U.K.-based WPP, the world’s largest advertising group, has agreed to pay $19 million to settle charges that it failed to properly supervise subsidiaries in foreign countries, resulting in bribery and other illicit schemes.
The U.S. Securities and Exchange Commission said WPP violated the Foreign Corrupt Practices Act by failing to ensure that subsidiaries in India, China, Brazil and Peru implemented its internal accounting controls and compliance policies, leaving the founders and CEOs of the companies free to “exercise wide autonomy and outsized influence.”
The Indian subsidiary allegedly paid as much as $1 million in bribes to Indian officials through intermediaries to obtain and retain government business, resulting in about $5.7 million in additional profits between 2015 and 2017.
To settle the charges, WPP will pay $10 million in disgorgement, $1 million in interest on that amount, and an $8 million penalty.
“A company cannot allow a focus on profitability or market share to come at the expense of appropriate controls,” Charles Cain, head of the SEC’s FCPA unit, said in a news release. “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.”
As The Wall Street Journal reports, WPP went on an acquisition spree under founder and former CEO Martin Sorrell that transformed it from “a little-known manufacturer of wire shopping carts into a global advertising powerhouse.”
As part of the growth strategy, the SEC said in an administrative order, WPP acquired control of advertising agencies in markets at high risk for corruption and incentivized their founders to meet financial goals by including earn-out provisions in the deals.
“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 SEC alleged.
In India, the illegal payments to public relations officials allegedly continued even though WPP had received seven anonymous complaints about bribery schemes.
The SEC said a WPP subsidiary in China avoided paying more than $3 million in taxes to a Chinese tax authority by giving $2,000 worth of gifts and entertainment to tax officials while it was being audited.