According to the New York Times, in September 2005, a senior Wal-Mart lawyer received an email from a former executive at the company’s largest foreign subsidiary, Wal-Mart de Mexico. The former executive described how Wal-Mart de Mexico had orchestrated a campaign of bribery to win market dominance.

Fast forward to 2013, when Wal-Mart recently disclosed in its SEC filing the ongoing impact of its alleged violations of the Foreign Corrupt Practices Act (FCPA), including:

  • Expanded investigations into additional allegations regarding potential violations of the FCPA in foreign markets such as Brazil, China and India
  • Lawsuits filed by several Wal-Mart shareholders
  • The threat of settlements, fines, penalties, injunctions, cease-and-desist orders, debarment or other relief, and criminal convictions and/or penalties
  • Costs in the ongoing review and investigations
  • Increased media and governmental interest

A recent study by Deloitte Forensics Center reports that only 29 percent of executives surveyed were very confident their company’s anti-corruption program would prevent or detect corrupt activities. This low level of confidence indicates that many businesses may need to evaluate and upgrade their anti-corruption efforts. All businesses, public and private, that operate in foreign markets need to take steps to avoid having to make a similar disclosure.

In general, the FCPA:

  • Prohibits U.S. businesses (incorporated or unincorporated “domestic concerns”), residents and citizens, and foreign companies listed on a U.S. stock exchange from paying or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business.
  • Requires any company (including foreign companies) with securities traded on a U.S. exchange or required to file periodic reports with the SEC to:
    • Keep books and records that accurately reflect business transactions.
    • Maintain effective internal controls.
  • Contains an Anti-Bribery provision that includes broad third-party payment provisions under which the actions of foreign subsidiaries and other third parties (including agents, consultants, distributors, joint venture partners, etc.) can result in FCPA liability to a parent company or the entity engaging the third party. Even without actual knowledge that an improper payment has been made, a company can be found guilty of a violation.

For more information on complying with FCPA, contact our dedicated International Tax Group, with CPAs in Michigan, Houston and Ft. Lauderdale.