* Independent monitors appointed in one-third of recent
* In some cases, companies allowed to submit compliance
* Wal-Mart could propose hiring monitor as part of
By Jeremy Pelofsky
WASHINGTON, May 11 Retail giant Wal-Mart Stores
Inc, faced with allegations that its Mexican unit paid $24
million in bribes to accelerate its expansion, could be forced
to hire an independent monitor to ensure future compliance with
U.S. anti-corruption laws.
Since 2009, the Obama administration has demanded in
one-third of its corporate bribery cases that companies hire
independent monitors, despite the added costs and intrusion into
the companies' operations.
U.S. engineering company KBR Inc, German luxury automaker
Daimler AG and British defense contractor BAE Systems all were
required to hire independent monitors.
The New York Times reported last month that Wal-Mart spent
some $24 million bribing officials for building permits in
Mexico. U.S. and Mexican authorities are investigating.
If the allegations prove to be true, Wal-Mart
is likely to face a hefty financial penalty to settle
the matter. Legal experts believe the Justice Department will
expect the retailer to hire an independent monitor.
"Smart counsel here will probably, I suspect, propose a
corporate monitor just to try and convince the Department of
Justice that they get it and they want to do what is right to
take care of whatever the situation is," said Scott
Fredericksen, a partner at Foley & Lardner LLP in Washington.
He served as a monitor for AGA Medical Corp which entered a
deferred prosecution agreement in 2008 over allegations it
violated the U.S. Foreign Corrupt Practices Act. The company
also paid a $2 million penalty and built a significant
As an independent monitor, Fredericksen said he conducted
reviews, tests, audits and interviews to help establish a
program to avoid further bribery problems and monitor progress.
'NEED FOR COMPLIANCE'
"They brought in great talent as they really grew, people
who really got it in terms of the need for compliance,"
Fredericksen said about AGA Medical. The company was later
bought by St. Jude Medical.
A Reuters review of the 39 corporate deferred prosecution
settlements reached with President Barack Obama's Justice
Department found that 13 included a requirement that a monitor
be retained, in some cases for as long as three years.
The Justice Department said any decision on a monitor would
depend on the case and pointed to memoranda issued in 2008 and
supplemented in 2010 that note prosecutors should be aware of
the potential benefits of a monitor as well as the costs to and
impact on the company.
"Among the many factors the department considers in making
this determination are the seriousness of the offense, the
length and pervasiveness of the misconduct, the nature and size
of the company, the quality of the company's compliance program
at the time of the misconduct, and its subsequent remediation
efforts," said Justice Department spokeswoman Alisa Finelli.
The top Justice Department prosecutor for FCPA cases, Lanny
Breuer, said in November 2009 that he would insist on corporate
monitors where the situation called for it.
Most of the monitors have been ordered in the biggest
bribery cases, including Siemens in which the company paid U.S.
authorities $800 million to settle bribery allegations and paid
a similar amount to German authorities. In recent years, the
recidivism rate in deferred prosecutions of bribery cases is
zero, leg a l experts said.
In the Wal-Mart case, the company quickly announced that it
had tasked one of its lawyers, former federal prosecutor Tom
Gean, to serve as its FCPA compliance officer.
WAL-MART DECLINES COMMENT
Wal-Mart declined to comment on the possibility of an
independent monitor and said it was committed to cooperating
with ongoing federal investigations. One former federal
prosecutor in Arkansas where the retailer has its headquarters,
Asa Hutchinson, suggested it may need someone from the outside.
"I would certainly recommend that they balance this internal
compliance officer position with a monitor that has a higher
level of independence and an outside view with credibility," he
Some companies and lawyers specializing in FCPA cases
complain that monitors are too costly -- sometimes exceeding the
cost of penalties -- and that they can be interventionist to the
point of telling a company how to run its operations.
"It is very expensive and let's face it, it's incredibly
invasive," said John Kelly, a managing partner at Bass, Berry &
Sims PLC. "You've got someone inside the four walls of your
business telling you how to run it day to day essentially,
acting as the watchdog for the Department of Justice."
Apparently heeding complaints from industry and defense
lawyers, the Justice Department last year allowed some companies
to submit periodic reports on their compliance, including
Johnson & Johnson which also paid $70 million in penalties.
In 2010, the Justice Department issued a memorandum
suggesting how a company and its independent monitor could
submit problems to prosecutors for solving. Some companies would
like more specificity and limits.
"It would be very useful to have established guidelines to
ensure that monitors stay within the parameters of their
designated role," said Mitchell Ettinger, a partner at Skadden,
Arps, Slate, Meagher & Flom LLP.