Risk & Compliance

Walmart FCPA Case Cites Poor Internal Controls

The Securities and Exchange Commission today charged Walmart with dragging its feet on anti-corruption compliance for more than a decade.
Vincent RyanJune 20, 2019

internal controlsFor more than a decade, retailing giant Walmart failed to operate a sufficient anti-corruption compliance program and allowed subsidiaries in Brazil, China, India, and Mexico to employ third-party intermediaries who made payments to foreign government officials.

As a result, the Securities and Exchange Commission on Thursday charged Walmart with violating the Foreign Corrupt Practices Act (FCPA). The SEC’s order detailed several instances when, beginning in 2005, Walmart planned to implement proper FCPA compliance and training only to put those plans on hold. It also allowed deficient internal accounting controls to persist even in the face of red flags and corruption allegations, the SEC said, and didn’t thoroughly investigate instances of possible corruption when it became aware of them.

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For example, in July 2011, an anonymous source sent an email to certain Walmart executives alleging an employee of its India subsidiary was making improper payments to government officials to obtain store operating permits and licenses. Although a Walmart executive requested that internal investigators examine the allegations, Walmart did not conduct an inquiry at that time.

Another corruption risk identified was a Mexico subsidiary’s practice of donations in the form of checks, cash, and merchandise to Mexican municipalities and local government entities. In some instances, the donations were made around the time the Mexico subsidiary obtained permits and licenses or other government approvals. Some of the goods donated, such as cars and computers, were capable of being converted to personal use, said the SEC. The donations occurred for several years before the subsidiary implemented sufficient internal accounting controls regarding donations in April 2011.

“Walmart valued international growth and cost-cutting over compliance,” said Charles Cain, chief of the SEC enforcement division’s FCPA Unit. “The company could have avoided many of these problems, but instead Walmart repeatedly failed to take red flags seriously and delayed the implementation of appropriate internal accounting controls.”

Walmart agreed to pay more than $144 million to settle the SEC’s charges and approximately $138 million to resolve parallel criminal charges by the U.S. Department of Justice.

In accepting a settlement officer from Walmart, the SEC said it considered Walmart’s disclosures, cooperation, and remedial efforts. Those included self-disclosing the potential FCPA violations in Mexico in November 2011; making foreign-based employees available for interviews in the United States; producing translations of relevant documents; and obtaining the cooperation of former employees and third parties, including their consent to interviews.

The remedial measures included hiring a global chief ethics and compliance officer as well as a dedicated global anti-corruption officer that have separate reporting lines to Walmart’s audit committee. The company also added anti-corruption compliance personnel at Walmart’s home office and in Walmart’s foreign markets.