WALMART, INC.

INDUSTRY

Consumer Products / Retail

CORPORATE HEADQUARTERS

Bentonville, Arkansas, United States

SUMMARY OF ALLEGATIONS

Nationality of Foreign Officials: Brazil

Summary of Allegations:

The U.S. investigation into Walmart allegedly uncovered evidence of bribery in Brazil. The company allegedly made USD 500,000 in payments to an individual hired to obtain government permits Walmart needed to build two stores in Brasilia between 2009 and 2012. 


Approximate Alleged Payments to Foreign Officials: USD 500,000

Business Advantage Allegedly Obtained: government permits

Nationality of Foreign Officials: China

Summary of Allegations:

Between 2007 and 2011, during the height of Walmart's expansion into China, some Walmart China stores were allegedly opened without proper government and regulatory permits.  Walmart allegedly provided bribes, such as entertainment and gifts, to Chinese officials for such exception.


Approximate Alleged Payments to Foreign Officials: Unspecified

Business Advantage Allegedly Obtained: government permits

Nationality of Foreign Officials: India

Summary of Allegations:

Walmart disclosed on 15 November 2012 that it had initiated investigations into potential U.S. Foreign Corrupt Practices Act ("FCPA") violations in India.

On 20 November 2012, Bharti Walmart in India suspended five employees. Media reports allege that one of the suspended employees is Chief Financial Officer Pankaj Madan. The other four are members of the legal team of the Bharti-Walmart joint venture. Media reports allege that Walmart India's expansion of both its wholesale and its retail businesses was put on hold pending the corruption investigation. Bharti Walmart, the 50-50 joint venture between Walmart and Bharti Group (permitted since a change in Indian law in September 2012 allowed direct foreign investment up to 51% in Indian enterprises), owns 18 wholesale shops in India; these shops sell goods to retailers, including supermarkets operated by Bharti Retail.

According to The Economic Times' report on 12 April 2013, a special inquiry committee was formed in late 2012 to "examine the Bentonville-headquartered retailer's lobbying initiatives vis-a-vis the opening up of India's retail sector, and probe whether the company had bribed any Indian official in this connection. This committee was formed after an uproar in Parliament over Walmart's disclosure that since 2008, it had spent USD 25 million on lobbying, including on issues related to 'enhanced market access for investment in India."

According to the Wall Street journal's report on 19 October 2015, U.S. government investigation into Walmart is said to have found evidence of Walmart allegedly paying thousands of small "suspicious payments" to low-ranking local Indian officials to help obtain real estate licenses and to facilitate the shipment of goods through customs. The vast majority of payments were below USD 200 and some were as low as USD 5 but together totaled millions of dollars.


Approximate Alleged Payments to Foreign Officials: millions of dollars

Business Advantage Allegedly Obtained: obtain real estate licenses and facilitate the shipment of goods through customs

Nationality of Foreign Officials: Mexico

Summary of Allegations:

On 21 April 2012, press reports revealed that an internal investigation of Walmex, formally begun in November 2005, had uncovered millions of dollars in payments to "gestores," agents who took a 6% commission out of the payments and passed the rest on to government officials as bribes. Sergio Cicero, former attorney at Walmex, claims to have personally sent two outside lawyers working as "gestores" to deliver cash to mayors, city council members, urban planners, all manner of government bureaucrats, and officials in charge of issuing various permits, zoning approvals, licenses, reductions in environmental impact fees, and support from local leaders. The gestores would submit a record of the payment to the company, using codes on the receipt detailing what each bribe was for and who was getting paid. Later, the company would re-write the payments in their accounting records, showing them as legal fees. About USD 8.5 million was paid in this way, and approximately USD 16 million was directly paid to government officials.

The press reports further allege that Walmex executives, including Eduardo Castro-Wright and other top executives, received a detailed schedule of all of the payments performed.  In addition to Castro-Wright, the reports implicate José Luis Rodríguezmacedo Rivera, general counsel of Walmex.

A New York Times article published on 18 December 2012 makes numerous specific allegations of bribery by Walmex.  The report names bribe givers and bribe recipients, and reveals specific amounts alleged to have been paid for various projects.  For example, four separate payments totaling USD 221,000 were allegedly paid to obtain permits and zoning map changes for the Walmart store in Teotihuacán.  The recipients are alleged to have included the director of urban planning, the mayor, members of the town council, and members of the National Institute of Anthropology and History.  Bribes to erect the Sam's Club in Mexico City allegedly totaled USD 341,000, and a refrigeration and distribution center north of Mexico City is alleged to have cost the company USD 765,000 in bribes.


