanes Oxley. And people about to get fired use it as a defensive tactic.

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