Wal-Mart Close to Resolving Bribery Probe for $300 Million

  • Penalty would be far lower than U.S. had sought last year
  • Pact related to Mexico, China conduct said to include monitor

Wal-Mart Close to Resolving Bribery Probe for $300M

Wal-Mart Stores Inc. is preparing to pay roughly $300 million to resolve a long-running U.S. investigation into allegations of bribery by its employees, according to people familiar with the matter.

The deal, which the people said was being finalized and still could change, would amount to a significant concession by the U.S. government. The Justice Department and Securities and Exchange Commission had sought at least twice that amount as recently as last year as they investigated bribery allegations linked to Wal-Mart’s business in countries including Mexico, China and India. The proposed penalty could be easily absorbed by the world’s largest retailer.

The proposed resolution would require a guilty plea by at least one Wal-Mart subsidiary, said the people, who discussed details of the confidential negotiation on the condition of anonymity.

The parent company wouldn’t be charged, the people said. Instead, they said, it would enter into a non-prosecution agreement with the Justice Department and install an independent monitor to supervise the company’s compliance with the settlement.

Wal-Mart declined to comment. Wal-Mart’s latest annual report didn’t disclose any legal reserve and said the company didn’t expect a settlement to have a material impact on its business. Representatives of the Justice Department and the SEC declined to comment.

Wal-Mart’s shares rose less than 1 percent to close at $76.72 in New York.

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A deal with U.S. authorities would end Wal-Mart’s expensive legal troubles stemming from its efforts to expand rapidly abroad a decade ago. It would also allow the company to focus on improving profitability and its e-commerce business.

Wal-Mart and U.S. authorities were at odds over a settlement as recently as last fall, in the closing days of the Obama administration. With Wal-Mart balking over demands to pay $600 million or more in penalties, prosecutors were going back to gather more evidence from witnesses, people familiar with the matter said in October. Earlier, prosecutors and regulators were pushing for as much as $1 billion, one of the people said.

Mexico Unit

The case gained national prominence through articles in the New York Times detailing alleged bribery and a potential cover-up by high-level executives in Mexico. The reduced figure suggests that the case was difficult to prosecute once federal investigators gathered and scrutinized evidence, the people said.

Much of the alleged misconduct uncovered in Mexico, which has the most Wal-Mart stores outside the U.S., was too old to prosecute, people familiar with the matter have said. Also, most of the behavior under scrutiny involved dozens of small payments to government officials to speed zoning and building permits -- not the type of vast corruption involving million-dollar bribes as seen in other industries like mining, drilling and telecommunications, the people said.

Because of the challenges in Mexico, the government tried to build stronger cases around conduct found in Brazil and India, two people familiar with the matter have said. The probe into the company’s China operations, in the final phase of the investigation, didn’t uncover widespread bribes to government officials there, the people said.

The Wal-Mart investigation is one of the major financial fraud cases held over from the Obama administration. With dozens of foreign corruption investigations in the pipeline, a settlement by Wal-Mart will almost certainly be examined by corporate lawyers for signs of how the Trump administration will handle allegations of overseas bribery. The wild card is that many political posts at the Justice Department and SEC under President Donald Trump remain unfilled.

Company Disclosures

Wal-Mart disclosed possible violations in Mexico to the Justice Department and SEC in November 2011 after a New York Times investigative reporter approached the company with questions, a person familiar with the matter said. That disclosure, however, played down the seriousness of what internal investigators were finding, two of the people said.

The government’s investigation centered on whether employees bribed foreign officials to fast-track store openings at a time when the retailer was expanding aggressively overseas. Its first non-U.S. store opened in Mexico in 1991. Now more than half of the company’s nearly 11,700 stores are abroad, though it still makes nearly two-thirds of its overall revenue from Wal-Mart-branded stores in the U.S.

After the Bentonville, Arkansas, company conducted its own in-house probe, it overhauled its ethics and compliance programs, appointed chief ethics and compliance officers and anti-corruption directors within each of its markets, and assigned an executive vice president to oversee it all. That unit now employs 2,300 people.

In all, the company has spent roughly $837 million on legal fees, the internal investigation into the alleged payments and the compliance revamp, it has said in filings. It has also replaced its chief executive officer, chief financial officer and the heads of its U.S. and international operations.

Shifted Focus

Under Chief Executive Officer Doug McMillon, who took over in 2014, the company has shifted its focus to improving its U.S. stores and online operations, rather than expanding into new countries. Those efforts are starting to pay off, and the company’s shares have gained 11 percent this year, about double the return of the S&P 500 index.

The proposed Wal-Mart penalty -- once considered likely to rank among the largest levied under the 1977 Foreign Corrupt Practices Act, which makes it a crime to bribe officials to win business overseas -- would be smaller than the largest cases settled last year.

At the top of the list, Odebrecht SA, Latin America’s biggest construction company, and an affiliate agreed in December to pay more than $3.5 billion to authorities in the U.S., Brazil and Switzerland to resolve bribery allegations involving Brazil’s state-run oil company. It was the largest corruption penalty ever issued by global authorities.

The proposed Wal-Mart penalty would be modest relative to the company’s size. It posted about $22.8 billion in operating income on $486 billion in revenue during the fiscal year that ended in January.

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