Approximate Alleged Payments to Foreign Officials: USD 24 million

Business Advantage Allegedly Obtained: Rapid expansion; opening a large number of stores quickly

ENFORCEMENT RESULTS

Agencies: India: Special Inquiry Committee
Results:
Year Resolved:
Compliance Monitor:
Ongoing: Yes
Details:

On 24 January 2013, India's Cabinet announced that it was commissioning a 3-month long special investigation into Walmart's lobbying activities in India. On 18 May 2013, Business Standard announced that Mukul Mudgal, the former chief judge of Punjab and Haryana High Court who performed the investigation, closed the investigation due to a lack of conclusive evidence that Walmart's lobbying involved bribery.

In November 2015, India's anti-corruption watchdog Central Vigilance Commission ("CVC") announced that the agency has summoned Walmart's India head and asked the company to submit details surrounding the allegations that Walmart paid bribes to government officials to get customs clearances and obtain permits to set up stores in India by 15 November 2015. However, Walmart spokesperson stated that Walmart has not received any request from the CVC.



Agencies: Mexico: Ministry of Public Administration
Results:
Year Resolved:
Compliance Monitor:
Ongoing: Yes
Details:

On 6 December 2013, Walmart disclosed that other government agencies in Mexico had begun investigation into Walmart along with the investigation by the DOJ and SEC.



Agencies: United States: Civil Lawsuit
Results: Acquittal/Dismissal
Year Resolved: 2018
Compliance Monitor:
Ongoing: No
Details:

On 3 May 2012, the California Teachers' Retirement Fund (CLSTRS) and the New York City Employees’ Retirement System filed a derivative action on behalf of Walmart shareholders in Delaware alleging that the board members failed to conduct a proper investigation into allegations of bribery in Mexico and covered it up until the media leaked the allegations.

Subsequently, a securities class action was filed in Tennessee, alleging FCPA violations, a class action filed was filed in New York in 2013 alleging bribery and corruption claims, and ten additional derivative suits were filed in Arkansas and Delaware alleging similar facts.

In April 2015, US District Judge Susan Hickey in Arkansas dismissed the federal lawsuit accusing Wal-Mart, including former chief executives, Mike Duke and Lee Scott, of breaching their duties in failing to stop alleged bribery at Wal-Mart Mexico. The Arkansas plaintiffs had neither sought Wal-Mart's internal records nor waited for the outcome of Delaware's discovery case. On 22 July 2016, by a 3-0 vote, the 8th US Circuit Court of Appeals in St. Louis upheld Arkansas Judge Hickey's dismissal.

On 7 May 2012, the City of Pontiac General Employees' Retirement System filed a securities class action lawsuit against Wal-mart and certain officers and directors in Arkansas. The class was certified on 20 September 2016. On 11 May 2017 the court directed Wal-Mart Stores Chief Executive Officer to be deposed in the case.

On 27 February 2017, the New York class action was dismissed for failing to show deceptive intent. The plaintiff requested leave to file a fourth complaint on 23 March 2017.

On 13 May 2016, Delaware state judge dismissed the Delaware case explaining that he was bound to do so since the Arkansas complaint alleging the same facts, was fully litigated and dismissed in Arkansas. The Delaware Supreme Court affirmed this decision in January 2018. 

On October 26, 2018, Walmart agreed to settle with the General Employees Retirement System with a payment of $160 million without accepting liability or wrongdoing in the class action.

 



Agencies: United States: Department of Justice, United States: Securities and Exchange Commission
Results: Administrative Order, Cease-and-Desist Order, Civil Penalty, Disgorgement, Non-Prosecution Agreement
Year Resolved: 2019
Compliance Monitor:
Ongoing: No
Details:

On 23 April 2012, Representative Elijah E. Cummings, Ranking Member of the House Oversight and Government Reform Committee, and Representative Henry A. Waxman, Ranking Member of the House Energy and Commerce Committee, announced that they were launching an investigation into the allegations of bribery against Walmart. Pursuant to that investigation, on 10 January 2013, Congress released three internal emails by Walmart showing that employees within the company knew in October 2005 of the fact that the company had paid at least USD 273,000 in bribes to local officials and businessmen to expedite construction projects in Mexico.

Walmart disclosed on 15 November 2012 that it had initiated investigations into potential FCPA violations in Brazil. The company disclosed its internal investigations to the DOJ and the SEC in November 2011.

By the end of 2012, the company noted in its SEC Form 10-Q, filed on 4 December 2012, that the FCPA investigation had caused the Company to incur expenses of "approximately USD 48 million and USD 99 million during the three and nine months ended October 31, 2012."

In its Form 8-K submission to the SEC on 21 February 2013, Wal-mart reported that it spent USD 157 million in "professional fees and expenses" related to the FCPA investigation in its last fiscal year. Additionally, it expects to spend USD 40 million to USD 45 million in the first quarter of its next fiscal year on "FCPA and compliance matters."

In its Form 10-K submission to the SEC on 26 March 2013, Wal-mart said that "it is probable that we will incur a loss from these matters." In an earnings call on 16 May 2013, the Company said that in the first quarter of 2013 it spent "USD 73 million in expenses related to FCPA matters, which was above our forecasted range of USD 40 to USD 45 million. Approximately USD 44 million of the expenses represent costs incurred for the ongoing inquiries and investigations, while USD 29 million covers costs regarding the global compliance review, program enhancements and organizational changes."

