Wal-Mart and the Foreign Corrupt Practices Act


Here in the United States, news outlets (and investors) are abuzz in reponse to a blockbuster article this weekend in the New York Times regarding allegations of bribery in Mexico by a foreign subsidiary of Wal-Mart Stores, Inc.  If the allegations are true, Wal-Mart officials may have violated the Foreign Corrupt Practices Act, a U.S. statute that makes it unlawful for U.S. persons and foreign issuers, as well as foreign firms whose actions have an impact in the United States, to, among other things, bribe foreign government officials to assist in obtaining or retaining business.  FCPA investigations are exploding and corporations are thus being required to spend significant resources on in-house counsel and outside law firms to ensure compliance.

For the purposes of this blog’s subject, one issue that should not be missed is the fact that in this case U.S. law will ostensibly be applied to conduct occurring in whole or in part in a foreign country.  Regardless of whether or not the alleged conduct violates Mexican law, we see a real potential here for regulatory conflict–a species of the conflict of laws–between U.S. interests and foreign interests and arguably no doctrinal way to negotiate such a conflict, except the discretion of U.S. government officials to exercise their authority in ways that are senstive to international relations and foreign regulatory authority.  As such, this case brings to the forefront yet again the question of the extraterritorial application of U.S. law that has recently become a steady diet of recent Supreme Court caselaw, as illustrated by the recent Morrison and Kiobel cases.

As the Wal-Mart investigation develops, it will be interesting to see how forcefully the U.S. pushes to regulate such conduct and whether foreign governments will resist that regulation or basically defer to the United States.  It will also be interesting to see what reactions Wal-Mart and other U.S. corporations, and their lawyer-advisors, take in response to these allegations.  And, of course, how will Mexico react?


3 replies
  1. Ralf says:

    Trey, very good. But two questions.
    First, a regulatory conflict arises only if the relevant conduct is legal under Mexican law (which seems doubtful, according to the NYT)
    Second, unlike in Morrison and Kiobel, can there be any doubt that the Foreign Corrupt Practices Act is intended to apply extraterritorially? Given its legislative history?

  2. Trey says:

    Ralf, thanks for the comment. You are correct that there is only a true conflict (a la Hartford Fire) if the relevant conduct is legal under Mexican Law. See here for an interesting update on the implcations for Mexican law. http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202550133861 Although, to the extent Mexico would prefer to regulate the conduct differently than the U.S., as perhaps this article suggests, means there is the potential for some conflict.

    And you are, of course, right that this is different than Morrison because of Congress’s expressed intent to apply the statute abroad. My point in refrencing Morrison and Kiobel was to note that there have been a significant number of cases regarding the extraterritorial application of U.S. law in recent years. Even if Congress has expressed such an intent, however, that still leaves questions as to how the potential or actual regulatory conflicts, assuming they exist, should be negotiated.

  3. Mike says:

    Frankly I see little that should surprise Wal-Mart about the extraterritorial reach of the FCPA, at least in this day and age, when applied to subs of US companies and US persons working abroad.
    The news of the past year in international anti-corruption has been all about the even longer arm of the UK’s bribery act, and it’s implications for any business with UK contacts.
    There is nothing to prevent Mexico and the US from both enforcing their laws simultaneously. The Mexican sub and, even more likely, Mexican nationals, will be subject to prosecution and sanctions in Mexico. The same for the parent and its employees in the US.

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