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« Reuters: SEC Investigation Of Movie Studios Focuses On China | Main | Wal-Mart's Potential Liability: Greater Or Less Than We Think? »
Tuesday
Apr242012

Weighing Walmart: What Makes A Big Case?

Joe Palazzolo and Chris Matthews at the Wall Street Journal asked how Walmart's alleged $24 million in bribes to Mexican officials compares with other cases from our list of the Top Ten FCPA enforcement actions.

At the top end, Siemens paid bribes of $1.4 billion and settled for $800 million. KBR paid $182 million in bribes and settled for $579 million. BAE paid $200 million in bribes and settled for $400 million.

Further down the list, Daimler paid $56 million in bribes and settled for $185 million. Alcatel-Lucent's bribes amounted to just $9.8 million but it settled for $137 million. Magyar Telekom paid $15 million in bribes and settled for $95 million. Panalpina paid $49 million in bribes and settled for $81.8 million.

Is there a pattern? Not that we can see. 

So if ultimate liability doesn't always depend on the amount of the bribes, what else is there?

The federal sentencing guidelines (Chapter 8) set out how criminal fines should be calculated for organizations. The DOJ isn't bound by them during settlement negotiations. And they don't apply to the SEC's civil enforcement. But the guidelines are an influence.

They list the factors. Like the size of the company, the number of employees, involvement of high-level management, prior history, whether there was voluntary disclosure, cooperation, and acceptance of responsibility, and finally the amount of gain or profit produced by the bribes (minus the amount paid through disgorgement).

But the key, we think, is senior management culpability. Most of the cases in the Top Ten are there because the big dogs broke the rules. Not just a couple of salespeople in the field. Not rogues who wandered off the reservation, but senior execs, sometimes even C-level honchos.

Remember Siemens? The illegal activity started at the top and filtered down. At KBR, the CEO organized the bribery and worked overtime to 'get around' the FCPA. Bad idea.

Alcatel-Lucent's country manager in Costa Rica was the architect of the corruption there. At Magyar Telekom, the sleaze was also management's show.

Cooperation matters. Siemens at first was slow to react. Daimler too. BAE stonewalled the DOJ for a year or so. And most of the other top ten companies didn't self report. They waited to be caught. (Cooperation often lags when top execs have unclean hands.)

Are brand-name companies more likely to be hit with big enforcement actions? Could be. Siemens is a household name in most parts of the world. KBR sits near the top of the oil and gas services business. Daimler cars have been carrying English and European royalty around for more than a century. BAE and Alcatel-Lucent are big leaguers. So brand names may attract attention from the DOJ and SEC. Then again, who are Magyar Telekom and Panalpina?

And don't forget 'profit.' Contributing editor Andy Spalding said today it's not bribe size, but profit resulting therefrom, that determines ultimate liability.

So what makes a big FCPA case? It's a complicated recipe. But the secret sauce, we think, is the role senior management played in the bribery or its concealment. After that, bribe amounts, cooperation, brand names, and tainted profits figure in the mix.

Conclusion: If the allegations reported by the New York Times about Walmart are true, the company Sam built may someday land a spot on our Top Ten list.

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