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London-based WPP has agreed to pay US$19m to the U.S. Securities and Exchange Commission (SEC) to dissuade it from pressing charges with the accusation that several subsidiaries made corrupt payments. The company, according to the SEC, failed to spot the offences because its internal accounting controls were deficient.
According to the SEC’s cease and desist order, a WPP subsidiary in India paid a million dollars in bribes to Indian officials to gain government business, which resulted in a net profit of more than $5m between 2015 and 2017.
A Chinese subsidiary, the order says, allegedly made unjustified payments in connection with a Chinese tax audit, resulting in significant tax savings for the subsidiary.
Another subsidiary in Brazil, the SEC states, paid improper amounts in connection with government contracts in 2016-18 and a Peruvian subsidiary funneled funds through other WPP entities to disguise the source of funding for a political campaign in 2013.
By engaging in these corrupt practices, the subsidiaries broke the U.S. Foreign Corrupt Practices Act (FCPA), according to the SEC.
These subsidiaries became part of the WPP group as a result of WPP’s aggressive business-growth strategy that involved the acquisition of majority interests in many localized advertising agencies in corrupt markets. WPP allowed the founders and CEOs of the acquired entities to continue to exercise wide discretion.
“Despite the known corruption and fraud risks inherent in WPP’s [Founder-in-Control] acquisitions, WPP lacked sufficient internal accounting controls with respect to its expansive international network,” the order says.
The SEC alleges that WPP failed to make these subsidiaries implement its internal accounting controls and compliance policies. It says that the company failed to manage its response to warning signals regarding corruption. It also failed to offset deficiencies in control at the firms.
"A company cannot allow a focus on profitability or market share to come at the expense of appropriate controls," said Charles Cain, the SEC's FCPA Unit chief.
"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."
To settle the charges, WPP agreed to cease and desist from breaking the provisions of the FCPA that deal with bribery, books, records and internal accounting controls and to pay $10.1m in “disgorgement,” i.e. punitive payments that equal the amount of ill-gotten gains from the offences. It also agreed to pay $1.1m in prejudgment interest and an $8m penalty.
