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 and the lessons they present for the compliance professional.
Due Diligence
Before we get to the bribery schemes, a word (yet again) about due diligence. Clearly WPP was deficient in performing the most rudimentary level of due diligence. This is true whether or not it was a potential business partner acquired through acquisition or a vendor hired to assist in WPP sales efforts. Due diligence is one of the most basic functions in any compliance program. Obviously one function of due diligence is to determine if you are going into business with bad actors who have engaged in bribery and corruption previously. But the next level of inquiry is perhaps even more important. Are you going into business with persons who want to and will do business ethically and in compliance with anti-corruption programs? This requires more than simply a Level 1 search of social media and the relevant bad guy lists. It requires understanding the person or entity you are going to do business with going forward. This means you have to sit down (or Zoom) and talk to people and get a sense of their values and their ethics. A simple computer search is not going to give you such insights.
Bribery Schemes 
India
As laid out in the Order, the Vendor A bribery scheme worked with the customer DIPR awarding WPP India a contract under which WPP India developed advertisements and then purchased space in newspapers to display the advertisement. The customer set the fee to media agencies for purchasing advertisement space. WPP-India CEO A negotiated rates with the newspapers that were significantly less than the fee and utilized the difference between the approved fee and the actual price paid to the newspapers to create a pot of money to pay bribes to the government officials. WPP-India hid this arrangement by agreeing to pay Vendor A to purchase the advertising space. The Vendor A paid the newspapers, took a cut and forwarded the difference on as bribe to government officials.
The next scheme involved Vendor B, which once again involved WPP-India bribing government officials through an intermediary. Here the customer paid WPP-India Subsidiary $1.5 million to create and run a media campaign to celebrate the formation of the Indian state of Telangana in June 2015. But there was never any such campaign. There were fake records created at the behest of the WPP-India CFO, by Vendor B falsify that the campaign occurred. Vendor B then paid $1+ million to another 3^rd party who made the bribe payments. All the recalcitrant parties split the rest of the money.
China
Here WPP-China avoided paying $3,2 million in taxes to a tax authority by making corrupt payments to a vendor selected by corrupt tax officials. WPP-China paid approximately $107,000 to the corrupt vendor in the two months before a tax audit finalized. The vendor kept a cut of the bribe payment and distributed the bulk of the monies as bribes. But it did not end there as the WPP-China books and records were doctored to show the vendor performed services for a client. There was also $2,000 of gifts and entertainment to tax officials during the same time period. Finally, WPP uncovered an off-the-books account maintained by China Subsidiary reflecting the payments to the vendor recommended by the tax officials.
Brazil
WPP acquired a majority interest in a public relations agency in São Paulo, Brazil, with the acquired entity’s minority owner serving as CEO of WPP-Brazil going forward. WPP-Brazil made improper payments to vendors in connection to obtain government. As Mike Volkov has noted, “These payments were made in circumstances in which there was a high probability that a portion of the payments may have been passed to the government officials with the authority to award the contracts. To disguise the fact that Brazil Subsidiary’s payments to the vendors related to obtaining or retaining government contracts, Brazil Subsidiary falsified its books and records to reflect that the vendors performed bona fide services, such as marketing or IT services.”
Peru
This was perhaps the most sophisticated bribery scheme for its complexity. Once again, it began with WPP obtaining a majority interest in an entity headquartered in Lima, Peru, with the acquired entity’s founder staying on as CDO of WPP-Peru. The bribery scheme involved a construction company funding the mayor of Lima’s political campaigns in exchange for contract awards. WPP-Peru was a conduit for the construction company’s bribe to the mayor of Lima. However, WPP-Peru disguised the corrupt source of the funds by channeling the construction company’s payments through WPP subsidiaries in Colombia and Chile. WPP-Chile and WPP-Colombia then falsely recorded that they received money in return for services performed for the construction company, and WPP-Peru maintained no records that the construction company paid for a portion of the mayor of Lima’s political campaigns.
There are multiple lessons for every compliance professional of a multi-national organization about the selection, use and management of third parties in high-risk environments. You have to know the folks you are doing business with. Equally important is the quality of their character and commitment to doing business ethically. CEOs and/or CFOs who are willing to create advertising campaigns out of thin air did not wake up one morning with that idea. They were committed to getting business anyway possible. Moreover, all procedures must have appropriate oversight or a second set of eyes. Finally, when reports of misconduct come in, they must be thoroughly investigated.