Wal-Mart Stores Inc. is butting heads with the U.S. government over how to wrap up a long-running foreign corruption investigation.
Officials have proposed that the world’s biggest retailer pay at least $600 million to resolve probes by the Justice Department and the Securities and Exchange Commission into whether it bribed government officials in markets from Mexico to India and China, according to three people familiar with the matter. The retailer has rebuffed the government’s request, two of them said.
Such a settlement would rank among the largest in four decades under a U.S. law against bribing foreign officials to obtain business.
With the impasse, prosecutors have gone back to elicit more evidence from witnesses about alleged bribe-paying in Mexico, the people said. That will put additional pressure on the company to settle. Some of the people familiar with the matter said the U.S. could propose a penalty well above $600 million.
The government has some challenges as well. Some of the behavior it’s been investigating in Mexico, where the bulk of Wal-Mart’s non-U.S. stores are located, may be too old to prosecute, people familiar with the matter have said.
Officials are working to wrap up an agreement with Wal-Mart before a new administration takes over in January, the people said. That would add to the wave of enforcement actions already announced this year, including last week’s agreement by Och-Ziff Capital Management LP to pay $415 million in penalties and fines to settle an U.S. investigation into bribe-paying across Africa.
"As we’ve said from the beginning, we are cooperating fully with the government in this matter and have no further comment on that process," Wal-Mart spokesman Greg Hitt said in an e-mail. He added that the company’s compliance with anti-corruption laws is a priority and that the retailer was recognized this year by a New York Stock Exchange subsidiary for best governance program among large-cap companies.
Spokesmen for the Justice Department and the SEC declined to comment.
Wal-Mart said Thursday that net income for the year through January 2018 will be "relatively flat" as the company invests in its website and mobile app. The outlook sent shares sliding and signals that the retailer sees more work ahead as it attempts to compete with Amazon.com Inc. Shares dropped 2.8 percent to $69.66 at 2:02 p.m. in New York.
Long-Running Investigation
The Justice Department and the SEC have spent half a decade investigating allegations that Wal-Mart representatives paid government officials over the course of 10 years to fast-track store openings.
The U.S.’s proposed penalty accounts for the profits Wal-Mart reaped from stores it was able to open quickly after allegedly paying officials to speed zoning and building permits, said the people, who asked to not be named because the matter is confidential. Calculating a fine based only on the amount of the alleged bribes, as the department has done in some cases, would yield a lower penalty, they said.
Even as the sides are grappling over the size of a penalty, they are also discussing whether there will be any criminal charges against any part of the company, the people said.
Management Turnover
Wal-Mart has already spent $791 million on legal fees and an internal investigation into the alleged payments and to revamp its compliance systems around the world, it said. The retailer has had major turnover in management since the investigations began, including a new chief executive officer, chief financial officer and heads of U.S. and international operations.
Wal-Mart has warned investors that it may face additional costs and a possible loss because of the investigation. It hasn’t said what those costs may be.
"Although we do not presently believe that these matters will have a material adverse effect on our business, given the inherent uncertainties in such situations, we can provide no assurance that these matters will not be material to our business in the future," the company said in a regulatory filing in March.
While settlement of $600 million or more would be substantial for a company that has gained attention and a competitive edge for its focus on counting pennies to hold down costs, it’s modest relative to the company’s recent global results. The company posted more than $14 billion in profits last year on $482 billion in sales.
U.S. Focus
Under Chief Executive Officer Doug McMillon, who took over in 2014, most of the company’s focus has been on improving its U.S. stores and online operations, rather than faster international expansion. Those efforts are starting to pay off, and the company’s shares have gained 13.6 percent this year.
The Justice Department is wrapping up several of the marquee investigations started under President Barack Obama, including into financial-crisis-era behavior and benchmark manipulation. Several European banks, including Deutsche Bank AG, arenegotiating settlements over their mortgage practices that officials are trying to close in the administration’s final months, people familiar with the situation have said.
High Settlements
The Wal-Mart settlement, as described, would rank among the highest levied under 1977’s Foreign Corrupt Practices Act, which bans companies from bribing officials to win business overseas. Earlier this year, VimpelCom Ltd. paid $795 million to settle U.S. and Dutch claims that it bribed officials in Uzbekistan to win business. Siemens AG paid a record $800 million in a combined SEC-Justice Department penalty in 2008.
Wal-Mart disclosed possible violations in Mexico to the Justice Department and SEC in November 2011. The following year, the New York Times outlined details of allegations that the retailer paid some $24 million to Mexican officials to win quick zoning changes, sidestep licenses and environmental permits and deflect opposition to open stores, turning Wal-Mart into the country’s largest private-sector employer.
The Wal-Mart case has posed challenges for investigators, Bloomberg News reported in March. With much of the conduct in Mexico too old to be used as evidence, 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, which represented the final phase of the investigation, didn’t uncover widespread bribes to government officials there, the people said.
Prosecutors are also likely to charge the company for not having sufficient controls to detect and prevent corruption, two of the people said.
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