‘The Cost of Doing Business’ in Developing Economies and the FCPA

According to recent reports, lawyers for Wal-Mart have identified China, Brazil, South Africa, India, and Mexico as potential hotbeds for corruption risk. The findings come in the wake of an April New York Times story alleging that Wal-Mart and its largest foreign subsidiary, Wal-Mart de México (or, Walmex), covered up a bribery investigation involving top company executives and millions of dollars in payments to Mexican government officials.

The Times reported that a former Walmex employee blew the whistle on the alleged bribery scheme in 2005 by informing a lawyer in Wal-Mart’s Bentonville, Arkansas headquarters that Walmex had paid bribes to secure permits necessary to implement the company’s rapid expansion plans in Mexico. Following the allegation, an internal Wal-Mart investigation allegedly found evidence that Walmex employees had authorized hundreds of bribes totaling approximately $24 million to local officials in Mexico. The Times reports that the bribes were used mainly to secure construction permits, lower environmental fees, and silence neighborhood opposition to the company’s aggressive growth plans in Mexico. Today, Walmex is Mexico’s biggest retailer and largest private employer.

In addition to the company’s own ongoing investigation, the bribery allegations are also the subject of investigations led by U.S. and Mexican government agencies, as well as derivative lawsuits pending in Arkansas and Delaware.

Wal-Mart’s recent experience casts a spotlight on the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”): a federal law enacted in 1977 that prohibits American businesses from bribing officials in other countries in order to get or keep business. Large corporations with established international segments, like Wal-Mart, often offer FCPA compliance training to their employees and institute hard line anti-corruption policies. However, American companies seeking to establish a presence abroad should be aware that what is commonly considered “the cost of doing business” overseas (and especially in developing economies) may constitute a violation of the FCPA, which carries with it the specter of hefty fines and the imprisonment of officers, directors, and other representatives who may be implicated in a bribery scheme.


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