Worst Part of Wal-Mart Bribery Case Is Failure to Conduct Proper Investigation

Over the weekend, The New York Times broke a major story, publishing a highly detailed 8,000-word article that seems to indicate that Wal-Mart not only engaged in a pattern of bribery of Mexican government officials in the mid-2000s but also that the company intentionally stifled an internal investigation of the alleged bribery and in fact directed most of its furor against the former employee who blew the whistle on Wal-Mart’s conduct.

The story knocked 5 percent off Wal-Mart’s stock price after it broke, and commentators are talking about possible jail terms for company executives and major fines under the Foreign Corrupt Practices Act (FCPA). Democrats on the Hill are already talking about hauling top Wal-Mart executives to hearings to explain the alleged bribery and cover-up.

We certainly don’t condone unethical or illegal practices, and we have always taken the view that the best way for a company to deal with a bribery scandal is to open a no-holds-barred internal investigation. According to the Times, Wal-Mart originally decided to do just that by hiring the law firm of Willkie, Farr & Gallagher to conduct that type of internal probe, but it instead chose to do a much more limited investigation in which its senior management had direct control over the probe.

From a legal, prudential, and public relations standpoint, Wal-Mart should have stayed with its original plan of bringing in Willkie Farr. A report from a law firm of that firm’s stature, acting independently, would have had instant credibility and would have more readily helped Wal-Mart get past this crisis.

One thing that an internal investigation might have found is that many of the payments by Wal-Mart to foreign officials did not violate the FCPA since they merely facilitated government action, such as the granting of a permit, that would have occurred in any case. We simply don’t know about the nature of each alleged payment – but now, with Congress, the media, and the blogosphere on Wal-Mart’s trail, all we will hear for a while will be how guilty Wal-Mart is.

Regardless of the ultimate outcome, this should remind everyone that the rules for doing business abroad are not the same as in the United States. Sometimes, compliance with U.S. law such as the FCPA is not uppermost in the mind of executives in foreign countries, and it should be.