When the audit committee of Walmart was faced with investigations by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), it chose global firm Dechert as its legal counsel. When company and individual reputations are at stake, clients want experienced lawyers who know the regulator inside and out. This is why the top white-collar and corporate investigations teams recruit former high-ranking officials from the DOJ, SEC, and global regulators. In Walmart’s case, Dechert’s white-collar team was led by David Kelley, a former U.S. Attorney for the Southern District of New York (SDNY).
The Issues Dechert’s White-Collar Team Faced
Allegations against Walmart centered around claims that local intermediaries in multiple jurisdictions had made payments on behalf of the company. The jurisdictions concerned were Brazil, Mexico, India, and China, and the alleged payments were historical — before April 2011. Such payments violate the Foreign Corrupt Practices Act (FCPA), which is vigorously enforced by regulators. Walmart was subject to one of the most wide-ranging FCPA cases ever, lasting seven years. The action also kick-started a comprehensive internal investigation.
How White-Collar Lawyers Work
As a starting point, the Dechert white-collar team analyzed Walmart’s global compliance program, an essential building block for good governance. An effective compliance program is far from a one-size-fits-all exercise. It needs to be carefully tailored to fit the demands of the business in every jurisdiction in which it operates. Once implemented, the program should be continuously reviewed and developed, as risks within the business are recognized and evolve.
Also critical to its success is the organization’s culture, radiating from the board downward. One reason why compliance programs are so important is the weight placed upon them by regulators. Demonstrable commitment to an effective compliance program can mitigate punishment and avoid or limit the imposition of a monitorship. Regulators will want to see that companies are operating within all applicable laws and that any breach of the compliance program is taken seriously.
As a global company, Walmart has extensive overseas operations. Dechert’s white-collar and investigations lawyers had to sift through multiple requests for documents and information relating to multiple jurisdictions. Artificial intelligence (AI) helped — sophisticated programs enabled the sweep, cutting a swath through time and cost. After an assessment, the compliance program was updated for maximum efficacy and global reach. Policies, procedures, and systems were enhanced, and the company made a considerable investment in global ethics and compliance. Walmart’s internal controls were reviewed in every country in which it operates.
Dechert Dealing With the Regulators
Dechert then negotiated a global resolution with the regulators, reaching an initial settlement in 2019. Walmart agreed to a combined payment of US$282.7 million, ending all FCPA-related investigations by the regulators. In the resolution agreements, the DOJ and SEC acknowledged Walmart’s investment into reviewing and updating its global compliance program. Among the key steps the regulators highlighted were hiring a dedicated anti-corruption compliance leadership team. Other steps include enhancing anti-corruption risk assessments across all internal markets and upscaling its anti-corruption training programs.
Part of the resolution was a non-prosecution agreement (NPA) with the DOJ. Under an NPA, the regulator will not prosecute if a company meets its obligations for a set period. An independent compliance monitor is also usually appointed. In Walmart’s case, it had to report to the DOJ and SEC on its compliance program for three years.
However, this was not the end of the road for Walmart and the white-collar Dechert team. The role of lawyers in advising boards on reputation-critical matters sustains beyond critical crisis points. Not only do they preempt future issues by ensuring good corporate governance practice, but they also deal with the tailwinds on the back of litigation. Over two years on, the Dechert white-collar team continues to advise Walmart on shareholder demands over FCPA conduct.
What Can Be Learned From the White-Collar Case
The Walmart case demonstrates that historical practices can come back to haunt corporate boards in even the most well-resourced companies. Two years before the settlement, Walmart was recognized by a subsidiary of the New York Stock Exchange (NYSE) as excelling in corporate governance: The supermarket giant was the winner of its Best Governance, Risk and Compliance Program (Large-Cap Company). Its demonstrable commitment to compliance certainly eased the penalties imposed by the regulators.
So what are the lessons here? In the era of #MeToo and evolving ethical standards, boards must be prepared for investigations into historical practices. There are many angles to these probes. They can be internal or external, involve multiple regulators, be cross-border, or be limited to one jurisdiction. In the face of any allegation, the threat of parallel litigation or impact on reputation must be considered. The complex web of concerns is why corporate investigations are a specialty for law firms such as Dechert. Probably the best-known settlement of late is that of Airbus, which agreed to pay nearly US$4 billion to British, American, and French regulators in January 2020. The deal was negotiated by Dechert in the U.K., Clifford Chance and August Debouzy in France, and Paul Hastings and Arnold & Porter in the U.S. A landmark deferred prosecution agreement (DPA) in coordinating three global regulators, the deal marked the end of a probe into allegations that Airbus paid bribes to secure aircraft contracts across the world. Significantly, the resolution demonstrates the benefit of voluntary self-disclosure. Companies that choose to self-report export violations and show a willingness to cooperate and remediate those issues are likely to be treated more leniently by regulators.
The settlements for Walmart and Airbus also reflect the rise of DPAs and NPAs — corresponding with the recent spike in U.S. enforcement actions against corporates. For businesses keen to avoid the consequences of criminal prosecution, they can provide a lifeline. For prosecutors, they are the means to resolve enforcement actions without the expenses of a trial. The objectives of punishment, deterrence, and rehabilitation are still met, without sending a viable company into liquidation. The success of these enforcement vehicles in the U.S. means they are likely to be used in the future in the U.K., another jurisdiction with stringent anti-corruption legislation and vigilant regulators.
