WPP Plc (LON: WPP) ADR (NYSE: WPP) agreed to pay $19.2 million to settle the charges of the U.S. Securities Exchange Commission (SEC) alleging that it violated anti-bribery laws.
On Friday, the SEC announced that WPP settled without admitting or denying the allegations against it.
As part of the settlement, WPP consented to the entry of the SEC Order requiring it to stop violating the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA).
The SEC Order also required the world’s largest advertising group to pay $10.1 million in disgorgement, $1.1 million in prejudgment interest, and $8 million in penalties.
WPP internal accounting controls were insufficient
In its investigation, the SEC found that WPP implemented an aggressive growth strategy that included acquiring controlling interests in many localized ad agencies in high-risk markets such as China, India, and South America.
WPP agreed that the founder of the acquired ad agencies would continue as CEO and mandated them to follow its global policies and internal accounting control requirements.
However, the Commission found that WPP does not have enough internal accounting controls despite the fact that its founder-controlled acquisitions have inherent corruption and fraud risks.
Due to its structural deficiencies, the world’s largest advertising group failed to address the repeated warning signs of corruption or control failures at some of its subsidiaries.
WPP subsidiaries in India, China, Brazil, and Peru involved in bribery schemes
The SEC alleged that the world’s largest advertising group’s subsidiary in India paid bribes to Indian officials to obtain and retain government business. The bribery scheme resulted in more than $5 million in profit from 2015 to 2017.
Additionally, the Commission alleged that WPP’s subsidiary in Brazil made improper payments to purported vendors in connection with government contracts from 2016 to 2016.
Furthermore, the SEC alleged that the advertising group’s subsidiary in China made unjustified payments of around $107,000 to a vendor in connection with a tax audit in November 2018. Chinese tax officials allegedly identified that vendor, which kept a small percentage of that money, and transferred the rest to an unknown recipient. Chinese tax officials chose that vendor. The scheme allowed the subsidiary to avoid paying $3,261,437 in taxes to a Chinese tax authority. An employee of the subsidiary falsified documents to justify the transaction.
Moreover, the Commission alleged that WPP’s subsidiary in Brazil made improper payments to purported vendors to secure or retain government contracts from 2016 to 2018. The subsidiary falsified its books and records to show that the vendors performed real services. The advertising group unlawfully gained $881,457 from the scheme, according to the SEC.
Its subsidiary in Peru allegedly acted as a conduit for a bribery scheme that resulted in an unjust profit of $291,935 in 2013. The bribery scheme involved a construction company funding the political campaign of the mayor of Lima. the subsidiary funneled funds through other WPP entities to conceal the source of funding for the mayor’s political campaign. WPP discovered its subsidiary’s role in the bribery scheme in 2019 when a Peruvian criminal proceeding highlighted the conduct.
In a statement, SEC FCPA Unit Chief Charles Cain said, A company cannot allow a focus on profitability or market share to come at the expense of appropriate controls.”
“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,” he added.
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