Ad group WPP settles FCPA enforcement
London-based advertising company WPP has agreed to pay more than $19 mn to settle SEC charges that it violated the anti-bribery, books and records and internal accounting controls provisions of the FCPA.
According to the SEC, WPP until 2018 had an aggressive business growth strategy that included acquiring majority interests in localized advertising agencies in what the regulator refers to as ‘high-risk’ markets. An SEC filing alleges that a scheme took place at a WPP majority-owned subsidiary in India that, through intermediaries, paid as much as $1 mn in bribes to Indian officials to obtain and retain government business, resulting in more than $5 mn in net profit between 2015 and 2017.
The agency also alleges that WPP benefited from other illicit schemes:
- A subsidiary in China making unjustified payments to a vendor in connection with a Chinese tax audit, resulting in significant tax savings to the WPP subsidiary
- A subsidiary in Brazil making improper payments to purported vendors in connection with government contracts between 2016 and 2018
- A Peruvian subsidiary in 2013 funneling funds through other WPP entities to disguise the source of funding for a political campaign in the country.
According to the SEC, WPP failed to create and maintain a system of internal accounting controls that would have been needed to detect and prevent the bribes at the Indian subsidiary or to properly account for the true nature of payments and income at all four subsidiaries mentioned in the proceeding.
Specifically, the agency alleges that WPP failed to implement and maintain sufficient internal accounting controls over vendor management and accounts payable at these subsidiaries, did not provide reasonable assurances that the subsidiaries at issue were adhering to WPP’s anti-corruption policy and lacked sufficient entity-level controls over the subsidiaries. The SEC says that, as a result, the company also failed to make and keep accurate books and records.
WPP had no compliance department during the period at issue and lacked meaningful co-ordination between its legal and internal audit departments and management in its international agencies, known as ‘networks,’ according to the SEC. WPP charged network management with remediating deficiencies identified by the company’s legal and internal audit teams, the commission says.
But it adds that in practice neither WPP nor its networks provided adequate oversight of certain entities where the local founder was still in charge to ensure those entities implemented WPP’s internal accounting controls and compliance policies, the SEC alleges.
The commission says these alleged structural deficiencies meant WPP failed to promptly or adequately respond to repeated warning signs of corruption or identify control failures at certain entities where the local founder was still in charge.
In determining the settlement terms, the SEC has taken into account remedial acts undertaken by WPP and its co-operation with the agency’s staff. The co-operation includes sharing facts obtained during the company’s own internal investigations and forensic accounting reviews, translating key documents and making current and former employees located abroad available for interviews.
According to the SEC, WPP’s remediation includes:
- Terminating senior executives and other employees involved in the alleged misconduct and separating from employees with supervisory responsibilities
- Strengthening and expanding its global compliance, internal investigations, risk and controls functions
- Enhancing its internal audit function
- Conducting global annual compliance risk assessments
- Conducting reviews of remaining founder-in-charge entities in Brazil, China and India
- Enhancing the procedures for engagement of third parties
- Enhancing training of employees on anti-corruption, controls and other compliance issues.
‘A company cannot allow a focus on profitability or market share to come at the expense of appropriate controls,’ Charles Cain, the SEC’s FCPA unit chief, says in a statement. ‘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.’
WPP did not admit or deny wrongdoing. It has agreed to pay $10.1 mn in disgorgement, $1.1 mn in prejudgment interest and an $8 mn penalty.
A WPP company statement reads: ‘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 recognizes, WPP’s new leadership has put in place robust new compliance measures and controls, fundamentally changed its approach to acquisitions, co-operated fully with the commission and terminated those involved in misconduct.’