overview of the anti-corruption laws that affect our global business

Saving people money so they can live better

2010

Privileged and Confidential

Overview of the anti-corruption laws that affect our global business

Version 2010 11.04

Management Overview 2011

2 Privileged and Confidential

Walmart must comply with the requirements of the U.S. FCPA

• The FCPA criminalizes the bribery (or attempted bribery) of non U.S. Public Officials anywhere in the world where the purpose of the bribe is to influence an official decision in order to obtain a business benefit. There is no “materiality” threshold.

• The FCPA also requires companies whose stock is traded on a U.S. exchange to meet certain standards regarding their accounting practices, books and records, and internal controls.

• The U.S. Government has substantially increased its enforcement of the FCPA over the past several years.

– Currently over 150 open inquires

– Increased multi-country investigationsand prosecutions

– Dedicated units within FBI & SEC

– Increased use of corporate monitors

– Focus on prosecution of Companyexecutives


Violating the FCPA can result in severe consequences to everyone

Financial• Return of profits• Fines• Erosion of enterprise value

Reputational• Loss of investor confidence• Loss of consumer confidence• Negative press• Loss of executive management • Imprisonment of executives

Legal/Governmental• Increased regulatory scrutiny• Governmental monitoring• Loss of growth privileges• Use of independent monitors

• Siemens CEO resigned; Chairman of the Board resigned; investigation costs over $1 billion; $1.6 billion in combined fines to U.S. & Germany authorities ($800 million to U.S. highest fine ever)

• KBR/Halliburton breaks FCPA Settlement Record for U.S. Companies--$579 Million

• Snamprogetti Netherlands B.V. and its parent company ENI S.p.A of Italy will pay $365 million to resolve FCPA-related charges.

• Technip S.A. agreed to pay a $338 million in criminal and civil fines.

• Daimler pleaded guilty for bribing officials in 22 countries including Russia; paid $185 million in penalties

• ABB reached $58 million settlement with SEC and DOJ for paying bribes in Jordan, Mexico, and Iraq.

• Over $1.7 billion paid in fines to DOJ/SEC through the end of 3rd Quarter of 2010

Examples in the Marketplace


Overview of the UK Anti-Bribery Act of 2010

• Law enacted in late 2010 and effective as of July 1, 2011

• The Act has extra-territorial reach—i.e., illicit acts of a foreign national associate in China could be the basis of a prosecution under the UK Act

• Similar anti-corruption prohibition as the FCPA (but some key differences)

– Applies to all forms of bribery (commercial and governmental)

– No affirmative defense or provision for facilitation payments

– Company may point to compliance program as an affirmative defense

The UK Bribery Act 2010


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Key corruption risk areas faced by Walmart

Real Estate Acquisitions and Construction

• Permits and licenses• Property purchase and leases• Material Sourcing• Utility setup• Government approvals• Use of Third-Party Intermediaries

Store/Business Operations

• Facility inspections • Permits & Licenses• Merchandising: Buyer/Suppliers (UK ACT)• Utility set up and maintenance

Logistics/Supply Chain

• Importing and Exporting of goods• Purchasing from state-controlled entities • Distribution center operations and related

permits and licenses• Transportation (fines or fees)• Security• Use of Third-Party Intermediaries


Applicable Compliance Regulations


Walmart and its Associates could face significant criminal and civil charges for violations of the FCPA

• Walmart and its employees could be prosecuted for:– Offering, paying, promising, or authorizing the payment of money or anything of

Value, directly or indirectly (e.g. through a Third Party Intermediary), to a Public Official (which includes both civil and municipal servants) to obtain business or gain an improper advantage

– Failing to maintain proper bookkeeping records

What Is “Anything of Value”?

•Anything of Value can include:

– Cash or cash equivalent

– Gifts or services

– Charitable donations

– Political contributions

– Loans

– Travel expenses

– Golf outings

– Hiring

Who Are “Public Officials”?

•Public Officials include any person acting in an official capacity for or on behalf of a government, including both civil and municipal servants. For example:

– Officers or employees of:• Governments, departments,

agencies• State-owned or state-

controlled entities• Public international

organizations, such as the UN or the World Bank

•Family members or relatives of Government Officials•Political party officials or candidates for political office

Who Are “Third Party Intermediaries”?

