August 1, 2012

Walmart Fallout: US Government Bribery Probe May Extend To Retail Industry

Seller Beware: Consumer Protection Insights for Industry

The recent headline news that Walmart may have been involved in a bribery scheme to expedite construction permits in Mexico may have a direct impact on other retailers. As a result of the Walmart scandal, a number of retail companies have self-reported potential corruption issues to the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC). It appears that this may trigger an industry-wide investigation by the DOJ and SEC. A July 27 Reuters story, written by a reporter on the anti-corruption beat, Monday reported that "US authorities are considering launching a wide-ranging examination of the retail industry for violations of an anti-foreign bribery law."

All US and some non-US companies are subject to the US's broad anti-corruption law, the Foreign Corrupt Practices Act (FCPA), which prohibits giving bribes of any kind to foreign government officials. The FCPA prohibits such bribery by anyone - including foreign companies and nationals - anywhere in the territory of the US (including transactions with as little contact with the US as emails or bank transactions), and anywhere in the world if undertaken by a US entity (and in some cases its foreign subsidiaries), citizen or resident. In addition, the SEC has jurisdiction to punish civilly any corporation listed on US exchanges or that have Level II or III ADRs, if those companies have not accurately recorded their financial transactions.

Although a US government bribery investigation into retailers may be coming down the pike, because in FCPA investigations the government looks favorably on companies with strong global anticorruption policies, retailers can take steps ahead of time to put themselves in a better position for such an eventuality. For example, DOJ and the SEC recently declined to charge Morgan Stanley in a case where they brought charges against a Morgan Stanley employee based in China. DOJ and the SEC apparently declined to punish the company because it had such a strong global anti-corruption compliance program. Among other things, Morgan Stanley trained the targeted employee at least seven times about its anti-corruption policy; it required the employee to certify his compliance with the FCPA multiple times; it employed 500 regional compliance officers; it had an extensive third-party due diligence system; and it regularly audited various aspects of its business to ensure that there were no corruption problems.

As a result, particularly given the potential for an industry-wide sweep, retail companies should ensure that their anti-corruption compliance systems are robust enough to withstand US government scrutiny. They should put in place compliance structures such as strong global anti-corruption policies and safeguards, adequate testing of its transactions and relationships with third parties, and adequate resources to enforce their policies.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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