by James McGrath
[Ed. Note: This post is reprinted in its entirety from Attorney James McGrath’s Internal Investigations Blog. Jim is a friend and great lawyer specializing in Foreign Corrupt Practices Act cases and internal corporate investigations. As you read this story and his blog (and we recommend that you follow Jim’s blog if this is a topic that interests you), please remember that we are interested in the other sides of these cases – whistleblowers who come forward to report fraud and corporate abuse.]
Like passersby to a horrific accident on the highway, witnesses to the unfolding Wal-Mart de Mexico scandal continue to gawk at the carnage. And like the speeding, in-and-out-of-lanes, reckless driver that causes his own near-fatal crash, the men at the wheel of the Wal-Mart bus – executives in Mexico and in Bentonville – are hard-pressed to garner sympathy. The company’s internal investigators should not share that same fate simply because the “tone at the top” seemed wrong.
The complete sets of facts in this case are yet to be determined. Indeed, there are now going to be two of them: those attendant upon the underlying Mexican bribery and those attendant upon Bentonville’s purported sabotaging of its in-house investigation. The first is an FCPA matter in its purest form, while the latter is more of a corporate governance issue. Regardless, and as any good litigator will attest, fact-finders – and the on-looking public – cannot make an informed decision on guilt or innocence until all of the evidence is produced.
Nevertheless, some of the facts set forth in The New York Times piece that broke this story seem firmly established, in that they were gleaned from Wal-Mart’s own records. They deal primarily with the timeline and progress of the company’s own Corporate Investigations team and the seemingly commendable job that it did in probing the illicit payments in Mexico at the heart of this FCPA matter.
According to the Times, the internal probe of payoffs in Mexico started in 2005 and was under the nominal direction of Kenneth H. Senser, then Wal-Mart’s Vice President for Global Security, Aviation and Travel. His right-hand man was Joseph R. Lewis, the company’s Director of Corporate Investigations and former top F.B.I. official. Just before this matter arose, these two had found their 70-person unit “wholly inadequate for an organization the size of Wal-Mart” and together they led an effort to strengthen it.
By the time the Mexico bribery allegations surfaced, they had succeeded in hiring four “special investigators” that would be assigned the “most significant and complex fraud matters.” In addition, Corporate Investigations was also to be tasked with handling all allegations of misconduct by senior executives.
One of these “special investigators,” Ronald Halter, was assigned to lead the preliminary inquiry into the Mexico corruption matter. He had been with Wal-Mart only a few months, but he had spent 21 years as an investigator with the F.B.I. and spoke Spanish. He would get help from a senior auditor, Bob Ainley, and several Spanish-speaking junior auditors who were sent to Mexico City with him. They started work at Walmex’s corporate headquarters on November 12, 2005 and by the end of that first day had found 441 payments that might have been bribes.
As expected, Halter and his team ran down leads, interviewed witnesses, and accumulated documentation. The story provided to them by former Walmex executive and whistleblower, Sergio Cicero Zapata, apparently was corroborated by documentary evidence and in a confidential report to his superiors, the lead investigator wrote that there was “reasonable suspicion to believe that Mexican and USA laws have been violated.” Halter recommended that Wal-Mart expand its investigation.
Confronted with this evidence of corruption in Mexico, top Wal-Mart executives ultimately focused more on damage control than on rooting out wrongdoing, as the Times so aptly put it. This took the forms of attempting to kill the messenger and frustrating further inquiry by a number of internal machinations. On the second point and most astoundingly, it included ultimately transferring primary responsibility for the internal probe to Walmex’s general counsel, who was himself among those alleged to have authorized bribes.
By the Times account, Joseph Lewis seems to have backed his people in the field. And when he was apprised of the transfer of the investigation to Walmex’s general counsel and the lawyers prompt exoneration of his fellow executives, his appraisal was scathing. “Truly lacking,” he wrote in an e-mail.
Lewis had an investigative predecessor and an ally in Maritza I. Munich, then General Counsel of Wal-Mart International. “The wisdom of assigning any investigative role to management of the business unit being investigated escapes me,” she wrote in an e-mail to top Wal-Mart executives when that move was finally made. The investigation, she urged, should be completed using “professional, independent investigative resources.”
Munich was familiar with the challenges of avoiding corruption in Latin America. Before joining Wal-Mart in 2003, she had spent 12 years in Mexico and elsewhere in Latin America as a lawyer for Procter & Gamble. At Wal-Mart, she had pushed the board to adopt a strict anti-corruption policy that prohibited all employees from “offering anything of value to a government official on behalf of Wal-Mart.” It required every employee to report the first sign of corruption, and it bound Wal-Mart’s agents to the same exacting standards.
As the original recipient of the Cicero e-mail reporting the bribes in Mexico, she had hired Juan Francisco Torres-Landa, a prominent, Harvard-trained lawyer in Mexico City, to debrief Cicero within days. Ms. Munich even flew in from Bentonville for his third debriefing. It was from these humble beginnings that the investigation susequently made its way to Lewis’ desk.
Despite this support from a C-suite occupant, the Corporate Investigations team felt resistance to their mission in general and the Mexico probe in particular.
By the time the corruption in Mexico allegations made it to him, Lewis had ruffled executive feathers. After doubling his unit’s caseload to roughly 400 per year, some grumbled that he acted as if he still worked for the F.B.I. There he had supervised major investigations. They accused him and his people of being overbearing, disruptive, and naïve about the moral ambiguities of doing business abroad.
At the same time, Walmex executives were continuing to complain to Bentonville about the investigation; protests that “just never let up,” according to a Timessource. Another source proffered his or her belief that Wal-Mart would have reacted “like a chicken on a June bug” had the allegations concerned the United States. But because executives saw Mexico as a country where bribery was embedded in the business culture, it simply did not merit the same response.
In the end, these considerations – the disruption that investigations posed to doing business, the necessary moral ambiguities about doing it abroad, and the latent corruption perceived in Mexican business culture – appear to have won out.
Seemingly spurred by this decision, Maritza Munich left the company on February 1, 2006. Before leaving, she drafted a memorandum that argued for expanding the investigation and giving equal respect to foreign anti-corruption statutes. “The bribery of government officials,” she noted dryly, “is a criminal offense in Mexico.”
She also warned against allowing implicated executives to interfere with the investigation.
“Given the serious nature of the allegations, and the need to preserve the integrity of the investigation,” Munich wrote, “it would seem more prudent to develop a follow-up plan of action, independent of Walmex management participation.”
Joseph Lewis appears to have been a casualty of his own investigation, as well. According to the Times, he left Wal-Mart earlier this year. It does not indicate the circumstances of his departure, although it is hard to think that his work on this case burnished his chances for a friendly work environment and advancement in Bentonville.
It won’t be known whether Wal-Mart’s “tone at the top” and “buy-in” was for real or not until this matter is fully re-investigated and finally put to rest. But as far as conducting the original investigation goes, the company’s own records appear to document a total failure of adherence to elemental – let alone, best – practices.
In speeding toward construction targets, store openings, and profitability, the people at the top of the Wal-Mart heap seem to have unwisely hurtled down an icy road. That recklessness should not sully the reputations of the Corporate Investigations unit and its people who worked on this case and look to have been the only ones to recommend applying the brakes.