•Third party intermediaries are individuals or entities that directly or indirectly interface with Public Officials on behalf of Walmart. They can include:

– Contractors

– Joint Venture Partners

– Professional Service Firms

– Import and Export Agents

– Charitable Organizations


Accounting Misrepresentations Can Create Civil and Criminal Liability

• Books and records must be kept in reasonable detail to accurately and fairly reflect transactions and management controls

• Effective system of internal accounting controls must be in place• There are a number of Red Flags to look for when bookkeeping

Mislabeling of expenses:• You made a small donation to a local charitable organization founded by the

president’s wife• You record the donation as an external consultant’s expense in Walmart’s books

Vague descriptions / “Miscellaneous” expenses:

Unrecorded accounts / transactions:• During a health inspection by the local government, you provided each of the visiting

officials with a gift basket including SAM’s Club gift cards and store merchandise• You decide not to record these gifts in Walmart’s books• You find several meals, gifts and undocumented expenses labeled “Miscellaneous”

Over-invoicing / inflated rates for third parties:• You discovered that the average rates for a new law firm is twice as high as the market

rate• A lobbyist suddenly submits an invoice for a retainer that was not mentioned in the

contract


• On December 31, 2009, UTSI entered into a non-prosecution agreement with the DOJ and Agreed to pay a $1.5 million penalty, implement rigorous internal controls and cooperate fully with the DOJ.

• UTSI agreed to pay a $1.5 million civil penalty and to provide the SEC with annual FCPA compliance reports and certifications for four years.

Outcome

• Between 2002 and 2007, UTStarcom provided approximately 225 overseas trips to employees of Chinese government-controlled telecommunications companies.

• The trips cost nearly $7 million and included popular destinations in the US, such as Hawaii, Las Vegas, and New York City.

• UTSI provided improper gifts and benefits to foreign government customers.

• UTSI covered the cost for Chinese public officials to attend executive training programs at U.S. universities.

• Additionally, UTSI provided full-time employment to employees of government customers or their family members in China and Thailand.

Facts

Things of Value

Case Study: Things of value can take many different forms

You cannot provide any benefits such as travel, entertainment, education, employment to public officials or their family members.


Acceptable Practices

The following practices are allowed under Walmart’s Anti-Corruption Policy provided they are properly approved and recorded

In-kind donations of products:• Local charities selected at beginning

of year• Itemized list of donated merchandise

required

Charitable donations:• For nationally recognized charities

with approval• May not be given by a third party

intermediary on behalf of Walmart

Promotional gifts:• Preferably, bear the Company logo• Should be less than $50• Examples of allowable gifts include

books, plaques, clothing, Sam’s Club membership cards, small holiday baskets, etc.

Hospitality:• Must relate directly to promotion and

marketing purposes, or the execution of a contract with the government

• Pre-approved reasonable expenses including travel, lodging, meals and entertainment

All payments must have the appropriate written approvals


Unacceptable Practices

The following practices are strictly prohibited under Walmart’s Anti-Corruption Policy, unless otherwise approved.

Payments, gifts or product to:• Government Inspectors to overlook

store compliance issues• Obtain favorable property or lease

rights• Reduce or eliminate fines or fees• Obtain required permits or licenses

Facilitating payments to:• Expedite the granting of licenses or

permits• Obtain Utility Service• Speed up the flow of goods through

customs• Obtain work visas

Meals & Entertainment:• Meals valued over $100 USD• Entertainment not directly related to

Walmart’s business• Expensive wine and liquors

Other items of value such as:• Offers of employment• Walmart sponsored trips for non-

business reasons• Recyclable goods that can be sold for

cash• Damaged or spoiled products• Political Donations


Defining “Public Officials”

Case Study: Definition of “Public Officials”Syncor International acquired by Cardinal Health

• Syncor was charged with violating the FCPA’s anti-bribery provisions

• The consequences included:–$2 million for the anti-bribery violation–$500,000 in civil penalty

• Syncor was required to hire an independent consultant to review and enhance its FCPA compliance program

Outcome

• Syncor’s subsidiaries in Taiwan, Mexico, Belgium, Luxembourg and France paid $600,000 to doctors at state-owned hospitals

• The payments were incentives for the doctors to use Syncor’s equipment and products

• In this case, the doctors working at state-owned hospitals were considered “public officials”

Facts

You cannot provide payments to Public Officials, including employees of state-owned private and commercial businesses and their spouses.


Break-Out Scenario: Things of Value

• Walmart China is opening an new supercenter in downtown Beijing. As a member of the marketing team, you are tasked with promoting the opening and getting the opening festivities covered by the press.

• Chinese journalists who attend local press events need to be paid or reimbursed to attend since they cannot afford to travel on their own and their employers don't reimburse them.

• Since most media outlets in the PRC are state-owned, the journalists are considered “public officials".

Situation

• Are the payments a thing of value?• Should Walmart pay the journalists to attend the opening ceremonies? • Assuming the payments are made, how can Walmart best limit any anti-corruption

liability?

Questions


Special Procedures When Dealing With Third Party Intermediaries


Special procedures for third party intermediaries who may interact directly or indirectly with public officials on behalf of Walmart

Written Contracts • Contracts should be in writing• Contain appropriate anti-corruption provisions and audit

rights• Legal/Compliance review/approval

Selection & Compensation of Third Party Intermediaries

• Competitive bidding is encouraged for contractual engagements

• Fees/compensation are reasonable for the services performed

• Appropriate compensation benchmarks considered

Due Diligence • Appropriate due diligence and background checks• Use of approved Walmart risk rating methodology

Monitoring & Supervision

• Regular updates and review of third party activities• Special focus on high risk areas such as: Real Estate,

Customs, freight forwarding, logistics expeditors, government relations and professional services

Operating through a third-party does not insulate you or our company from FCPA liability


Potential Corruption Indicators

In recent enforcement actions by the U.S. Department of Justice, the following items were identified as potential indicators of illegal activity involving third party intermediaries that should have been identified by Companies or their executives.

Red Flags: Request for payments to be made in a third country or to a third party

Heavy reliance on political / governmental connections

Inadequate due diligence/ unconfirmed references

Success Fees

Allegations of prior illicit conduct

Poor reputation for working with foreign companies

Refusal to agree to anti-corruption contract provisions

A red flag does not mean a relationship cannot work; rather, the red flag must be resolved


Break-Out Scenario: Third Party Intermediary

• A Corporate Affairs Associate in WM Brazil wants to hire a lobbyist to assist with obtaining licenses to sell alcohol in WM Brazil’s stores.

• The Associate wants to hire a friend of his who is a lobbyist and was once a legislator who claims he has close contacts with the government.

• The lobbyist demands to be paid in cash and refuses to sign any written agreement or contract relating to his services.

• The Corporate Affairs Associate goes to his supervisor to seek approval for the engagement, what should the supervisor do?

• What “red flags” should be identified and resolved?

• Would WM Brazil be liable for any improper payments made to government officials even if it did not authorize such payments?

Situation

Questions


• Two Russia based executives were fired and an internal investigation was launched.

• IKEA temporarily halted new store openings in 2009 allegedly to protest solicitations of bribes by government officials

• As of April 2010, IKEA resumed development of new projects in Russia

• IKEA continues to experience delays in opening new stores.

Outcome

• IKEA opened first store in Moscow, Russia in 2000.

• By 2008, the Russian venture accounted for 5% of IKEA’s total business.

• At Moscow store opening, utility company officials requested a bribe in exchange for electricity service. Solution involved renting diesel generators to provide power to Moscow store and subsequent locations.

• Company discovered that Russian executives took payoffs from diesel rental company which resulted in inflated rental charges to the company of $196 million over two years.

Facts

Potential FCPA liability has affected retailers doingbusiness in retail sector


• On February 10, 2011, Tyson was charged with conspiracy to violate the FCPA and substantive violations of the FCPA. Tyson entered into a 2 year deferred prosecution agreement, and agreed to: • Pay a criminal fine of US $4 million • Pay approximately $1.2 million in

disgorgement of profits and prejudgment interest.

• Implement rigorous internal controls

Outcome

• From 2004-2006, Tyson’s Mexican subsidiary made between $90K to $100K in improper payments to two government employed veterinarians responsible inspection of two chicken plants in order to obtain certain certifications

• Payments were initially made to wives of the veterinarians who were fictitiously added to Tyson’s payroll. Eventually this practice was stopped and the veterinarians directly invoiced Tyson for services they did not provide

• Certain Tyson Executives were made aware of these payments in 2004 but the payments continued through 2006

• As a result of the payments, Tyson recognized net profits of $880K from export sales during 2004-2006

Facts

Payments made to influence regulatory inspectors are considered a vehicle to obtain or retain business and violate the FCPA.

Relatively small monthly payments made to government officials to obtain certifications can lead to significant FCPA exposure


Key controls: Oversight, Training, Reporting & Investigations


Walmart Global Anti-Corruption

Governance Program

Walmart local market management plays an integral role in ensuring we comply with these laws

• Each market creates and implements risk-based policies, procedures & internal controls

• Periodic compliance monitoring of high risk areas - e.g., third party intermediaries

• Annual internal audit (FCPA, SOX and other operational areas)

• Annual risk assessment

• Investigations of alleged infractions

• Quarterly SOX certifications

• Training Home Office Compliance

Oversight & Monitoring

Internal Audit and Book and Records

Review

Local Market Accounting and

Controls

Centralized Reporting & Joint Home Office & Local

MarketInvestigations


Reporting and Investigations

• All reports are strictly confidential

• Confidentiality is maintained throughout the investigation process

• Reports are thoroughly investigated

• Investigations are independent of business units

• Investigation plans, status and results are reported to the compliance officer and senior management

• You will not be punished for reporting, in good faith, suspected legal, ethical, or policy violations


Key Points to Remember

• We can work with government officials in a legal manner

• Reasonableness and transparency

• Third-party intermediaries do not insulate us

Before making any payment, ask yourself the following questions:

Value: Is something of value being given?

Public Official: Is the recipient a public official, or an employee of a government owned entity?

Approvals: Does the transaction require approval from the local Compliance Officer?

overview of the anti-corruption laws that affect our global business

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