An investigation started this week by the Department of Justice into allegations that Wal-Mart Stores Inc. paid bribes to Mexico government officials may have an impact on the retailer beyond the court room, says a University of Iowa law professor.
Research from Joseph Yockey, an expert on the Foreign Corrupt Practices Act (FCPA) that Wal-Mart may have violated, suggests that how companies handle such investigations can raise a variety of internal management and governance concerns.
“Regulators often seek to resolve FCPA violations by settlement agreements reached without going to court, but that does not always intersect in ways that serve the best interests of the firms,” says Yockey.
Wal-Mart is being investigated by the Justice Department after allegations in the New York Times that the company paid Mexican government officials millions of dollars in bribes to win construction permits, and that executives obstructed an internal investigation into the allegations. If true, Wal-Mart’s actions could constitute a violation of the FCPA, which makes it a crime for American companies to pay bribes to foreign governments for improved business opportunities.
If convicted, Wal-Mart could face millions of dollars in fines and employees and agents could receive stiff prison sentences. But Yockey says that is not typical with most FCPA investigations, which are usually settled with a deferred prosecution agreement (DPA) or nonprosecution agreement (NPA). Firms usually are quick to reach such agreements because they do not want the bad publicity that would come with a trial. In fact, Yockey says that firms accused of violating the FCPA often approach the charges with an expectation of a settlement out of court.
But he says that before regulators consider negotiating over this type of settlement, they typically weigh a firm’s willingness to cooperate with the underlying investigation and whether the firm maintains a “culture of compliance.” One of the facets of such a culture is whether the firm promoted meaningful cooperation and communication between its agents in foreign countries and U.S.-based corporate counsel.
This is where cooperation with regulators to settle charges poses a fundamental organizational problem, Yockey says. If agents fear that company counsel may bring their names to the attention of prosecutors in the name of cooperation, their feeling of trust or loyalty within the firm will be altered. They may also worry about internal discipline or termination.
“Rational employees may elect to hold information back, present information in a less than truthful way, or decline to speak at all with company counsel,” he says. “The resulting breakdown in communication will make it difficult for compliance personnel to carry out their role as monitors if they are making decisions with incomplete or inaccurate information.”
The nature of the FCPA itself makes the issue more confusing because elements of the law are so broadly worded that interpretation can vary. For instance, the law’s definition of foreign official includes those who work as an “instrumentality” of a foreign government but does not explain what an “instrumentality” is.
How a firm handles this type of confusion when it arises during the ordinary course of business can have implications on later settlement negotiations.
“If agents worry that when push comes to shove company counsel will waive privilege and turn over evidence to prosecutors during subsequent FCPA settlement negotiations, they could be less inclined to seek advice from the people who are best positioned to give it to them—their lawyers —when challenging interpretive questions first emerge,” Yockey says.
Yockey’s research will be published in a forthcoming issue of the Wisconsin Law Review. It can be accessed online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2029241.