* Independent monitors appointed in one-third of recent cases
* In some cases, companies allowed to submit compliance reports
* Wal-Mart could propose hiring monitor as part of settlement pact
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 compliance system.
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 told Reuters.
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.