How Wal-Mart Killed the Compliance Defense

In yesterday’s post, Andy Spalding said efforts to reform the FCPA by adding a compliance defense have emerged “unscathed” from the fallout over the New York Times report of Wal-Mart’s conduct in Mexico. I believe the opposite is true; that the Wal-Mart scandal sounded the death knell for any efforts to amend the FCPA by adding a compliance defense.

Andy said: the reform proposals are not about “having just any compliance defense in place should constitute a defense. Rather, it's a "good faith" compliance defense. What is good faith? We can talk about that. But for now let's say that if the CEO knew of a high probability of systematic bribery within his company and did not conduct a thorough investigation, he was not complying in good faith.”

The Preamble to the FCPA gives three reasons for the passage of the Act. First, the public revelation that over 400 U.S. companies had paid over $300 million to bribe foreign governments, which Congress noted was not only “unethical” but also “counter to the moral expectations and values of the American public.”

Second was the revelation that bribery tended “to embarrass friendly governments, lower the esteem for the United States among the citizens of foreign nations, and lend credence to the suspicions sown by foreign opponents of the United States that American enterprises exert a corrupting influence on the political processes of their nations."

Third was the idea, testified to by corporate leaders, that the FCPA would help U.S. companies resist demands to pay bribes made by corrupt foreign governments, their agents and representatives.

Enacting a compliance defense does nothing to further any of those goals. The Wal-Mart scandal demonstrates clearly that amending the FCPA to allow a compliance defense won't incentivize compliance. Here, the world’s largest retailer had a compliance program in place yet is now alleged to have paid over $24 million in bribes, and then covered it up. It is hard to see how having a compliance defense would have led to greater compliance at Wal-Mart.

The Wal-Mart allegations re-emphasize why the Department of Justice should have discretion in evaluating each case on its own merits, to determine whether or not to prosecute and if so, determine penalties. Without such discretion, many more companies would likely face the prospect of being indicted for FCPA violations.

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Thomas Fox is the creator and writer of the widely-read FCPA Compliance and Ethics Blog. His book Lessons Learned on Compliance and Ethics topped Amazon's bestseller list for international law. He can be contacted here.