Storyboard | WPP fined for bribery-related scheme in India by US regulator

#Securities and Exchange Commission, #Storyboard, #WPP

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The US Securities and Exchange Commission (SEC) on Friday announced that London-based WPP plc, the world’s largest advertising group, has agreed to pay more than $19 million to resolve charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA).

The advertising firm did not admit or deny the SEC’s charges but agreed to pay the fine, the SEC said.

According to the SEC’s order, WPP implemented an aggressive business growth strategy that included acquiring majority interests in many localised advertising agencies in high-risk markets. The order finds that WPP failed to ensure that these subsidiaries implemented WPP’s internal accounting controls and compliance policies, instead of allowing the founders and CEOs of the acquired entities to exercise wide autonomy and outsized influence. The order also finds that, because of structural deficiencies, WPP failed to promptly or adequately respond to repeated warning signs of corruption or control failures at certain subsidiaries.

For example, according to the order, a subsidiary in India continued to bribe Indian government officials in return for advertising contracts even though WPP had received seven anonymous complaints touching on the conduct.

In its order, SEC said that the bribery scheme took place at a WPP majority-owned subsidiary in India, which, through intermediaries, paid as much as a million dollars in bribes to Indian officials to obtain and retain government business, resulting in over $5 million in net profit from 2015 to 2017.

In July 2011, WPP obtained a majority interest in an agency located in Hyderabad, India, which became an FIC entity within a WPP Network (“India Subsidiary”). From 2015 – 2017, approximately half of India Subsidiary’s revenue was attributable to the Indian States of Telangana and Andhra Pradesh’s Departments of Information and Public Relations (DIPR), which were responsible for retaining media agencies to conduct advertising and public relations campaigns for their respective state governments.

From July 7, 2015, through September 2, 2017, WPP received seven anonymous complaints alleging – with increasing specificity – two bribery schemes related to India Subsidiary’s work for DIPR.

One of the bribery schemes involved Indian Subsidiary paying DIPR officials $1,588,480 to supposedly execute a campaign related to the celebration of the anniversary of the formation of the Indian state of Telangana in June 2015. The report said that no such campaign occurred.

“The Commission’s findings relate to control issues as well as the acquisition and integration of companies in high-risk markets until 2018. 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,” said WPP spokesperson in an emailed response to Storyboard.

However, the spokesperson declined to comment on India-specific details of the issue.

SEC said that WPP failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent the bribe payments at this Indian subsidiary or properly account for the true nature of payments and income at all four subsidiaries in Peru, China, India, and Brazil markets.

Specifically, WPP failed to implement and maintain sufficient internal accounting controls over vendor management, and accounts payable at these subsidiaries, failed to provide reasonable assurances that these subsidiaries were adhering to WPP’s anti-corruption policy, and lacked sufficient entity-level controls over these subsidiaries, it said.

“A company cannot allow a focus on profitability or market share to come at the expense of appropriate controls,” said Charles Cain, the SEC’s FCPA Unit Chief. “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.”

The issues relate to a period between 2013 and 2018.

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