Walmart Deadlocked With U.S. Over Bribery Probe

(Bloomberg) -- Walmart Inc. set aside nearly $300 million last fall for a possible resolution with the U.S. government over international bribery allegations, a sign that an end to the years-long investigation was imminent.

But eight months later, the sides are deadlocked, three people familiar with the matter said. It’s not about the money: One source of tension is prosecutors’ insistence that Walmart, the world’s largest retailer, admit to certain misconduct as part of any deal, one of the people said.

The standoff leaves unfinished one of the biggest foreign-corruption probes of a U.S. company in history, a case that put a spotlight on the obscure Foreign Corrupt Practices Act. For six years, U.S. authorities have investigated whether Walmart bribed government officials in countries including Mexico, India and China over the course of a decade to fast-track store openings.

Walmart’s apparent resistance to a mea culpa isn’t the only obstacle to a deal. There’s also a delay with the Securities and Exchange Commission part of the case. The two sides have yet to exchange critical documents to finalize the deal, another person said. It’s unclear what’s causing the delay, the person said.

Complicating matters, staff at the investigating agencies has turned over in the first 18 months of the Trump administration, leaving the Justice Department prosecutor overseeing the case in a holding pattern. And until recently, the Justice Department unit running the probe has been without a Senate-confirmed overseer who could help break any impasse.

At the same time, Walmart hired the Justice Department’s No. 3 official, Rachel Brand, as executive vice president. As associate attorney general, Brand wasn’t involved in the Walmart investigation and had no oversight of the unit preparing the case. Walmart said Brand was complying with federal rules regarding contact with the Justice Department. Since Brand wasn’t overseeing the matter, she probably has few restrictions, according to former prosecutors.

“We are continuing discussions with the government agencies as we work to reach a resolution,” Walmart said in a written statement.

The Justice Department and SEC declined to comment.

Applying Pressure

A recent grand jury battle in Virginia offers a glimpse at the pressure the government tried to put on Walmart. The company wasn’t identified in the proceedings, a common practice in the grand jury process, but two people familiar with the matter confirmed that the company was Walmart.

Prosecutors issued a subpoena in November 2016 to compel grand jury testimony from a former general counsel of a Walmart subsidiary who had been previously interviewed by investigators four years earlier. But after Walmart objected, a federal appeals court in June sided with the company, concluding that forcing the lawyer to testify against his former employer would violate an earlier agreement between the parties.

The ruling could make it harder for the Justice Department to prosecute future corporate fraud and corruption cases where such agreements are used to gather evidence, according to former federal prosecutors who reviewed the June 27 decision.

But the ruling and the recent addition of Brian Benczkowski, who was confirmed in July to lead the Justice Department’s criminal division, which is responsible for foreign-corruption cases, could help move negotiations forward.

Walmart disclosed possible violations in Mexico to the Justice Department and SEC in November 2011. The following year, the New York Times outlined details of allegations that the retailer paid some $24 million to Mexican officials to win quick zoning changes, sidestep licenses and environmental permits and deflect opposition to open stores, turning Walmart into that country’s largest private-sector employer.

Probe’s Challenges

The Walmart case posed challenges for investigators. Much of the conduct uncovered in Mexico, for example, couldn’t be used as evidence because it was too old, according to the people familiar with the matter. So the government sought to build stronger cases in other countries. In Brazil and India, investigators found more recent examples of what they believed were improper payments, yet struggled to find examples of rampant misconduct in China, the people said.

Walmart has spent about $900 million on legal fees and other costs stemming from the investigation, including a global overhaul of its internal compliance systems, the company has said.

In the closing days of the Obama administration -- as a future President Donald Trump was calling the foreign-corruption statute a “horrible law” on the campaign trail -- Walmart balked at demands to pay more than $600 million in penalties, leading prosecutors to go back to gather more evidence from witnesses, people familiar with matter told Bloomberg in October 2016.

The sides reached the outlines of an agreement more than a year ago, under which Walmart would pay about $300 million and enter into a non-prosecution agreement with the Justice Department, people familiar with the matter have said. Under the terms of that deal, at least one Walmart subsidiary would plead guilty to a criminal charge, and an independent monitor would supervise compliance with the settlement, those people have said.

Court Battle

Yet even as that preliminary deal was reached, the two sides were secretly battling in court over how much evidence the U.S. could use against the company.

Years earlier, prosecutors sought documents and interviews from 18 current and former Walmart employees, including the former general counsel of one of its subsidiaries, according to court records filed in federal court Virginia.

Responding to prosecutors, Walmart agreed to interviews and an exchange of documents, as long as any so-called protected information couldn’t be used against the company in the corruption case, according to court papers filed by the company. By allowing the interviews, Walmart sought to lessen its financial penalty with the U.S., according to court papers filed by the Justice Department.

Earlier: Foreign Bribery Prosecutions May Shift Under Trump

When the Justice Department sought to use information from those interviews in the grand jury by issuing a subpoena to the former general counsel, Walmart protested. In court papers, prosecutors called Walmart’s move to block the testimony from the grand jury “brazen” and “a ploy” to disrupt the government’s case.

--With assistance from Alan Katz, Matt Robinson and Matthew Boyle.

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editors responsible for this story: Jeffrey D Grocott at jgrocott2@bloomberg.net, David S. Joachim, Paul Cox

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