Archives for May 2012

By gretchen Morgenson
Published by the New York Times, April 30, 2012

Concerned about Wal-Mart’s reported cover-up of bribery in its Mexico operations, leaders of New York City’s pension funds said Monday they would vote their 4.7 million company shares against five directors standing for re-election to the retailer’s board at its annual shareholder meeting next month.

It was unclear whether other investors would join the city pension funds and vote against Wal-Mart’s directors. Board members at some large public companies have come under fire from shareholders at annual meetings this year, but most of the opposition has been related to executive pay practices. It is unusual for board members to be unseated by a shareholder vote.

With Wal-Mart’s internal practices under the microscope, however, some investors said the company’s annual meeting could be contentious.

Officials at the New York City pension funds said they were taking action against the Wal-Mart directors because their previous efforts to persuade the board to increase its oversight of legal and regulatory practices at the retailer were unsuccessful. In 2005, for example, after reports that Wal-Mart had hired undocumented immigrants and violated child labor laws in three states, a group of institutional investors including the New York City comptroller asked the company’s board to hire an independent firm to review its regulatory controls and report findings to shareholders. Although Wal-Mart directors met with the investor group, the group’s request for a review was rebuffed.

The fruitless 2005 discussions re-emerged as an issue for John C. Liu, the New York City comptroller who is the trustee of the pension funds, because that was the year high-level Wal-Mart officials were told of bribery in its Mexico unit, according to a recent report in The New York Times. It is unclear whether Wal-Mart’s independent directors were aware of the Mexican improprieties, which The Times reported were related to expediting government approvals to build stores.

“In its relentless drive for profit and expansion, Wal-Mart has paid millions to settle charges that it violated child labor laws and exploited immigrants,” Mr. Liu said Monday, in announcing the decision to vote against the company’s directors. “Now we learn that not only did Wal-Mart allegedly bribe its way through Mexico, but may have tried to cover up the corruption. A select few Wal-Mart executives may benefit in the short term, but the company, its share owners and everyone else lose in the long run.”

Wal-Mart declined to comment.

The directors opposed by the New York City pension funds are Michael T. Duke, the company’s chief executive, and H. Lee Scott Jr., his predecessor. Pension fund officials said in a statement that Wal-Mart’s failure to pursue an independent investigation into bribery allegations in 2005 “has potentially exposed the corporation and its share owners to even more serious financial and reputational harm.”

Along with opposing corporate insiders, the shareholders will vote against Christopher J. Williams, chief executive of the Williams Capital Group, an investment bank, who heads the audit committee of the Wal-Mart board and who has been a director since 2004; and Arne M. Sorenson, the chief executive of Marriott International, who sits on the audit committee. They will also oppose the board chairman, S. Robson Walton, because he presides over a board consisting of too many directors with company ties, Mr. Liu said.

William C. Thompson Jr., Mr. Liu’s predecessor, was the New York City comptroller when the investor dialogue with Wal-Mart’s board began. In a letter dated May 25, 2005, he and three other large institutional investors urged the audit committee of the company’s board to set up a group of independent directors to conduct a comprehensive review of the company’s legal and regulatory controls.

The board responded by having two members of its audit committee meet with the investors, according to William R. Atwood, executive director of the Illinois State Board of Investment, who attended the meetings. “They were confident that the processes that were in place were sufficient, but we walked away from the meeting doubtful that that was the case,” Mr. Atwood said Monday. “Fast-forward to now, and unfortunately they relied on internal controls that clearly were wholly inadequate.”

After the meeting with the Wal-Mart directors, the shareholder group continued to press for greater outside policing of the company’s policies and controls. In November 2005, the investors requested more material from the board, asking for, among other things, information about what the company was doing to ensure that “individual and regional store performance targets and aggressive growth targets are not driving noncompliance through the system.” The company did not comply with the request.

Elizabeth McGeveran, senior vice president for governance and sustainable investments at F&C Management, a $150 billion London-based asset manager, also participated in the meeting with the Wal-Mart directors. “We had a good preliminary discussion,” she recalled Monday. “From that I had hoped we were going to springboard to a more detailed conversation with independent directors about controls, and they didn’t seem to have an appetite for that.”

