Over the weekend, dramatic allegations about Wal-Mart’s involvement in over $24 million of suspicious payments broke in the New York Times. The former executive who contacted the New York Times, Mr. Sergio Cicero Zapata, resigned from Wal-Mart de Mexico – as the company is known in that country – in 2004. Mr. Cicero, who was an in-house lawyer in the real estate department, states that he was personally involved in years of facilitating payments, recruiting middlemen known as gestores to funnel payments to the right people, and who also took massive cuts of the bribes. These payments accelerated Wal-Mart de Mexico’s explosive growth, much of which occurred after Eduardo Castro-Wright came on board as CEO in 2001.
Mr. Cicero brought these allegations to Maritza Munich, then the general counsel of Wal-Mart, in 2005. As general counsel, Ms. Munich had implemented rigorous anticorruption protocols just a year earlier, in 2004. After Mr. Cicero and Ms. Munich met, an internal investigation was triggered, a move typical of how such matters are usually handled. However, after first hiring an independent law firm to lead the investigation, Wal-Mart chose to go it alone and keep all efforts internal, confined to the privacy of the company.
To make a very long story short, the investigative efforts did not result in any consequences for those involved in the under the table transactions that propelled Wal-Mart de Mexico into its current position as the largest private employer in all of Mexico. Blame was put onto Mr. Cicero, who has been depicted as a spiteful former employee who had profited from the system of bribery. Wal-Mart only disclosed the allegations to the DOJ and SEC at the end of 2011, when it informed the organizations that it had initiated an internal investigation into potential violations of the Foreign Corrupt Practices Act (FCPA). The FCPA makes a distinction between “grease” payments, which are paid to government officials in order to expedite services that they were already obligated to perform, and bribery. Bribery entails payments that influence a government official to act in violation of his or her duty, or give an unfair advantage.
Under the FCPA, grease payments may be legal, if they are legal in the country that they occurred in. This is because, unlike a bribe, a facilitating payment only influencing the timing of a legal event or action, rather than whether or not it occurs at all. Determining whether or not a particular transaction is a facilitating payment or a bribe may be difficult, if not impossible, especially if there is no conclusive paper trail. However, many countries do not differentiate between the two; Mexico is one such country.
Regardless of the fact that they are illegal in Mexico, facilitating payments are commonplace. This discrepancy between typical cultural and business practice and the letter of the law complicates the already difficult process of international expansion. Scholars of business ethics are divided on how appropriate such payments are. Some arguments against them include that they are unfair to small businesses that are unable to participate due to lack of opportunity and financial constraints and that they create excess risk and discourage investment because they are inherently unpredictable. In contrast, some argue that where they are a routine part of the business culture, it negatively impacts the company and keeps them from competing effectively with businesses that do choose to “play the game,” so to speak.
Legally speaking, companies also have to grapple with the fact that the provisions of the FCPA are not always clear. In her article, Great Expectations for Forthcoming FCPA Compliance, Alexandra Wrage states that, “Compliance is subtle and judgment-laden. In the end, compliance counsel must make decisions based on very specific—and often complicated—confluences of facts.” Phrases like, “due diligence,” “all necessary precautions,” and “corrupt intent” pepper the official layperson’s guide to the FCPA, published by the DOJ. Often, clarity only exists in the most extreme circumstances, where every person, every time, would come to the same conclusion.
For example: the CEO of a company gives the president of a foreign country a 50 million dollar payment so he changes the law and allows the company exclusive operating rights. It would take a miracle for this to be interpreted as any other action except bribery. However, the business decisions that must be made every day, often at a lightening fast pace, are hardly ever this cut and dried. In multi-national corporations with complex, decentralized operating structures, the number of tricky compliance issues multiplies exponentially.
The Wal-Mart de Mexico drama also serves to highlight the central roles of lawyers in this and other similar cases. When people think of fraud, they usually picture company accountants and other financial personnel either cooking the books, acting as whistleblowers, or sometimes both. While the alleged bribery was indeed covered up by some creative accounting, it was lawyers – Mr. Cicero, Ms. Munich, and others – who were at the front lines, in both positive and negative capacities. Law students aspiring to a corporate career ought to take notice of this; law schools should do so as well. Education may be the first line of defense against serious future ethical and legal mishaps in the business world.