Global advertising giant WPP on Friday reached a more than $19 million settlement with the Securities and Exchange Commission (SEC) to resolve charges of violating the Foreign Corrupt Practices Act (FCPA).
WPP must pay $10.1 million in disgorgement, an $8 million penalty, and $1.1 million in prejudgment interest as part of the agreement. The company, considered the world’s largest advertising group, also agreed to cease and desist from violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. It neither admitted nor denied the SEC’s findings.
WPP’s alleged violations relate to its “aggressive” acquisition of controlling interest of advertising agencies in high-risk markets, including India, China, and South America. “WPP failed to ensure that these subsidiaries implemented WPP’s internal accounting controls and compliance policies, instead allowing the founders and CEOs of the acquired entities to exercise wide autonomy and outsized influence,” the SEC stated.
Bribery schemes: According to the SEC’s order, a WPP majority-owned subsidiary in India paid approximately $1 million in bribes through intermediaries to Indian government officials in two different schemes. From 2015 through 2017, approximately half of the subsidiary’s revenue came from the Indian states of Telangana and Andhra Pradesh’s Departments of Information and Public Relations (DIPR).
The first alleged scheme involved the Indian subsidiary using a third-party agency to purchase media for DIPR to create an off-the-books fund. The second involved the subsidiary fabricating an advertising campaign to create an off-the-books fund at a third-party agency used to compensate DIPR officials for awarding campaigns to the subsidiary and for the personal benefit of its unnamed CEO.
These alleged actions resulted in approximately $5.7 million in net profit for WPP.
Additional illicit schemes and internal accounting control deficiencies occurred at subsidiaries in China, Brazil, and Peru, according to the SEC. The agency’s order describes:
- A Chinese subsidiary making unjustified payments to a vendor concerning a Chinese tax audit, resulting in approximately $3.3 million in tax savings;
- A Brazilian subsidiary making improper payments to purported vendors for government contracts from 2016-18; and
- A Peruvian subsidiary funneling funds through other WPP entities to disguise the source of funding for a 2013 political campaign in the country.
Compliance failures: Despite knowing its acquisitions posed inherent corruption and fraud risks, WPP lacked sufficient internal accounting controls over vendor management and accounts payable at all four subsidiaries, the SEC stated. The company further “failed to provide reasonable assurances that these subsidiaries were adhering to WPP’s anti-corruption policy.”
“Additionally, WPP had no compliance department during the relevant period, and it lacked meaningful coordination between its legal and internal audit departments,” the order stated. Deficiencies identified by legal and internal audit were not implemented in WPP’s internal accounting controls and compliance policies due to mismanagement, the SEC added.
Consequently, WPP “failed to promptly or adequately respond to repeated warning signs of corruption.” For example, the Indian subsidiary continued to bribe government officials in exchange for advertising contracts, despite WPP receiving seven anonymous complaints regarding the misconduct, the order stated.
“A company cannot allow a focus on profitability or market share to come at the expense of appropriate controls,” said Charles Cain, chief of the SEC’s FCPA Unit, in a press release. “Further, it is essential for companies to identify the root cause of problems when red flags emerge to prevent a pattern of corrupt behavior from taking hold.”
Remediation efforts: The SEC considered WPP’s remedial efforts and cooperation in reaching an agreement with the company, including “sharing facts developed in the course of its own internal investigations and forensic accounting reviews, translating key documents, and making current and former employees located abroad available for interviews.”
WPP also made the following compliance enhancements, as described in the order:
- Terminating senior executives and other employees involved in the misconduct;
- Strengthening and expanding the global compliance, internal investigations, risk, and controls functions, including creating 36 new positions globally;
- Enhancing internal audit;
- Creating a committee to prevent, detect, and remediate corruption risks;
- Conducting an annual risk assessment, including reviewing subsidiaries;
- Enhancing third-party engagement procedures; and
- Enhancing anti-corruption training for employees.
“As the Commission’s order recognises, WPP’s new leadership has put in place robust new compliance measures and controls, fundamentally changed its approach to acquisitions, cooperated fully with the Commission, and terminated those involved in misconduct,” the company said in a statement.