On September 24, the SEC announced that it had reached a settlement with the world’s largest advertiser, WPP plc, to resolve allegations that the company violated the Foreign Corrupt Practices Act (FCPA) on multiple occasions. WPP was accused of violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. The settlement calls for WPP to pay $10.1 million in disgorgement, $1.1 million in prejudgment interest, and an $8 million penalty, totaling just over $19 million. In reaching the agreement with the SEC, WPP neither admitted nor denied the allegations against it.
The SEC alleged that, in order to grow its base of operations, WPP began to acquire controlling-stakes in local advertising companies in markets that posed a significant risk of FCPA violations. Upon acquiring control of these companies, the SEC alleged that WPP failed to identify or implement adequate internal accounting controls or compliance programs at the companies. WPP allegedly left the prior management in charge of the companies with very limited oversight, leading to an unacceptable risk of FCPA compliance failures. The SEC also alleged that WPP failed to respond to complaints and red flags that bribery was taking place within its subsidiaries.
This case represents a common theme in companies attempting to expand operations overseas. Rather than open their own operations in another market, many companies opt to take over an existing company in the market and transition over to their own brand and operations. However, when doing so, companies must be cognizant of the level of FCPA risk involved in such a course of action. Existing companies will have been operating for years without compliance programs or risk of enforcement from the SEC due to lack of jurisdiction. The employees of that foreign company will be accustomed to the status quo, which often involves bribery of government officials. When expanding in this way, due diligence concerning FCPA violations is crucial, and a plan to swiftly implement an effective FCPA compliance program will help to minimize the level of compliance risk within the new company.
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