WPP: WPP’s Indian subsidiary bribed officials to retain business: US SEC
The SEC said in an internal administrative order on Friday that a WPP majority-owned subsidiary in India 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 between 2015 – 2017.
WPP has violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA.
SEC said that until 2018, WPP implemented an aggressive acquisition strategy to grow its business. As part of its acquisition strategy, WPP acquired a controlling interest in small, localised agencies in high-risk markets, such as India, China, and South America that were previously majority-owned by the local agency’s founder.
“WPP often structured these acquisitions to include an earn-out provision, where the parties agreed to defer a portion of the purchasing price until the agency’s founder met future financial goals,” SEC said.
In some cases, WPP agreed that the agency’s founder would continue as the CEO, while the agency’s financials were consolidated into WPP’s financial statements.
In India, WPP acquired a majority interest in an agency located in Hyderabad in July 2011 and from 2015 – 2017, approximately half of India Subsidiary’s revenue was attributable to 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.
SEC has found out 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 the India subsidiary used to purchase media for DIPR to create an off-the-books fund. The second scheme involved the subsidiary fabricating an entire advertising campaign 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 the CEO,” reads the order, a copy of which was accessed by ET.
In the second bribery scheme, DIPR paid India subsidiary $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. In reality, no such campaign occurred. Instead, the CFO of the company requested that the vendor falsify documents. The vendor hen paid over $1,000,000 to a third-party intermediary responsible for making payments to DIPR officials. With the remaining funds, the vendor made cash payments to CEO and routed money back to the India subsidiary, which used the money it received back to pay overdue account receivables from clients unrelated to DIPR.
While SEC hasn’t named the agency, WPP’s wholly-owned company JWT had acquired a majority stake in Hyderabad-based Mindset in July 2011.
SEC said in its order 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.
Incidentally, none of the current local and global leaders of WPP were part of the setup at that time, and a senior executive said that when this case came to light, the services of all those involved were terminated.
Replying to an ET Query, a WPP spokesperson said, “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.”
WPP also benefited from similar illicit schemes at its subsidiaries in other markets. A subsidiary in China made unjustified payments to a vendor in connection with a Chinese tax audit, resulting in significant tax savings.
A subsidiary in Brazil made improper payments to purported vendors in connection with government contracts in 2016-2018, while in 2013, a Peruvian subsidiary funnelled funds through other WPP entities to disguise the source of funding for a political campaign in Peru.
“Despite WPP’s size and geographical reach, it failed to timely and properly manage the company’s response to red flags indicating corruption risks or remediate identified control deficiencies,” SEC said.
WPP employs close to 107,000 people around the world.