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Wal-Mart could face stiff penalties in bribery case

Shopping carts are seen outside a Wal-Mart store in Chicago.
Shopping carts are seen outside a Wal-Mart store in Chicago.John Gress / Reuters

For years, Wal-Mart (WMT) has been synonymous with low-cost shopping for middle- and low-income earners. But now it could  become the poster child for how big multinationals should not do business abroad.

The retailing giant, accused in a New York Times article of regularly bribing Mexican officials to quickly obtain permits for new stores, is likely to face the wrath of regulators who want to enforce the Foreign Corrupt Practices Act (FCPA), a law that bans American companies from bribing foreign officials.

“Given their stature as a leading corporation, I think they’ll look at Wal-Mart as an important case,” said Jonathan S. Feld, a partner at law firm Katten Muchin Rosenman LLP, a former Department of Justice lawyer and an expert in FCPA cases.

“How they address the problem with Wal-Mart will send a message to others about future cases; it will be a little bit of a bellwether,” he said.

Although the act became law in 1997 it was not vigorously enforced until five or six years ago, legal experts say. Recent prosecutions have been focused on a handful of high-profile companies, including Siemens, Hewlett-Packard, Avon Products and News Corporation.

The alleged bribes detailed in the Times story generally occurred in 2005, and the statute of limitations under the FCPA is five years. But the government could still pursue conspiracy charges, according to the Times.

The Justice Department has launched a criminal probe, according to the Washington Post.

In addition to charges against companies, the number of executives prosecuted for FCPA violations is also on the rise, up from two in 2004 to more than 50 in 2010 and 2011, according to David Lawler a forensic accountant at Forensic Risk Alliance.

Fines have also started rising, and prosecutors are seeking longer prison sentences for executives found guilty, said Lawler, author of the textbook “Frequently Asked Questions in Anti-Bribery and Corruption."

In April 2010, Charles Paul Edward Jumet of Ports Engineering Consultants Corp. oration, was sentenced to a record 87 months in prison and fined $15,000 for his part in an overseas bribery conspiracy, according to the FCPA blog.

Some business advocates have called for the FCPA to be modified, arguing that it is too strict. But Feld, the former Justice lawyer, said that argument is now likely to be more difficult to make.

“I think the Wal-Mart case will add a lot to the government’s view that they need to continue enforcement,” Feld said. “It emphasizes the importance of corporate governance and a strong board that is kept informed about these issues.”

In the past companies have paid FCPA fines that are around 1 percent of sales, which in the case of Wal-Mart, with its $444 billion in annual revenues, could mean a fine of $4 billion.

Jacob Frenkel, a former official of the Securities and Exchange Commission, reckons the fallout from the report could cost Wal-Mart closer to $1 billion in fines, payments and legal fees.

Speaking on CNBC earlier this week, Frenkel also said the Times allegations, if true, could result in jail time for Wal-Mart executives, adding that he expects regulators to pursue any case against Wal-Mart vigorously, as the Department of Justice has placed “a high premium” on investigating and prosecuting violations of U.S. bribery laws.

Wal-Mart shares, which fell 8 percent after publication of the Times story, bounced back a bit Thursday.