Red Flags Ignored In WPP’s $ 19 Million FCPA Settlement | Item

WPP is to pay $ 10.1 million in restitution, a penalty of $ 8 million and $ 1.1 million in prejudgment interest as part of the deal. The company, considered the largest advertising group in the world, has also agreed to cease and desist from violating the FCPA’s anti-corruption provisions, books and records, and internal accounting controls. He neither admitted nor denied the SEC’s findings.

The alleged violations by WPP relate to its “aggressive” acquisition of a controlling stake in advertising agencies in high-risk markets, including India, China and South America. “WPP failed to ensure that these subsidiaries implement WPP’s internal accounting controls and compliance policies, instead allowing the founders and CEOs of the acquired entities to exercise broad autonomy and inordinate influence,” said the SEC.

Corruption patterns: According to SEC Order, a majority-owned subsidiary of WPP in India paid approximately $ 1 million in bribes through intermediaries to Indian government officials under two different programs . From 2015 to 2017, approximately half of the subsidiary’s revenue came from the Information and Public Relations Departments (DIPR) of the Indian states of Telangana and Andhra Pradesh.

The first alleged scheme involved the Indian affiliate using a third-party agency to buy media for DIPR to create an unofficial fund. The second involved the affiliate fabricating an advertising campaign to create an unofficial fund in a third-party agency used to remunerate DIPR officials for attributing campaigns to the affiliate and for the personal benefit of its anonymous CEO.

These alleged actions resulted in a net profit of approximately $ 5.7 million for WPP.

According to the SEC, additional illicit schemes and deficiencies in internal accounting control have occurred at subsidiaries in China, Brazil and Peru. The agency’s decree describes:

  • A Chinese subsidiary making unwarranted payments to a supplier regarding a Chinese tax audit, resulting in a tax savings of approximately $ 3.3 million;
  • A Brazilian subsidiary making abusive payments to purported suppliers for government contracts from 2016 to 2018; and
  • A Peruvian affiliate channeling funds through other WPP entities to conceal the source of funding for a 2013 political campaign in the country.

Compliance failures: Although knowing that its acquisitions posed inherent risks of corruption and fraud, WPP did not have sufficient internal accounting controls over vendor management and accounts payable in the four subsidiaries, the SEC said. The company “further failed to provide reasonable assurances that these subsidiaries were complying with WPP’s anti-corruption policy.”

“In addition, WPP did not have a compliance department during the reporting period and lacked significant coordination between its legal and internal audit departments,” the order says. Gaps identified by legal and internal audit were not implemented in WPP’s internal accounting controls and compliance policies due to mismanagement, the SEC added.

As a result, WPP “has not responded promptly or adequately to repeated warning signs of corruption”. For example, the Indian subsidiary continued to bribe government officials in exchange for advertising contracts, although WPP received seven anonymous complaints about the misconduct, according to the order.

“A company cannot allow a focus on profitability or market share to come at the expense of proper controls,” Charles Cain, head of the SEC’s FCPA unit, said in a press release. “In addition, it is essential for companies to identify the root cause of problems when red flags appear to prevent a corrupt behavior pattern from taking hold.”

Remediation efforts: The SEC has taken into account the remedial efforts and cooperation of WPP to reach an agreement with the company, including “sharing of facts developed during its own internal investigations and forensic reviews, translation of documents keys and making current and former employees located abroad available for interviews. “

WPP also made the following compliance improvements, as described in the command:

  • Dismissal of senior executives and other employees involved in the misconduct;
  • Strengthen and expand global compliance, internal investigations, risk and controls functions, including the creation of 36 new positions globally;
  • Improvement of internal audit;
  • Create a committee to prevent, detect and remedy corruption risks;
  • Perform an annual risk assessment, including the review of subsidiaries;
  • Improve third party engagement procedures; and
  • Improve anti-corruption training for employees.

“As recognized in the Commission Order, the new management of WPP put in place robust new measures and compliance controls, fundamentally changed its approach to acquisitions, fully cooperated with the Commission and terminated those involved in faults, ”the company said in a statement.

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