When I read The New York Times front-page article in 2012 about Wal-Mart’s alleged bribes in Mexico, I thought it was going to be the U.S. equivalent of Siemens in Germany. Before I ask you about that, can you bring us up to date on Wal-Mart’s FCPA investigation? What has happened over the past five years?
Mike Koehler: The first point is that Wal-Mart’s FCPA scrutiny most certainly did not begin with the April 2012 New York Times article. That is one of the biggest myths in the FCPA space. It is a matter of public record, and beyond dispute, that Wal-Mart disclosed its FCPA scrutiny in November 2011. It’s now almost six years old. There have been other FCPA enforcement actions that have similarly lasted longer than five years, and Wal-Mart’s scrutiny has really followed a fairly typical path. All instances of FCPA scrutiny have what I’ll call a point of entry. Wal-Mart’s point of entry was conduct in Mexico. Most FCPA enforcement actions then typically expand beyond that point of entry, and the company becomes subject to FCPA scrutiny and does internal investigations in several other countries. And that’s what happened here. Anyone knowledgeable about FCPA enforcement would have recognized the April 2012 New York Times article as highly selective, as leaving out various relevant pieces of information, not talking about the law in a comprehensive and complete way. Just because a talented journalist at a leading newspaper devotes an article to an instance of FCPA scrutiny does not make that scrutiny more notable from a legal perspective.
Is any resolution in sight?
Koehler: There has been public reporting that there is perhaps an agreement in principle to resolve Wal-Mart’s FCPA scrutiny in the aggregate amount of $300 million. Now, I don’t believe everything I read in the media. When it comes to the FCPA there are numerous instances of the media getting it completely wrong. But taking that report at face value, some people have expressed shock and outrage at that number because early on a $1 billion settlement figure was bantered about by some commentators. That was uninformed commentators speculating and was not based on facts.
I predicted very early that Wal-Mart was not likely to be a top five FCPA enforcement action of all time. The reason is the nature of Wal-Mart’s scrutiny. All of the cases in the top 10 involve what I call a foreign-government-procurement type of FCPA enforcement. That’s not the nature of Wal-Mart’s FCPA scrutiny. Wal-Mart is facing FCPA scrutiny because of license, permit, certification-type issues. Let’s just call that, for lack of a better word, non-foreign-government procurement. There’s never been a license permit-type case in the FCPA’s top 10.
Did you ever think it was going to rival Siemens in its impact?
Koehler: This was never in the Siemens-type category. Siemens was a situation where, in the words of the U.S. Department of Justice and the Securities and Exchange Commission, it had “a culture of bribery” at the highest levels of the company. Even the New York Times article stated that executives at Wal-Mart’s Mexican subsidiary were concealing conduct from corporate leaders in Bentonville, Arkansas. There was no allegation or suggestion whatsoever that executives in Bentonville were active, knowing participants. What made this story take on a life of its own is not the nature of the scrutiny, it’s the nature of the company. Wal-Mart is a divisive company that people love to love and people love to hate. From a legal perspective, and I said this from day one, this is a garden-variety type of FCPA story.
One of the things that made it a powerful story for me, as a journalist who covers the legal beat, is that you had a lawyer in Mexico who was making payments and was talking about them on the record. There was an incredible wealth of detail in this story that brought us inside an FCPA case as it was breaking in the public realm.
Koehler: There are always going to be emails and documents and real people involved in any instance of FCPA scrutiny. That doesn’t make Wal-Mart’s FCPA scrutiny unique. Again, it’s just that the New York Times chose to focus on Wal-Mart’s FCPA scrutiny among the many dozens, if not hundreds, of other instances that they could’ve focused on. You can look at these emails and documents in isolation. This is not a complete and accurate picture, a holistic view of what was happening here. Just because the New York Times reports something or posts a document on its website in isolation, that doesn’t mean much of anything. If the allegations or the findings or suggestions or inferences in the New York Times article are true, one would expect to see those followed through in the DOJ and SEC enforcement action against Wal-Mart. That hasn’t yet occurred.
Even The Wall Street Journal has reported that much of what was in the New York Times article has not proven to be true or the magnitude of it was severely, significantly overblown. That’s how you sell newspapers. That’s how you win Pulitzer Prizes. I was on a panel several years ago with David Barstow [the Times reporter who shared a Pulitzer Prize for his Wal-Mart reporting], and I was pointing out some of the holes in the article, from an FCPA perspective. His general response was, “I tell stories. I leave the law to other people.” Well, when you’re writing an article about a company and a company’s conduct under a specific law, excuse me, you have to get the law right.
Can you give me an example?
Koehler: The FCPA contains an express facilitation payment exception. Congress specifically drafted the FCPA in a way such that payments in connection with routine governmental actions are not actionable. We can debate the wisdom of that, and that’s a valid discussion to have, but it’s in the law. Moreover, even accepting at complete face value everything in the New York Times article, we have conduct stretching back to 2005, 2006. It’s a matter of black-letter law that there are statutes of limitations. Indeed, the U.S. Supreme Court just last week reiterated the fact that in actions, including those under the Foreign Corrupt Practices Act, there’s such a thing as a statute of limitations, which impacts settlement amounts.