Now that the bribery scandal has erupted, Ms. McGeveran said: “One of the biggest questions that I still have is this is such a big institution, how are they evaluating the true effectiveness of their policies? It would be a good time for the board to start talking more broadly and more publicly about those questions.”

The board will have that opportunity at the Wal-Mart annual meeting, scheduled for June 1 in Fayetteville, Ark.

The New York City pension funds that will vote against the Wal-Mart directors are the New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System.
© 2012 New york Times

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By Miguel Bustillo
Published by the Wall St Journal, April 23, 2012

Wal-Mart Stores Inc. faces significant legal risks after it disclosed that it is investigating its operations in Mexico for possible violations of the U.S. law that prohibits bribery in foreign countries, legal experts said.

In December, Wal-Mart, the world’s largest retailer, disclosed in a Securities and Exchange Commission filing that it was conducting an internal investigation into a potential violation of the Foreign Corrupt Practices Act, but didn’t say where or give other details. It now says that it also met with SEC and Justice Department officials around that time to alert them to the probe.

Over the weekend, Wal-Mart acknowledged that its probe involved Mexico after the New York Times published a lengthy article reporting that Wal-Mart executives learned in 2005 of allegations of “widespread bribery” designed to smooth the way for the company’s rapid expansion in that country.

Wal-Mart didn’t report the allegations at the time to U.S. or Mexican authorities or conduct an adequate internal probe, the newspaper said, citing company e-mails and documents.

In response to the article, Wal-Mart said in a statement that “if these allegations are true, it is not a reflection of who we are or what we stand for. We are deeply concerned by these allegations and are working aggressively to determine what happened.”

A person familiar with the matter said federal authorities now are directing Wal-Mart to do a thorough probe of its own with help from outside experts.

In recent years U.S. prosecutors have stepped up enforcement of the 1977 foreign-bribery law, and have strongly encouraged companies to move swiftly to report suspected violations. Both the Department of Justice and the SEC , which share responsibility for enforcing the law, declined to comment on the Wal-Mart matter.

Wal-Mart said in a Mexican regulatory filing Friday that it had removed its general counsel in Mexico , José Luis Rodríguezmacedo Rivera, “effective immediately.” Mr. Rodriguezmacedo, who had held the post since 2004, couldn’t be reached for comment.

David Tovar, a spokesman for Wal-Mart, said Mr. Rodriguezmacedo was reassigned “in the interests of the investigation,” but declined to elaborate.

Wal-Mart began a global review of its compliance with the corruption law last spring, with assistance from law firm Greenberg Traurig LLP and auditing firm KPMG LLP, after a risk assessment the year before, Mr. Tovar said Sunday. That, combined with “outside information” he declined to detail, led to the December disclosure, he said.

Any U.S. investigation of Wal-Mart would likely involve close scrutiny of Eduardo Castro-Wright , who presided over the Mexico operation during the period in question in the past decade before becoming vice chairman of the company, said Michael Koehler, a professor of business law at Butler University in Indianapolis . “The classic investigative question of what did you know and when did you know it applies here,” he said.

Mr. Castro-Wright, who is slated to retire from Wal-Mart in July, didn’t return phone calls seeking comment. Wal-Mart declined to make him available, saying he was no longer playing a daily role at the company but was serving as a consultant.

Mr. Castro-Wright formerly served as a director of Dow Jones & Co., the parent of The Wall Street Journal, before its 2007 acquisition by News Corp. A Wal-Mart director, venture capitalist Jim Breyer, serves on the board of News Corp.

If federal investigators found any evidence of a cover-up, they could bring criminal charges against individual executives at the company, Prof. Koehler and other legal experts said.

Wal-Mart Chief Executive Mike Duke, who headed Wal-Mart’s international division in 2005, and former CEO H. Lee Scott Jr ., who remains on the company’s board, didn’t return phone calls seeking comment. The company declined to make Mr. Duke or Mr. Scott available for interviews.

“Mike is fully supportive of the independent investigation being conducted in Mexico with oversight by the [board’s] Audit Committee, including ensuring that all resources necessary are available to pursue the independent investigation aggressively,” said Mr. Tovar, the company spokesman, adding that Mr. Duke supported cooperating with U.S. authorities.

