WPP Agrees $19m Payment To SEC Over Bribery Claims
Advertising giant WPP has agreed to pay $19m to the US Securities and Exchange Commission over allegations of bribery.
The behemoth holding company had an “aggressive business growth strategy” until 2018 which saw it acquire agencies in India, Brazil, China and Peru.
According to the SEC, these local subsidiaries failed to adopt WPP’s “internal accounting controls and compliance policies” which allowed “the founders and CEOs of the acquired entities to exercise wide autonomy and outsized influence” allegedly including the bribery of government officials and falsifying financial records.
The holding company declined to admit or deny the SEC’s findings but agreed to pay a $19m fine.
“The Commission’s findings relate to control issues as well as the acquisition and integration of companies in high-risk markets until 2018,” a WPP spokesperson said in a statement.
“As the Commission’s Order recognizes, 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.”
In response to the news, WPP founder and former chief exec Sir Martin Sorrell said in a statement: “I had no part or involvement in the settlement between the SEC and WPP. My personal commitment to compliance and controls during almost fifty years of value creation has been rigorous and remains so. I note there have been terminations of only certain senior executives and other employees at WPP involved in the misconduct as a consequence. I left WPP as a good leaver as its statement of April 14, 2018 made clear.” Sorrell was replaced by Mark Read in 2018.
A breakdown of the charges
You can read the full report from the SEC here. The below is an edited summary of the charges.
According to the SEC filing, in 2011 WPP acquired an unnamed agency in India where it retained the co-founder as CEO. Approximately half of this agency’s revenue came from the Indian States of Telangana and Andhra Pradesh’s Departments of Information and Public Relations (“DIPR”), a government procurement department.
WPP is stated to have received seven anonymous complaints alleging bribery via two “schemes”.
“The first scheme involved the use of a third-party agency (‘Vendor A’) that India Subsidiary used to purchase media for DIPR to create an off-the-books fund,” it’s stated in the filing.
“The second scheme involved India Subsidiary fabricating an entire advertising campaign in order to create an off-the-books fund at a third-party agency (‘Vendor B’) that was used to compensate DIPR officials for awarding campaigns to India Subsidiary and for the personal benefit of CEO [the co-founder of the acquired agency].”
The SEC said WPP was made aware of the schemes in 2017 through anonymous complaints.
It is said to have benefitted $5,669,596 directly from those schemes.
In 2014, WPP acquired an agency in Shanghai specializing in celebrity branding and endorsement. The agency’s co-founder served as the CEO. Despite earning $9.4m and $7.6m in 2017 and 2018 respectively, the SEC alleges the agency avoided paying $3,261,437 in taxes to a Chinese tax authority by making payments to a vendor identified by tax officials and providing $2,000 worth of gifts and entertainment to tax officials during the same time period.
“Specifically, China Subsidiary paid approximately $107,000 to the tax official’s chosen vendor in the two months before a tax audit finalized. The vendor kept a small percentage of the money and transmitted the rest to an unknown recipient,” the SEC stated.
Though there were “red flags” as early as 2017 it wasn’t until 2019 that WPP acted, per the SEC.
In 2016 WPP acquired an agency in São Paulo, Brazil where the minority owner was retained at CEO.
“WPP had an adviser payment policy that prohibited its companies from paying third parties to assist in obtaining or retaining government contracts without WPP’s approval,” the SEC said. “Despite the policy, the agency made improper payments to vendors in connection with securing government contracts at the direction of the [agency] CEO.”
The agency is accused of falsifying its books to cover up the payments.
The SEC said WPP made $891,457 as a result.
An agency acquired in 1996 saw the founder remain as CEO post-acquisition. The agency and its CEO was accused of being a “conduit for a bribery scheme” which involved a construction company funding the mayor of Lima’s political campaigns in exchange for contract awards.
The then CEO of the Peru subsidiary “agreed to be a conduit for the construction company’s bribe to the mayor of Lima,” said the SEC, and “disguised the corrupt source of the funds used for the mayor of Lima’s political campaign by funneling the construction company’s payments to Peru subsidary through WPP subsidiaries in Colombia and Chile.”
According to the SEC, the WPP subsidiaries in Colombia and Chile falsely recorded that they received money in return for services performed for the construction company while the Peruvian agency maintained no records indicating that the construction company paid for a portion of the mayor of Lima’s political campaigns.
WPP did not uncover Peru agency’s role in the bribery scheme until a Peruvian criminal proceeding highlighted the conduct in 2019.
Credit: The Drum