NEW YORK, April 24 (Reuters) - If allegations are true that
the Mexican unit of Wal-Mart Stores Inc engaged in extensive
bribery, the company would likely be vulnerable to prosecution
under the U.S. Foreign Corrupt Practices Act.
Under the law, it is illegal to bribe foreign officials to
obtain business. But there is an exception for "facilitation
payments," also known as grease payments made to speed up
routine government actions. Wal-Mart could theoretically argue
that at least some of the alleged payments fall under that
exception and therefore weren't illegal under U.S. law.
No charges have been brought in connection with the case,
which involves payments allegedly made by Wal-Mart's Mexican
subsidiary to Mexican officials to obtain building permits --
actions that allowed the company to grow quickly. The New York
Times reported on Saturday that the retailer's own investigators
found a paper trail of hundreds of payments totaling more than
$24 million but that company leaders essentially shut down the
probe and failed to alert U.S. or Mexican law enforcement
A Wal-Mart spokesman declined to comment on a possible
defense. In a statement on Tuesday, the company said it has
taken several actions in the last year to investigate the matter
and strengthen the company's compliance with the FCPA.
While broadly prohibiting bribery abroad, the FCPA makes an
exception for grease payments, which are defined as payments
made to facilitate or expedite "the performance of a routine
When the act was passed in 1977, Congress was aware of a
variety of payments that companies were making to foreign
officials. The Securities and Exchange Commission had found that
more than 300 U.S. companies had made improper foreign payments
involving hundreds of millions of dollars. The payments,
Congress concluded, were bad for business and hurt the U.S.'s
The grease payment exception nodded to the reality that even
though such petty payments are objectionable, given law
enforcement's resources, it would not be practical to target
But the exception can be open to interpretation. Because the
risks of going to trial for a company are great, businesses
typically seek to negotiate a settlement. That leaves the task
of interpreting the FCPA to prosecutors, not a judge. It is the
prosecutor who decides whether or not the alleged wrong-doing
doesn't fall under the exemption, and in recent years,
prosecutors have defined the exemption narrowly, according to
Recognizing this development, companies have shifted their
response to FCPA inquiries, said Alexandra Wrage, president of
the anti-bribery resource association TRACE International Inc.
"Companies are increasingly reluctant to head into the
Department of Justice using a facilitating payment exception as
a defense," Wrage said.
There have been at least two cases, which have addressed the
kinds of payments allowed under the FCPA, according to Michael
Koehler, an FCPA scholar at Butler University and author of the
FCPA Professor blog.
The leading decision about what payments are allowed under
the FCPA came from the New Orleans-based 5th U.S. Circuit Court
of Appeals in 2004. In that case, two former American Rice Inc
executives were accused of bribing Haitian officials with tens
of thousands of dollars to reduce duties and taxes on the
company's rice. To carry out the scheme, the defendants
allegedly instructed subordinates to generate false business
records and to deliver cash in sealed envelopes to the
The lower court judge dismissed the indictment, finding that
as a matter of law, the payments were not targeted by the FCPA
because they not used to obtain or retain business. If a case
against Wal-Mart were to be filed, the company could make the
However, the argument didn't fly in the 5th Circuit, which
reversed the lower court in the American Rice case. The appeals
court found that under certain circumstances, the bribes could
be viewed as falling within the pervue of the statute. After the
case was sent back to the lower court, the two executives were
convicted at trial.
Wal-Mart could have a "very valid legal defense," according
to Koehler. He said Wal-Mart could argue that the payments under
scrutiny were not those targeted by the FCPA since they did not
involve obtaining or retaining business from the government. The
alleged payments for building permits were arguably for services
that the company would get any way.
"The purpose of the payments was to get licenses and permits
faster," said Koehler.
But others disagree. Michael Volkov, a former federal
prosecutor and FCPA expert, said that alleged payments in the
Wal-Mart case were clearly not allowed under the statute,
because the payments were used to influence the discretion of
government officials and to gain a business advantage.
Making an argument that the payments were allowed under the
facilitating payments exception, he said, "would be like trying
to fit Rosie O'Donnell's foot inside Cinderella's slipper."
(Reporting by Andrew Longstreth)
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