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On Friday, September 24, 2021, the U.S. Securities and Exchange Commission (“SEC”) announced a settlement with WPP PLC, one of the largest advertising companies in the world, for $19 million for alleged violations of the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”).
According to the SEC’s order,1 WPP engaged in a period of aggressive growth globally until 2018, during which time WPP acquired new subsidiaries by obtaining a controlling interest in small, localized agencies in numerous “high-risk markets,” including India, China, Brazil, and Peru. Following this growth, WPP operated out of 3,000 locations in 112 countries, with approximately 100,000 employees during the relevant period. The SEC order alleges that, “[d]espite the known corruption and fraud risks inherent” in some of WPP’s newly acquired subsidiaries, WPP failed to maintain sufficient internal accounting controls or any compliance department during the relevant period. Instead, while all subsidiaries were technically required to follow WPP’s global policies and internal accounting control requirements, in reality, high-level officers of WPP’s new subsidiaries were given substantial autonomy and authority within each respective subsidiary. As a result, the SEC order alleges, WPP failed to promptly or adequately respond to “repeated warning signs of corruption or identified control failures” at certain of its subsidiaries.
More specifically, the SEC order alleges that a WPP majority-owned subsidiary in India paid, through intermediaries, as much as $1 million in bribes to government officials to obtain and retain government business. The SEC order notes that, despite receiving seven anonymous tips about the bribery scheme over the course of approximately two years, WPP ultimately failed to uncover its subsidiary’s involvement in the bribery schemes for at least two years. The SEC order further alleges that WPP failed to take appropriate action in relation to: (1) “unjustified payments” to a vendor by a Chinese WPP subsidiary in connection with a tax audit that resulted in significant tax savings; (2) improper payments to “purported vendors” by a Brazilian WPP subsidiary in connection with government contracts; and (3) funds funneled by a Peruvian subsidiary through other WPP entities to disguise the source of funding for a political campaign in Peru. Significantly, the SEC order alleges that, while WPP conducted some limited internal investigations of some of these schemes, including the bribery schemes in its Indian subsidiary, WPP failed to fully realize the extent of the issue until after significant time had passed.
According to the SEC order, WPP also failed to devise and maintain a system of internal accounting controls that was sufficient to detect, prevent, or otherwise properly account for these schemes, which also resulted in WPP’s failure to make and keep accurate books and records. The SEC order further alleges that WPP, despite its size and geographical reach, “failed to timely and properly manage the company’s response to red flags indicating corruption risks or remediate identified control deficiencies.”
The SEC’s investigation into WPP underscores the importance of identifying and preparing for potential risks, including as part of a company’s expansion and diversification in new markets. It also highlights the importance of ensuring that a robust compliance program is in place to monitor, prevent, and identify compliance risks quickly and comprehensively. The WPP settlement also demonstrates that the size of a large, global company (in conjunction with its subsidiaries) may, rather than excusing failures in certain portions of the company, only bolster expectations that the company have the resources and reach to maintain adequate controls throughout its locations. Further guidance on ensuring the implementation of effective compliance programs can be found in Chapter XI in the Global Crisis Management Handbook.
The WPP settlement also demonstrates the importance of acting promptly and carefully in response to potential misconduct within companies, including by conducting a full and thorough investigation into any allegations to understand the full scope of a company and its employees’ involvement in any misconduct, the risks associated with such misconduct, and the appropriate remedial measures for the company to consider. Further guidance on the steps to take in conducting an internal investigation can be found in Chapter III in the Global Crisis Management Handbook.
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