May 2016

Is It Over Yet?

In October of last year the U.S. Justice Department quietly concluded its investigation into a Walmart bribery probe opened in 2012. The Justice Department found no major misconduct by Walmart in the operations of its stores in Mexico. The investigation was opened almost solely on the basis of a series of articles in the New York Times reporting on alleged misdeeds by senior managers running the operations in Mexico.

That the series published by the New York Times was long on allegations and short on facts did not impede the Justice Department’s decision to pursue its investigation and some of the unsubstantiated allegations dated back to 2005 and had previously been examined.

Fast forward to October 2015 and after more than three years of investigation, the Justice Department found no clear evidence of wrong doing in Walmart’s Mexican operations. A Wall Street article reported that the investigation, carried out under the auspices of the Foreign Corrupt Practices Act, failed to yield anything that rose to the level of a “smoking gun”.

After spending many millions of dollars of tax money to investigate a flimsy case, the only findings affecting Walmart’s stores in Mexico pertained not to bribery, fraud, or collusion, but a failure to adequately implement an acceptable compliance program for those branches of its operations. In response to the newspaper articles Walmart initiated an internal investigation almost a year before the Justice Department began its investigation, and a number of the weaknesses in its compliance program had already been identified.

The seriocomic consequence of this affair is that Walmart spend almost $650 Million dollars defending itself from allegations that were ultimately proved false. It was an extraordinarily expensive lesson on the perils of not taking time to make sure the existing compliance program were robust enough to address the added risks of doing business in overseas markets.

Walmart can take small comfort from the fact that it will not have to deal with a long-lasting consent decree or a deferred prosecution. But it will continue to undergo unnecessary scrutiny from regulators who always have their eye on financially successful companies with far-reaching operations because they make easy targets in the very complicated compliance world.

A case in point is that, while not guilty of wrong doing in Mexico, and based on data developed during this investigation, Walmart has a fresh set of challenges stemming from its operations in India. Sadly, the story is not over.

Food for Thought: “To conquer frustration, one must remain intensely focused on the outcome, not the obstacles.” (T.F. Hodge)

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