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Walmart Discloses Internal Investigation into FCPA Compliance - Interpreting the Unspoken

|Includes: Walmart Inc. (WMT)

In its fiscal 3Q12 10-Q filed yesterday after the market close, Walmart Stores, Inc. (NYSE: WMT) disclosed that during FY12 it began a voluntary review of its global anti-corruption compliance program. As a result of information collected, the company initiated an internal investigation regarding its compliance with the U.S. Foreign Corrupt Practices Act (FCPA). Here are some things related to this disclosure to keep in mind:

  • It appears that the internal review and subsequent internal investigation began sometime between 1-Feb-11 and the 10-Q filing date of 8-Dec-11. The actual timing of the internal review and subsequent internal investigation is not provided, so there is no way to tell how long this has been going on. The length of time spent reviewing and investigating can point toward the severity of the problem.
     
  • WMT may have been investigating these issues for 10 months before disclosing the matter to investors. Don’t assume that because the disclosure was recent that so too were the review and investigation.
     
  • Something has changed related to the matter that has prompted management to disclose it to investors now rather than whenever it first came to management’s attention. Think materiality threshold.
     
  • The internal review involved assessing WMT’s internal controls pertaining to its global anti-corruption compliance program. While the company’s internal controls were declared effective as of 31-Oct-11, this may change as new information is uncovered. Any potential bribes must have been accounted for somehow.
     
  • WMT voluntarily disclosed the internal investigation to the DOJ and SEC. One or both of these agencies may choose to further investigate the matter, which can cause additional distractions for the company and ultimately result in enforcement actions and/or fines.
     
  • Specifics related to scope of the issue are missing such as in what countries the issues are being investigated, specific nature of the issues, how long until the investigation is done, and how much of the company’s operations outside the U.S. have been reviewed.
     
  • While FCPA issues are unfortunate, the reality of the matter is that in many countries around the world the use of bribes is how things get done. So if a company losses the ability to use bribes, it can reduce its competitiveness or ability to execute on previously perceived timelines.

From the WMT fiscal 3Q12 10-Q filed 8-Dec-11:

"During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known, we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows."