Lawyers for Wal-Mart Stores argued before the Delaware Chancery Supreme Court on Thursday (July 10) for the retailer’s right to retain internal documents and records involved in the ongoing Federal Corruption Practices Act investigation.
Institutional investors — Indiana Electrical Workers Pension Trust Fund IBEW —sued Wal-Mart in Delaware Chancery Court for access to the internal records in 2013. The original suit CA No. 7779-CS, is a shareholder derivative suit that alleges that Wal-Mart’s board of directors breached its fiduciary duty by covering up and failing to adequately investigate allegations that employees of the company had bribed Mexican officials to win construction permits.
The Chancery Court ruled in May 2013 that Wal-Mart should turn over the internal records to the court. The retailer’s objection is being heard this week by the Delaware Chancery Supreme Court in Wilmington. Wal-Mart’s lawyer Mark Perry, argued before the court that the ruling requiring the retailer hand over the files about its internal probe of the bribery claims when the documents weren’t reviewed by board members is flawed, according to a Bloomberg report.
The documents “are indisputably protected by attorney-client privilege,” Perry said.
Several large institutional investors have pursued lawsuits against Wal-Mart executives and board members implicated in the alleged bribery scandal. Information that has become part of the public domain include files released by U.S. Reps. Henry Waxman of California and Elijah Cummings of Maryland. The Congressional tandem found Wal-Mart’s Mexican unit used a state governor in Mexico to facilitate $156,000 in bribes.
The New York Times first reported that Wal-Mart executives were alerted to the alleged bribery in Mexico as early as 2005. The alleged bribes were used to hasten the retailer’s building of new stores and avoid permit hurdles that were holding up some of its competitors.
Wal-Mart self-reported alleged FCPA violations in December 2011, which was nearly six years after dated internal executive emails.
Wal-Mart does not comment on pending litigation, but the retailer did release a compliance report earlier this year that stated the company has spent $439 million in legal fees over the past two years to investigate potential violation of the Foreign Corrupt Practice Act. Last year Wal-Mart spent $282 million on FCPA legal dealings on top of the $157 million costs in 2012, the year the probe in Mexico began and was expanded to India, China and Brazil.
“Compliance with FCPA and other anti-corruption laws remained a key priority for the company. Wal-Mart hired a number of anti-corruption directors and other anti-corruption staff in both its global headquarters and in its International retail markets during the year,” Wal-Mart noted its compliance report.
Stuart Grant, a lawyer for the investors, told the court that the pension funds he represents are demanding the files to support lawsuits against Wal-Mart directors over the scandal. He claims that Delaware law doesn’t allow companies to “hide responsive documents its counsel already knows to exist simply because the search protocols do not independently locate the responsive documents.”
Wal-Mart executives implicated in the corruption allegations are slowly fading from the retailer’s daily operations.
• Eduardo Castro Wright was linked the bribery allegations in Mexico, a market that he grew to prominence. Castro Wright quietly retired in July 2012.
• Tom Mars, former chief administrative officer, exited Wal-Mart in March 2013 after 11 years. He served as general counsel during the period under scrutiny for violations of the Foreign Corrupt Practices Act. From 2002 to 2009, Mars was involved in an investigation into bribery allegations regarding a Wal-Mart store built near the Mexican pyramids, according to company emails released in earlier this year by Congressional members. Internal emails mentioned in a New York Times' April report connect Mars to the matter as the senior corporate lawyer who briefed top executives such as former CEO Mike Duke in 2005 on the Mexican bribery allegations.
• Former CEO Mike Duke, headed up Walmart International during the time under investigation. He retired Jan. 31.
• Former CEO Lee Scott was CEO of Wal-Mart Stores Inc. during the time under investigation. Scott is exited his service on the board of directors in June.
• Board chairman Rob Walton also implicated in alleged bribery coverup knowledge according to investor suits, recently named a vice chairman who will take over board leadership at some point in the future. Greg Penner, his son-in-law, was chosen by the 69-year-old Walton as the vice chairman. Penner has been a board member since 2008.