In July 2011, WPP acquired a majority interest in an agency located in Hyderabad which became a FIC entity within a WPP Network.
The world’s largest advertising group WPP plc will pay more than USD 19 million to the US markets watchdog SEC to settle charges of various violations, including that of bribing of Indian government officials by one of its subsidiaries in return for advertising contracts.
Issuing an order after accepting WPP’s offer to settle the matter, the Securities and Exchange Commission (SEC) said the bribery scheme took place at a WPP’s 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.
“As a result of the bribery schemes at India subsidiary, WPP was unjustly enriched by USD 5,669,596,” the watchdog said in an order issued on Friday. Further, it noted that WPP benefited from other illicit schemes at its subsidiaries in China, Brazil and Peru.
The SEC said that without admitting or denying its findings, WPP agreed to cease and desist from committing violations of the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA). It will pay USD 10.1 million in disgorgement, USD 1.1 million in prejudgment interest, and an USD 8 million penalty.
Further, the SEC has appreciated the assistance provided by the Securities and Exchange Board of India (Sebi) and Brazil’s Comisso de Valores Mobilrios. At current exchange rates, USD 19 million translates to more than Rs 140 crore. The company implemented an aggressive business growth strategy that included acquiring majority interests in many localised advertising agencies in high-risk markets.
According to the US regulator, WPP failed to ensure that these subsidiaries implemented the company’s internal accounting controls and compliance policies and instead allowed the founders and CEOs of the acquired entities to exercise wide autonomy and outsized influence.
On account of structural deficiencies, the London-based WPP failed to promptly or adequately respond to repeated warning signs of corruption or control failures at certain subsidiaries and cited an example in India, the SEC said in a 11-page order issued on Friday.
“… 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,” the watchdog noted.
In July 2011, WPP acquired a majority interest in an agency located in Hyderabad which became a FIC entity within a WPP Network. There was an earn-out provision in the acquisition agreement and WPP appointed the subsidiary’s co-founder as the CEO of the India subsidiary (CEO A), as per the order.
From 2015-2017, about half of the subsidiary’s revenue was attributable to Telangana and Andhra Pradesh’s Departments of Information and Public Relations (DIPR). These departments are responsible for retaining media agencies to conduct advertising and public relations campaigns for their respective state governments.
The US watchdog noted that 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.
“The first scheme involved the use of a third-party agency… that India Subsidiary used to purchase media for DIPR to create an off-the-books fund.
“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… that was used to compensate DIPR officials for awarding campaigns to India subsidiary and for the personal benefit of CEO…,” the order said.
WPP had submitted an Offer of Settlement before SEC, which was accepted. “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, said in the release.