What a mess: Walmart’s incredible expanding corruption investigation

Walmart had as much to say about an ongoing and expanding investigation into alleged violations of the U.S. Foreign Corrupt Practices Act in its third quarter filing with the Securities and Exchange Commission as it did about its actual financial results.

According to Walmart, the audit committee of the board of directors, comprised solely of independent directors, is conducting an internal investigation into, among other things, alleged violations of the FCPA and other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México, S.A.B. de C.V. and whether prior allegations of such violations and/or misconduct were appropriately handled by the company. The audit committee and the company have engaged outside counsel from a number of law firms and other advisors who are assisting in the on-going investigation of these matters. The company is also conducting a voluntary global review of its policies, practices and internal controls for FCPA compliance. The company is engaged in strengthening its global anti-corruption compliance programs through appropriate remedial anti-corruption measures following the November 2011 voluntarily disclosure of investigative activity to the U.S. Department of Justice and the SEC.

The disclosure that got peoples’ attention on Thursday morning was that since the implementation of the global review and the enhanced anti-corruption compliance programs, the audit committee and the company have identified or been made aware of additional allegations regarding potential violations of the FCPA.

When such allegations are reported or identified, the audit committee and the company, together with their third party advisors, conduct inquiries and when warranted based on those inquiries, open investigations. Inquiries or investigations regarding allegations of potential FCPA violations have been commenced in a number of foreign markets where we operate, including but not limited to Brazil, China and India.

The company has been informed by the DOJ and the SEC that it is also the subject of their respective investigations into possible violations of the FCPA. The Company is cooperating with the investigations by the DOJ and the SEC. A number of federal and local government agencies in Mexico have also initiated investigations of these matters. Walmex is cooperating with the Mexican governmental agencies conducting these investigations, according to the company.

In addition, lawsuits relating to the matters under investigation have been filed by several of the company’s shareholders against it, certain of its current directors, certain of its former directors, certain of its current and former officers and certain of Walmex’s current and former officers.

Walmart went on to say, as it has in the past, that the company could be exposed to a variety of negative consequences as a result of the matters noted above. There could be one or more enforcement actions in respect of the matters that are the subject of some or all of the ongoing government investigations, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders, debarment or other relief, criminal convictions and/or penalties. The shareholder lawsuits may result in judgments against the company and its current and former directors and officers named in those proceedings.

The part that is unnerving to investors, is that Walmart said it cannot predict at this time the outcome or impact of the government investigations, the shareholder lawsuits, or its own internal investigations and review. In addition, the company expects to incur costs in responding to requests for information or subpoenas seeking documents, testimony and other information in connection with the government investigations, in defending the shareholder lawsuits, and in conducting the review and investigations.

So far this year, the legal bill is already up to $99 million.

Walmart also noted that matters described above may require the involvement of certain members of the company’s senior management that could impinge on the time they have available to devote to other matters relating to the business. The company expects that there will be ongoing media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the company’s role as a corporate citizen.

The company’s process of assessing and responding to the governmental investigations and the shareholder lawsuits continues and the review, inquiries and investigations are on-going. Although the company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the company can provide no assurance that these matters will not be material to its business in the future.