In its quarterly filing 10-Q with the SEC, Wal-mart disclosed that it spent USD 82 million and USD 155 million on FCPA and compliance for the three and six months ended 31 July 2013, respectively, bringing its total amount spent to date on FCPA and compliance matters to over USD USD 300 million. Of these expenses, approximately USD 48 million and USD 92 million, respectively, represent costs incurred for the ongoing inquiries and investigations and USD 34 million and USD 63 million, respectively, relate to global compliance programs and organizational enhancements.

On 6 December 2013, Walmart disclosed that it had been informed by both the DOJ and SEC that it was being investigated by the agencies for possible violations of the FCPA. Walmart stated that it was cooperating with the DOJ and SEC investigations, and disclosed that other government agencies in Mexico had begun investigations into Walmart, as well.

In its Form 10-K filed with the SEC on 1 April 2015, Wal-Mart disclosed that it had spent USD 173 million in its latest fiscal year to investigate potential violations of the FCPA, as well as defend against lawsuits and respond to government requests related to these potential violations. In total, Wal-Mart has spent more than USD 600 million from 2012 to 2014 on fees related to the bribery allegations.

In October 2015, media reported that the three-year U.S. investigation into Walmart's Mexico allegations were mostly complete with likelihood to be resolved with a fine and no criminal charges against individual Walmart executives. As part of the same investigation, however, U.S. authorities uncovered evidence of bribery in India and continue to investigate potential bribery by Walmart in India.

According to the media reports in November 2015, U.S. investigation into potential foreign bribery by Walmart has unearthed evidence of bribery in Brazil. Early November 2015, U.S. authorities from the DOJ, SEC, Federal Bureau of Investigation ("FBI") and Internal Revenue Service ("IRS") reportedly traveled to Brazil to interview witnesses with the help of Brazilian prosecutors. Although the authorities are examining whether senior employees at Walmart in Brazil at the time of the alleged conduct were aware of and approved the suspected payments, the investigation into the Brazil allegations is at an early stage with none charged.

According to the media reports in March 2016, U.S. investigation into Walmart is in the final phase.

According to the media reports in October 2016, US authorities have proposed a penalty of at least USD 600 million to Wal-Mart to resolve their probe into the bribe allegations in Mexico, India and China. Wal-Mart reportedly rejected the settlement offer and the authorities have gone back to gather more evidence regarding the alleged bribe in Mexico. Attempts to settle the probe in January 2017 failed as well.

According to media reports in May 2017, U.S. authorities requested USD 300 million from the company to settle its investigations. Previously it had been reported that authorities had requested up to USD 1 billion.

Wal-Mart disclosed FCPA and compliance-related expenses of USD 17 million for its Q4 2017, bringing FY2017 total FCPA and compliance-related costs to USD 99 million, and an overall total of USD 837 million. In an SEC filing on 16 November 2017, Wal-Mart announced that it has set aside USD 283 million for a potential settlement with the DOJ and SEC.

20 June 2019: 

On 20 June 2019, Walmart Inc. resolved SEC and DOJ FCPA enforcement actions stemming from violations of the books and records and internal accounting controls provisions of the FCPA. 

Walmart entered into a non-prosecution agreement with the DOJ that requires Walmart to pay a monetary fine of approximately US$ 138 million.

 The SEC issued a consensual cease-and-desist order against Walmart requiring Walmart to pay a total of US$ 144.7 million (US$ 119.6 million in disgorgement and US$ 25 million in prejudgment interest) and to report for two years on the status of its remediation and implementation of anti-corruption related compliance measures. The SEC declined to impose a civil penalty on Walmart in light of the DOJ’s monetary fine.



ENTITIES/INDIVIDUALS INVOLVED

DETAILS OF HOW CONDUCT WAS DISCOVERED

Discovery Method: Voluntary Disclosure
Details:

In 2010, Walmart's general counsel initiated an investigation of compliance in the Company's subsidiaries in Mexico, China, and Brazil. When the results showed that background checks on third-party agents and other compliance measures required by Company policy were not being carried out, the investigation was expanded to all 26 of Walmart's foreign subsidiaries, beginning in the fall of 2011.

Late that year, Walmart learned that the New York Times was investigating specific allegations in Mexico from 2005; the Times published an article on the topic on 21 April 2012.

In 2004, Walmex attorney Sergio Cicero, having been passed over for promotion to general counsel of Walmex, began collecting records of bribes that he himself had organized. He disclosed the payment schemes to Walmart's attorneys in Arkansas in September 2005. An investigation was initiated, transferred to local Walmex jurisdiction, and closed. The Company made public disclosures and reported to the DOJ and the SEC after the press first reported the violations.

Walmart has since said that it is investigating potential violations of the FCPA in India, Brazil, and China.


Country: United States

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