Earlier this month, Mr. Duke met with Mexican President Felipe Calderón and declared that the Mexico business was an example for the rest of the chain, according to an April 13 statement from Mr. Calderón’s office.

If federal authorities conclude that Wal-Mart violated the law, the Justice Department “will levy as large a fine as possible in a case like this, because it has repeatedly counseled companies that companies will be looked on with great favor if they do come forward,” said Kevin T. Abikoff, chairman of the anti-corruption practice at law firm Hughes Hubbard & Reed LLP. “You either pay a small price early or a huge amount later.”

If prosecutors establish that Wal-Mart violated the law, the size of any fine could amount to millions of dollars, depending on the size of the competitive edge U.S. officials estimated the company gained from any illegal actions, lawyers said, estimating that a government probe could take two to four years. The government could also require Wal-Mart to hire an independent compliance monitor.

Alexandra Wrage, president of Trace International, Inc., a nonprofit group that helps companies develop anti-bribery programs, said companies aren’t legally bound to disclose internal probes, but they must show that they took steps to resolve problems. “Company representatives that choose not to voluntarily disclose had better have a good story to tellthe enforcement agencies about their thorough investigation, prompt response and meaningful corrective action the enforcement agencies about their thorough investigation, prompt response and meaningful corrective action,” Ms. Wrage said.

—Amy Guthrie and Russell Gold contributed to this article.

A version of this article appeared April 23, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: Wal-Mart Faces Risk In Mexican Bribe Probe.

© 2012 Dow Jones Co

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By Tom Hamburger , Brady Dennis and Jia Lynn Yang
Published by the Washington Post, April 24, 2012

Wal-Mart, the giant retailer now under fire over allegations of foreign bribery in Mexico, has participated in an aggressive and high-priced lobbying campaign to amend the long-standing U.S. anti-bribery law that the company might have violated.

The push to revisit how federal authorities enforce the statute has been centered at a little-known but well-funded arm of the U.S. Chamber of Commerce where a top executive of Wal-Mart has sat on the board of directors for nearly a decade.

The effort has intensified in the past two years, drawing on the backing of several large companies and trade groups such as the Retail Industry Leaders Association, where one of Wal-Mart’s top executives serves as a director. It also has involved high-powered lobbyists, including former attorney general Michael B. Mukasey.

The 1977 law, known as the Foreign Corrupt Practices Act, prohibits U.S. companies from offering fees or gifts to foreign officials to advance corporate interests.

There is no evidence that suggests Wal-Mart participated in the Chamber’s efforts because of its problems in Mexico. But even as the company has pledged zero tolerance for corruption around the globe, it has been a party to an effort that, some advocacy groups argue, would eviscerate the Watergate-era anti-corruption statute.

The Justice Department launched an investigation into Wal-Mart’s Mexican subsidiary in December over payments of more than $24 million in bribes to win construction permits there .

A company whistleblower told top corporate officials about the alleged bribes in 2005, The New York Times reported recently . The company launched but then shut down an internal inquiry and then failed to notify the Justice Department or the Securities and Exchange Commission of the allegations as required by law.

Wal-Mart’s corporate secretary and top ethics officer, Thomas D. Hyde, who stepped down from his job at Wal-Mart in 2010, was among the company executives who received initial reports of the bribes in 2005, the Times reported.

Between 2003 and 2010, public records show, Hyde sat on the 40-member board of the Institute of Legal Reform, a division of the U.S. Chamber that has led the way in criticizing parts of the law and talking about the need to change it.

Wal-Mart is one of more than 20 companies represented on the ILR’s board, according to the most recent tax filings from the Chamber group. Other companies include General Electric, ExxonMobil and Dow Chemical.

The retailer did not respond to questions about its participation in the Chamber’s campaign. But a person familiar with the effort, who spoke on the condition of anonymity because the board’s deliberations are private, said Wal-Mart was “not particularly active” on the board or in the FCPA lobbying effort.

