Last evening, India Time, reports from the USA cast a pall of gloom over the Indian advertising landscape...

Saturdays are usually relaxed. It’s the time when one can sit in the lounge and read something casual, light and nice. It’s usually not breaking news.

But last evening, India Time, reports from the USA cast a pall of gloom over the Indian advertising landscape. The big daddy of them all, WPP had agreed to pay USD 19.2 million in penalties and disgorgement to the US Securities and Exchange Commission (SEC) to settle FCPA (Foreign Corrupt Practices Act) violations in India, China, Brazil, Peru, Colombia and Chile.

At the heart of the matter are the acquisition strategies that most of the agency holding companies -- it could be claimed that WPP started the trend-- practice, particularly in developing countries. The SEC reports that as a part of its acquisition strategy, WPP acquired a controlling interest in small, localised agencies in high-risk markets, such as India, China, and South America that were previously majority-owned by the local agency’s founder.

“WPP often structured these acquisitions to include an earn-out provision, where the parties agreed to defer a portion of the purchasing price until the agency’s founder met future financial goals,” SEC said.

In the case of the Indian market, WPP acquired a majority interest in Mindset, an agency located in Hyderabad in July 2011. From 2015 – 2017, approximately half of India subsidiary’s revenue was attributable to 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.

SEC has found out that 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.

One of the schemes involved the subsidiary fabricating an entire advertising campaign to create an off-the-books fund at a third-party agency that was used to compensate DIPR officials for awarding campaigns to the India subsidiary and for the personal benefit of the CEO. WPP in a statement said that none of the executives from that period are with the company anymore.

Most holding companies are already tightening the screws in the Indian market and elsewhere. Developments like the one above are only going to speed up the process of cleaning-up the system.