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But last night, India Time, reports from the United States cast a gloomy veil over the Indian advertising landscape. The big daddy of all, WPP had agreed to pay $ 19.2 million in penalties and restitution to the United States Securities and Exchange Commission (SEC) to address the Foreign Corrupt Practices Act (FCPA) violations in India, in China, Brazil, Peru, Colombia and Chile.
At the heart of the problem are the acquisition strategies that most agency holding companies – one could argue that WPP has started the trend – are practicing, especially in developing countries. The SEC reports that as part of its acquisition strategy, WPP acquired a controlling stake in small agencies located in high-risk markets, such as India, China and South America, which previously belonged to mostly to the founder of the local agency.
âWPP has often structured these acquisitions to include a earn-out clause, where the parties have agreed to defer a portion of the purchase price until the agency founder achieves his future financial goals,â said DRY.
In the case of the Indian market, WPP acquired a majority stake in Mindset, an agency located in Hyderabad in July 2011. From 2015 to 2017, approximately half of the turnover of the Indian subsidiary was attributable to the information departments. and Telangana and Andhra Pradesh Public Relations (DIPR), which was responsible for retaining media agencies to conduct publicity and public relations campaigns for their respective state governments.
The SEC discovered that from July 7, 2015 to September 2, 2017, WPP received seven anonymous complaints alleging – with increasing specificity – two bribery programs related to the work of an Indian subsidiary for DIPR.
One of the schemes involved the affiliate fabricating an entire advertising campaign to create an unofficial fund in a third-party agency which was used to remunerate DIPR officials for the attribution of campaigns to the Indian affiliate and for the personal benefit of the CEO. . WPP said in a statement that none of the executives from that period were no longer with the company.
Most holding companies are already tightening the screws in the Indian market and elsewhere. Developments like the one above will only speed up the process of cleaning up the system.