On June 20, 2019, Walmart entered into a US$282.7 million global settlement with the U.S. Securities and Exchange Commission (“SEC”) and Department of Justice (“DOJ”), ending a seven-year investigation into the company’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA). Similar to Canada’s Corruption of Foreign Public Officials Act (CFPOA), the FCPA makes it an offence for U.S. companies or issuers to make corrupt payments overseas to foreign public officials, or to keep improper books and records to hide or facilitate such corrupt payments.
Under the settlement, Walmart agreed to disgorge more than US$144 million in profits to the SEC and pay another US$138 million to resolve criminal charges by the DOJ. Although Walmart had previously disclosed this settlement amount in November 2017, it took an additional 1.5 years to formally resolve the matter. This global resolution ends all related investigations by the SEC and the DOJ into Walmart and its subsidiaries.
Background
The allegations against Walmart first came to light in 2012, following claims in the New York Times that the retailer had paid around USD $24 million in bribes to Mexican officials to facilitate its expansion in the country. The New York Times article also claimed that Walmart’s own internal investigation, which commenced in 2005 and uncovered suspect payments, was halted in 2006 by certain senior executives without taking any internal or external remedial action. Walmart confirmed at the time that it was the subject of FCPA investigations. These investigations later expanded to include allegations of potential violations in other jurisdictions, including Brazil, China and India.
In parallel announcements on June 20, 2019, the SEC and DOJ faulted Walmart over payments made to fast-track store openings in these jurisdictions. Specifically, according to the SEC order, from around July 2000 through April 2011, Walmart’s subsidiaries in Brazil, China, India and Mexico “operated without a system of sufficient anti-corruption related internal accounting controls,” in violation of the books and records and internal accounting control provisions of the FCPA.
These internal control failures allowed Walmart’s foreign subsidiaries to hire third-party intermediaries who made improper payments to foreign government officials. Walmart was subsequently able to earn more profit by opening some of its stores faster than it would have with sufficient internal accounting controls. Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit, commented that “Walmart valued international growth and cost-cutting over compliance.”
In the settlement’s criminal proceedings, Walmart’s Brazilian subsidiary, WMT Brasilia S.a.r.l., pled guilty for failing to keep accurate records in accordance with FCPA’s books and records provisions. As part of the global resolution, the U.S. parent reached a three-year Non-Prosecution Agreement (“NPA”) with the DOJ in which it acknowledged responsibility for criminal conduct relating to certain findings in the SEC order. Under the NPA, Walmart agreed to retain an independent corporate compliance monitor for two years while the DOJ agreed it will not prosecute Walmart if, for three years, the company meets its obligations as set forth in the agreement. In addition, the US$4.3 million penalty against WMT Brasilia S.a.r.l. will be deducted from the amount owed by Walmart.
Walmart has asserted that the payments in question took place prior to 2011 and that since then, it has conducted a thorough internal investigation, cooperated with the SEC and the DOJ, and taken steps to establish its Global Anti-Corruption Compliance Program. Over the past seven years, the retailer has spent over US$900 million on this program, FCPA investigations and inquiries, as well as “organizational enhancements.” The SEC and the DOJ acknowledged these actions in their resolution agreements with Walmart.
Non-prosecution agreements and deferred prosecution agreements
As discussed above, the criminal proceedings against Walmart were resolved by means of an NPA, a vehicle in which the enforcement authority abstains from bringing charges in exchange for the accused company entering into an agreement acknowledging wrongdoing and agreeing to abide by measures generally including fines and remediation. Although NPAs are currently not used by Canadian regulators, on September 19, 2018, amendments to the Criminal Code established a Deferred Prosecution Agreement (“DPA”) regime in Canada.
A DPA, similarly to an NPA, is an agreement entered into between a prosecutor and an organization alleged to have engaged in economic crimes. Unlike an NPA, where the prosecutor refrains from filing charges, the effect of the DPA is to suspend the prosecution while establishing undertakings that the organization must fulfill to avoid facing potential criminal charges. Once the accused entity fulfills the terms of a DPA, the charges are dropped. Although authorities in the U.S. and U.K. actively use DPAs to reduce corporate criminal behaviour, DPAs were unavailable in Canada until recently. The new regime – labelled “remediation agreements” under the Criminal Code – finally made DPAs available to Canadian authorities. A full description of the remediation agreement regime can be found here. To date, no remediation agreements have been entered into in Canada.
The use of NPAs and DPAs by enforcement authorities represents part of a broader trend in anti-corruption enforcement, in which the majority of cases are settled out of court using mechanisms such as NPAs, DPAs and plea bargains, rather than proceeding to trial. In March 2019, the Organization for Economic Co-operation and Development released a report confirming that non-trial resolutions represent the main mechanism used to combat transnational corruption issues.
Books and records provisions of the FCPA and CFPOA
The charges against Walmart are reflective of the more stringent books and records and internal accounting control provisions of the FCPA. Unlike the written text of the CFPOA, which prohibits companies from keeping false or inaccurate books and records for the purpose of obtaining an advantage in the course of business or hiding bribery, the FCPA includes a positive obligation on companies to keep books and accounts that accurately reflect their transactions and disposition of assets, and to maintain a system of internal accounting controls sufficient to assure management’s control over the company’s assets.
It remains to be seen whether Canadian courts will similarly hold companies to a stricter standard under the accounting provisions of the CFPOA. In either case, Canadian companies should follow stringent account controls subject to periodic audit to ensure all transactions and dispositions of assets are fully and accurately recorded.
