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This week we are exploring the recent Securities and Exchange Commission (SEC) Cease and Desist Order (Order) entered into last week with WPP plc, the world’s largest advertising group, for paying bribes to Indian government officials and participating in other “illicit schemes” in China, Brazil and Peru. WPP agreed to pay $11 million+ in disgorgement and interest and penalty of $8 million for a total amount of just over $19 million. Today we consider the bribery schemes involved in some detail.
M&A
WPP’s road to Foreign Corrupt Practices Act (FCPA) ruin began with an ambitious expansion program in the past decade. To grow the firm, WPP bought extensively across the globe. As stated in the Order, “Following this growth strategy, WPP operated in 112 countries and employed approximately 100,000 people over 3,000 locations during the relevant period. WPP sourced 86% of its revenue from 10 companies and 88% of its revenue was from operations in 20 countries.” It is clear from some of the acquisitions reported in the Order, WPP did not dig very deeply into their targets.
It is clear that the persons who sold their agencies to WPP certainly did not have compliance in the front, back or anywhere else in their minds. In China, the agency purchased engaged in tax evasion so egregious that WPP was informed by a whistleblower that “China Subsidiary management could face criminal charges for its tax avoidance schemes.” In India, where “approximately half of India Subsidiary’s revenue was attributable to the Indian States of Telangana and Andhra Pradesh’s Departments of Information and Public Relations (“DIPR”), which were responsible for retaining media agencies to conduct advertising and public relations campaigns for their respective state governments”; the acquired unit was engaging in bribery and corruption almost immediately after acquisition.
Not simply best practices but any compliance practices mandate both pre-acquisition investigation and due diligence AND post-acquisition integration, training and full forensic audit. Does it sound like any of these were done by WPP? If such steps were taken, they are not outlined in the Order.
But there was another key issue identified in the Order which also contributed to the WPP bribery and corruption. It is a feature of many M&A transactions where the seller is kept on to run the new unit or stays in management of it, a so-called ‘earn-out provision’. This turned into a perverse incentive. As stated in the Order, “WPP often structured these acquisitions to include an earn-out provision. Under these earn-out provisions, the parties agreed to defer a portion of the purchasing price until the agency’s founder met future financial goals. In some cases, WPP agreed that the agency’s founder would continue as the Chief Executive Officer of the WPP controlled entity (hereinafter Founder-in-Control or “FIC” entities). WPP placed the FIC entities within a WPP Network and consolidated the FIC entities’ financial statements into WPP’s financial statements.”
There is nothing inherently wrong with an earn-out provision going forward as part of an acquisition, just as there is nothing inherently wrong with sales incentives, but when you couple suboptimal M&A compliance processes, with lack luster internal controls and no corporate compliance function, the recipe for compliance violations is self-evident. This is yet another demonstration on the inter-locking nature of compliance controls. If there is one deficient area, there may not be systemic compliance failure but when there are systemic deficiencies, you see the risks inherent in the entire enterprise.
Whistleblower Reports and Missed or Ignored Red Flags
The bribery schemes may appear to have been rather pedestrian but that is the very heart of the compliance lessons from the WPP FCPA enforcement action. It was the fact they were so blatant that in India there were seven internal whistleblower reports. As stated in the Order, “From July 7, 2015 through September 2, 2017, WPP received seven anonymous complaints 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 (“Vendor A”) that India Subsidiary used to purchase media for DIPR to create an off-the-books fund. The second scheme involved India Subsidiary fabricating an entire advertising campaign in order to create an off-the-books fund at a third-party agency (“Vendor B”) that was used to compensate DIPR officials for awarding campaigns to India Subsidiary and for the personal benefit of CEO A.”
Indeed, in India, things were so severe that WPP ordered an audit of the business unit. Yet here, WPP so hamstrung the international accounting firm “ostensibly” hired to investigate the allegations and review India Subsidiary’s processes regarding government contracts and transactions involving government clients, it found “no conclusions related to the bribery allegations.” However, the investigative firm relied on information provided by India business unit Chief Executive Officer (CEO) and Chief Financial Officer (CFO) “did not contact third parties, and ultimately provided a report to WPP, which contained no conclusions related to the bribery allegations.” The investigative firm did find “several red flags regarding Vendor A, such as the India Subsidiary failing to obtain comparative quotes from other vendors or properly vetting Vendor A.” Yet even with this information, “WPP allowed India Subsidiary to continue routing DIPR’s media purchases through Vendor A.”
In China, the story was similar. Here “an internal audit in 2017 determined that China Subsidiary was employing tax avoidance schemes and other significant violations of WPP’s internal accounting controls resulting from” the business unit CEO’s actions. Next a China Subsidiary employee informed WPP “that [the] China Subsidiary was in the midst of a tax audit and China Subsidiary management could face criminal charges for its tax avoidance schemes.” Finally, a WPP China Tax Director was told the CEO was “comb[ing] through a lot of [his] personal social connections,” in an attempt to control the direction of the tax audit. Once again WPP took no steps further to terminate recalcitrant employees or remediate the corruption.
The bottom line was that even though these known and reported corruption risks were present, WPP lacked sufficient internal accounting controls to prevent the corruption. As stated in the Order, “WPP had no compliance department during the relevant period, and it lacked meaningful coordination between its legal and internal audit departments” and management. Even when WPP charged its subsidiary management with remediating deficiencies identified by WPP’s legal and internal audit departments, “neither WPP nor the Networks provided adequate oversight” of the entities to ensure that the entities implemented WPP’s internal accounting controls and compliance policies.

