(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Reynolds Holding
NEW YORK, Aug 27 (Reuters Breakingviews) - Lawyers need to pull the brake on their bribery-probe gravy train. Wal-Mart Stores WMT.N shelled out about $80 million last quarter alone – some $1.25 million per working day – on an internal corruption investigation. Avon AVP.N, Siemens SIEGn.DE and others have paid hundreds of millions more in total. Wasteful scorched-earth legal tactics inflate costs, while potentially ruinous U.S. penalties make companies scared to skimp. Smarter lawyering could slow the runaway spending.
Scrutiny under the U.S. Foreign Corrupt Practices Act typically throws multinationals into attorney-hiring overdrive. Having legal eagles delve into corporate innards helps a company look cooperative and thereby win leniency from the government. That's probably one reason why Wal-Mart's tab for a review of alleged bribery in Mexico and elsewhere has so far topped $300 million in legal fees and related items.
Details of that spending aren't available. But in a similar two-year investigation ending in 2008, Siemens hired about 330 lawyers, accountants and support staff to conduct roughly 1,750 interviews and collect more than 100 million documents in 34 countries, according to a court filing. The billable hours totaled 1.5 million, with document review alone costing $100 million. The company still coughed up $800 million in fines and settlements.
There is a better way. A records search at a multinational's headquarters can quickly reveal how and, generally, where and to whom bribes are being paid, according to veterans of the Siemens case and others. Investigations in just a few countries can then ferret out the details of a global scheme. That's often enough to reach a reasonable settlement with Uncle Sam.
Yet unnecessarily far-flung and costly probes persist. Not only does the prospect of enormous fees encourage lawyers running an investigation to engage in overkill. A company's officers also don't want to be seen to cut corners or get in the attorneys' way. The usual healthy corporate tendency to police costs carefully doesn't apply.
For big companies the waste may not show, either. Even a legal bill of, say, $500 million is a drop in the bucket for a company like Wal-Mart with revenue nearly 1,000 times that figure every year. That shouldn't, however, let lawyers off the hook. Ethics rules require their fees to be reasonable. In bribery cases, that standard is at risk of becoming corrupted.
Wal-Mart Stores on Aug. 15 said that it spent about $82 million on expenses related to the U.S. Foreign Corrupt Practices Act and "compliance matters" during the second quarter of 2013 rather than the $65 million to $70 million it had anticipated. The company spent about $73 million on such expenses during the first quarter.
The retailer in 2011 began investigating allegations that it violated the law and last year spent $157 million on legal fees and other expenses related to the probe. In April 2012, the New York Times reported that management at Wal-Mart de Mexico WALMEXV.MX orchestrated bribes of $24 million to help it grow quickly and the U.S. parent company's top executives tried to cover up the payments.