Again, I completely agree with you and everyone else that the New York Times article elevated Wal-Mart’s scrutiny to a very high level – created a media feeding frenzy. But that doesn’t, in and of itself, make it “a big case.”
Has the Wal-Mart FCPA investigation resulted in any big changes to date?
Koehler: Big changes in what?
It does seem to have resulted in Wal-Mart’s instituting reforms on a very large scale.
Koehler: Yeah, I think it would be undisputed that Wal-Mart’s FCPA scrutiny has resulted in the company implementing some additional policies and procedures. And that has resulted in the company becoming an undisputed best practices leader in this space, regardless of whatever may or may not have happened seven to 10 years ago. Again, one can say the same exact thing regarding most companies that experience FCPA scrutiny. Most are going to learn some things, are going to devote additional resources to FCPA compliance, are going to revise policies and procedures and processes. Again, there’s nothing unique about what Wal-Mart has been doing. What is unique is Wal-Mart’s disclosure of what it’s been doing. From my perspective, Wal-Mart has been very forthright and transparent in its global ethics and compliance report that it’s publicly released over the last four or five years. That’s not to suggest Wal-Mart’s the only company doing those sorts of things. But not all companies necessarily disclose what they’re doing to the extent Wal-Mart has.
What lessons would you like companies to draw from all this?
Koehler: Don’t fall hook, line and sinker just because a journalist writes something about the FCPA. Don’t base policy positions, don’t stake your reputation as some FCPA commentators have done, solely based on an article in a newspaper. Let the facts come out. The facts still haven’t come out yet. We don’t even have an enforcement action, but from day one people were staking positions, making policy arguments based solely on a newspaper article. That’s irresponsible commentary. All companies active in the FCPA space, and adhering to best practices, already knew that doing business in China and Mexico and India presented an FCPA risk. Companies doing business in the global marketplace, adhering to best practices, already knew that interactions with licensing and regulatory officials presented an FCPA risk.
That, of course, is the other side of this kind of enforcement: the potential reputational risk that companies face just because they’re under scrutiny.
Koehler: I usually respond to that issue by taking a step back and asking, “How does one even measure reputational harm, or how does one even measure a company’s reputation?” On one level, if a company’s reputation is bad, and has sunk because of an instance of FCPA scrutiny, you would think it would be reflected in a company’s stock price. Because there was so much misinformation in the public domain regarding the New York Times story, Wal-Mart’s stock price did fall very significantly within 48 to 72 hours. Once people started to take a deep breath and realize what was really going on, the company’s stock price completely rebounded.
If history is any guide, when the Wal-Mart FCPA enforcement action is announced, whenever that is, the company’s stock price is likely to go up because now it’s over. You’ve mentioned Siemens. Did Siemens suffer any reputational damage because of its blockbuster FCPA enforcement action? Well that begs a question of how one even measures reputational damage. What we know is that a few days after that blockbuster enforcement action in 2008, the U.S. government deemed Siemens a responsible government contractor for purposes of federal government contracting. It didn’t impact Siemens contracts or business with the U.S. government in any material way.
It’s a long-winded way of saying a lot of people like to talk about reputational damage, but what does it really mean? Does it mean a company’s stock price? Does it mean how a company is perceived? How do you even measure how a company is perceived? I could go to my local Wal-Mart today, and I guarantee you 99.9 percent of people in that store probably aren’t even aware that Wal-Mart is under FCPA scrutiny or may not have even heard about the Foreign Corrupt Practices Act.
I want to turn now to another subject that some have predicted could have a profound effect on FCPA jurisprudence: the U.S. Supreme Court’s Kokesh decision. What’s your view?
Koehler: It will not have a profound impact on FCPA enforcement because most companies under FCPA scrutiny simply roll over and play dead. Even though the Supreme Court unanimously concluded that disgorgement is subject to a five-year statute of limitations period, what difference does that make when a company under FCPA scrutiny, to demonstrate its cooperation, agrees to waive statute of limitation defenses? Last Friday there was an FCPA enforcement action brought by the Department of Justice against The Linde Group, seeking disgorgement. And the conduct at issue took place in 2006 – in other words, 11 years prior to the enforcement action. So, in the one FCPA enforcement action brought since Kokesh, it had zero relevance.
It sounds like a basic point, but it’s such an extremely important point: The law only matters to the extent that a defendant, whether a corporate defendant or an individual, is willing to mount a legal defense based upon the law and the facts. There are a lot of things that should impact FCPA enforcement, but they don’t because the law often doesn’t matter. It’s a game of risk aversion. It’s a game of cooperation. It’s a game of how do we make this adversary who carries a sharp and big stick go away as quickly and efficiently as possible?
Published August 11, 2017.