We now have our second Foreign Corrupt Practices Act (FCPA) corporate enforcement action in 2021. The Securities and Exchange Commission (SEC) entered into a Cease and Desist Order (Order) last week with WPP plc, the world’s largest advertising group, for the paying bribes to Indian government officials and participating in other “illicit schemes” in China, Brazil and Peru. WPP agreed to pay $11 million+ in disgorgement and interest and penalty of $8 million for a total amount of just over $19 million.
All I can say is that the WPP enforcement action is quite a doozy. Not from the amount of the fine and penalty perspective but from a variety of other angles that are instructive from the compliance perspective. These compliance angles include tone at the top, culture, whistleblowers and internal reporting, internal investigations, mergers and acquisitions (M&A), missed red flags, conscious indifference and financial incentives. It is also interesting from what is not in the record regarding self-disclosure, the Department of Justice (DOJ), the UK Serious Fraud Office (SFO) and the lack of a monitor. In other words, there is much to parse from this enforcement action, and I do not know how many posts I will pen about it. Today we begin with the background.
What They Said
According to the SEC Press Release, “WPP implemented an aggressive business growth strategy that included acquiring majority interests in many localized advertising agencies in high-risk markets. The order finds that WPP failed to ensure that these subsidiaries implemented WPP’s internal accounting controls and compliance policies, instead allowing the founders and CEOs of the acquired entities to exercise wide autonomy and outsized influence. The order also finds that, because of structural deficiencies, WPP failed to promptly or adequately respond to repeated warning signs of corruption or control failures at certain subsidiaries. For example, according to the order, a subsidiary in India continued to bribe Indian government officials in return for advertising contracts even though WPP had received seven anonymous complaints touching on the conduct. The order also documents other schemes and internal accounting control deficiencies related to WPP’s subsidiaries in China, Brazil, and Peru.”
In the same Press Release Charles Cain, the SEC’s FCPA Unit Chief, noted, “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.”
Perhaps more interesting were the comments from WPP and its former chairman. According to the Financial Times, WPP said in a statement, “the findings related “to control issues as well as the acquisition and integration of companies in high-risk markets until 2018”. The company had “fundamentally changed its approach to acquisitions, co-operated fully with the commission and terminated those involved in misconduct”.” According to Bloomberg, WPP said in an emailed statement, “WPP’s new leadership has put in place robust new compliance measures and controls, fundamentally changed its approach to acquisitions, cooperated fully with the Commission and terminated those involved in misconduct.”
Sir Martin Sorrell, who led the firm up until 2018 (and right during the time bribery was alleged to have occurred), said, “I had no part or involvement in the settlement between the SEC and WPP. My personal commitment to compliance and controls during almost 50 years of value creation has been rigorous and remains so. I note there have been terminations of only certain senior executives and other employees at WPP involved in the misconduct as a consequence. I left WPP as a good leaver as its statement of April 14, 2018 made clear.”
The Bribery Schemes
According to the Wall Street Journal (WSJ), WPP grew largely through acquisitions, buying up agencies around the world. Many of these acquisitions had a financial provision that gave “top executives bonuses for meeting certain financial goals. Those types of deals could motivate executives at the acquired firms to increase their profits any way they could, said Doug Wood, senior counsel at law firm Reed Smith LLP and general counsel to the Association of National Advertisers.” Here you being to see the problem, skewed incentives.
The WSJ reported, “an Indian subsidiary of WPP 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. The bribes continued even though WPP had received seven anonymous complaints over that period referring to the conduct.” In China there was a criminal tax investigation under way during and immediately after the acquisition of an agency in that high-risk jurisdiction. The “subsidiary in the midst of a tax audit 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 and making more than $100,000 in payments to a vendor recommended by tax officials ahead of the audit’s completion.” Finally, the WSJ noted, “a WPP subsidiary in Brazil made improper payments to vendors in connection to securing government contracts, while a WPP subsidiary in Peru agreed to be a conduit for a construction company’s bribes to the mayor of Lima’s political campaign.”
Open Questions
As noted, one of the unanswered questions is why there was no monitor required under the Order. According to the Order, WPP did not even have a compliance function during the “period in question”. Although that time frame was not specifically identified in the Order, the events listed in the Order occurred right up until 2019. Clearly a culture of compliance was not high on the list for WPP. Yet the Order credited WPP for the following, “WPP’s remediation includes (i) terminating senior executives and other employees involved in the misconduct and separating from employees with supervisory responsibilities over the misconduct; (ii) strengthening and expanding its global compliance, internal investigations, risk and controls functions, including the creation of 36 new positions globally; (iii) enhancing its internal audit function; (iv) creating Network risk committees to prevent, detect, and remediate corruption risk, among other risks; (v) conducting global, annual compliance risk assessments; (vi) conducting proactive reviews of remaining FIC entities in Brazil, China, and India; (vii) streamlining businesses and back-office functions, including that three of the Networks in which the subsidiaries in this Order were incorporated have since been merged with other networks; (viii) enhancing the procedures for engagement of third parties; and (ix) enhancing training provided to employees regarding anti-corruption, controls, and other compliance issues.”
Some of the questions I will explore over this series include:

• How was the SEC made aware of WPP’s bribery and corruption?
• Is there a parallel DOJ enforcement action?
• Where is the SFO?
• How did WPP avoid a monitor?

I am sure there are others that will arise but if you have any questions you want to explore in this series, please let me know and I will see what I can do.