WPP has been charged with breaching US anti-bribery regulations relating to its operations in India, China, Brazil and Peru.
The Securities and Exchange Commission (SEC) says WPP failed to respond to repeated warning signs of corruption as it rapidly expanded its international business.
The world’s largest advertising group has agreed, without admitting or denying the breaches, to pay more than $19 million to resolve the charges under the Foreign Corrupt Practices Act (FCPA).
The offences, pre 2018, came about when WPP bought local agencies and the founders continued to run the businesses with a financial incentive to keep earnings high to meet earn-out provisions.
The US regulators say WPP lacked sufficient internal accounting controls for its expanding international network.
WPP responded: “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.”
According to the SEC, bribery took place at a WPP majority-owned subsidiary in India, which paid as much as a million dollars to officials to obtain and retain government business, resulting in more than $US5 million in net profit from 2015 to 2017.
Other illicit schemes, according to the SEC:
- A subsidiary in China made payments to a vendor in connection with a Chinese tax audit, resulting in tax savings of $US3,261,437.
- Improper payments in Brazil in connection with government contracts in 2016-2018.
- A Peruvian subsidiary in 2013 funneling funds through other WPP entities to disguise the source of funding for a political campaign .
According to the SEC's order, WPP had an aggressive business growth strategy to acquire majority interests in local 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.
The founders and CEOs of the acquired agencies were allowed wide autonomy and outsized influence.
“WPP failed to promptly or adequately respond to repeated warning signs of corruption or control failures at certain subsidiaries,” says the SEC.
For example, a subsidiary in India continued to “bribe Indian government officials in return for advertising contracts” even though WPP had received seven anonymous complaints.
Charles Cain, the SEC's FCPA Unit chief: "A company cannot allow a focus on profitability or market share to come at the expense of appropriate controls.
"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 agreed, without admitting or denying the SEC's findings, to cease and desist from committing violations of the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and to pay $10.1 million in disgorgement, $1.1 million in prejudgment interest and an $8 million penalty.
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