A WPP majority-owned subsidiary in India paid as much as $1 million in bribes to Indian officials to obtain and retain government business, resulting in over $5 million in net profit between 2015 and 2017, SEC said in an internal administrative order on Friday.
The London and New York-headquartered group has violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA, it said.
SEC said that until 2018, WPP implemented an aggressive acquisition strategy to grow its business. As part of this strategy, it 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 the agency’s founder would continue as the CEO while the agency’s financials were consolidated into WPP’s financial statements, the SEC order said.
ET has accessed a copy of the order.
In India, WPP acquired a majority interest in an agency located in Hyderabad in July 2011 and from 2015 to 2017, approximately half of the 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 PR campaigns for their respective state governments.
SEC found out that from July 7, 2015, through September 2, 2017, WPP received seven anonymous plaints 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 order said. “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.”
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 Telangana in June 2015. But no such campaign occurred. Instead, the CFO of the company requested the vendor falsify documents. The vendor then paid over $1 million to a third-party intermediary responsible for making payments to DIPR officials. With the remaining funds, the vendor made cash payments to the CEO and routed money back to the India arm, which used the money to pay overdue account receivables from clients unrelated to DIPR.
While SEC hasn’t named the agency, WPP-owned JWT bought a majority in Hyderabad-based Mindset in July 2011.