Wal-Mart issued a statement on Tuesday, saying that it had instituted new protocols to make sure that FCPA investigations are “managed consistently and independently” and that it had created a new role for a global FCPA compliance officer. “We are taking a deep look at our policies and procedures in every country in which we operate,” said company spokesman David Tovar.

Mukasey was at the Justice Department during the latter years of the George W. Bush administration, when enforcement of the anti-bribery law escalated after the Sept. 11, 2001, terrorist attacks.

Over the past two years, the former attorney general’s law firm has received more than $200,000 in fees from the Chamber to work on clarifying the way in which the law is enforced. Although the lobbying campaign has remained largely out of the public spotlight, it has triggered a vigorous debate in the Justice Department and on Capitol Hill, where a handful of lawmakers have considered introducing legislation to amend parts of the law.

“I am bothered by the Chamber’s effort to gut this law,” said Stanley Sporkin, former enforcement director of the SEC who helped write several parts of the statute. “This law has made an important contribution in the world. The Justice Department has been aggressive in enforcing [it], and it has produced good results.”

The debate over the FCPA has intensified in recent years, in part because of the increase in federal enforcement.

In 2004, Justice pursued two cases under the FCPA. By 2008, there were 20 actions. The tough enforcement has continued under President Obama. In 2010, Justice worked on a record 48 cases, including one that resulted in an $800 million fine against German conglomerate Siemens.

Paul Pelletier, a former supervisor for the unit at Justice charged with enforcing the FCPA, said two prosecutors were dedicated to the issue when he began in 2002. By the time he left in 2011, there were 15, as well as additional units at the FBI and the SEC.

“The more we lifted up rocks, the more we saw of it,” said Pelletier of the bribery, adding that cases turned up as companies aggressively globalized their operations.

Last fall, assistant U.S. attorney general Lanny A. Breuer said officials were planning during 2012 to release “detailed new guidance” about how the FCPA should be enforced. Still, he made clear that he had little intention of scaling back the decades-old anti-corruption law.

“This is precisely the wrong moment in history to weaken the FCPA,” Breuer said then. “There is no argument for becoming more permissive when it comes to corruption.”

Breuer’s comments came as several business groups boosted efforts to rework parts of the law. The Chamber’s Institute for Legal Reform released a 28-page policy paper detailing a wish list of FCPA reforms. Among them: Measures limiting a company’s liability for the actions of its subsidiaries and a clearer definition of who qualifies as a “foreign official.”

That push has continued this year, as Justice and SEC officials have met with a wide range of industry and advocacy groups regarding the guidance the agencies plan to issue in coming months.

In February, the Chamber enlisted a disparate collection of other groups, including the American Gaming Association, the Faulkner County Farm Bureau in Arkansas and the Retail Industry Leaders Association, to sign onto an 11-page letter publicly advocating tjat federal officials clarify the statute. The letter argues that vague language in the law and the way in which investigators have enforced it have resulted in “a chilling effect on legitimate business activity.”

Those groups and others have said that they are merely looking for a measure of certainty and clear-cut guidelines from federal authorities.

Mukasey also rejected any suggestion that the Chamber effort is undermining the bribery statute, saying the proposals could ultimately strengthen the effort to fight corruption. “The clarity we are seeking will strengthen incentives for compliance,” he said, adding that the criticism of the Chamber campaign is off base. “I understand why people use that rhetoric. But I don’t see it as accurate.”

The requests by Chamber and its allies for adjustments and clarifications to the law have provoked strong criticisms from some government officials and a coalition of human rights and corporate governance groups.

In a speech last month, Secretary of State Hillary Rodham Clinton reiterated that the Obama administration has no intention of allowing a scaled-down FCPA.

“We are unequivocally opposed to weakening the Foreign Corrupt Practices Act,” Clinton said. “We don’t need to lower our standards. We need to work with other countries to raise theirs. I actually think a race to the bottom would probably disadvantage us.”

Harvard law professor David Kennedy co-wrote a report last year on the FCPA called “Busting Bribery,” which was published by the Open Society Foundation, backed in part by liberal philanthropist George Soros. The paper denounced proposed amendments to the law.

“In the guise of clarifying,” Kennedy said, “they are gutting the law.”

© 2012 Washington Post

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