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 faulty investigation engaged in by WPP based upon whistleblower reports.
The Order related the following scenario, “Following the receipt of the original complaint in July 2015, which identified CEO A by name as the architect of the scheme, WPP tasked its Financial Director for the India region (“WPP India FD”) to oversee a review of the allegations. The WPP India FD retained an Indian partner firm of an international accounting firm (“Accounting Firm”) ostensibly to investigate the allegations and review India Subsidiary’s processes regarding government contracts and transactions involving government clients. However, the Accounting Firm relied on information provided by CEO A and India Subsidiary CFO (“CFO A”), did not contact third parties, and ultimately provided a report to WPP, which contained no conclusions related to the bribery allegations. Instead, the Accounting Firm noted several red flags regarding Vendor A, such as the India Subsidiary failing to obtain comparative quotes from other vendors or properly vetting Vendor A. After receipt of the Accounting Firm’s report, WPP allowed India Subsidiary to continue routing DIPR’s media purchases through Vendor A.”
With these stated facts it may not be that WPP intentionally engaged in a sham investigation but even the SEC said an accountant was “ostensibly to investigate the allegations and review India Subsidiary’s processes regarding government contracts and transactions involving government clients.” The language in the Order was certainly not high praise. What were the deficiencies in this ‘ostensible’ investigation?
- There was no contact with the identified recalcitrant 3rd
- The investigative firm relied on information from the parties identified in the whistleblower report.
- There was no independent verification.
- There were no conclusions related to the bribery allegations brought forward by the whistleblower.
If there are serious allegations made concerning your company’s employees engaging in criminal conduct, a serious response is required. Your company needs to hire some seriously good investigators to handle any internal investigation. These investigators need to have independence from the company so do not call your regular corporate counsel or regular accounting firm as WPP did. Hire some seriously good investigators. This may well mean you need specialized outside counsel.
Despite the fact that using specialized investigation counsel is a best practice that is worth the money, it was not done here. This is particularly so when small or medium sized business units are part of larger organizations. While General Counsels (GCs) and Chief Compliance Officers (CCOs) may be up to speed on outsourcing critical inquiries, managers in business units often are not and frequently reply that they “got someone” in the company who “takes care of that stuff.” As stated in the Order, WPP did not even engage its own legal function, “WPP tasked its Financial Director for the India region”. This approach was costlier to WPP in the long run. That was clearly the case of the over-matched Finance Director at WPP who oversaw the initial India investigation.
In an article, entitled “Risks and Rewards of an Independent Investigation”, Jim McGrath and David Hildebrandt wrote about the use of specialized outside counsel to lead an independent internal investigation as compliance and ethics best practices. The authors provided three reasons for this suggestion of the utilization of specialized counsel. The first is that the regulators look towards the independence and impartiality of such investigations as one of its factors in favor of declining or deferring enforcement.
There is yet another reason for the use of specialized outside counsel to handle an investigation. If a company insider is used to conduct the investigation, the regulators might feel the results had less than full credibility because the firm hired to handle the investigation would surely know “who buttered their bread” and that investigator would not want to bring bad news to client and endanger the ongoing business relationship between the law firm and the client. By employing specialized counsel, a business comports with the expectations under the US Sentencing Guidelines, gives a company the protections of the attorney-client privilege and the work-product doctrine and, finally, “assures the government of the integrity of the internal investigation.”
As noted in the Order, the investigative report “contained no conclusions related to the bribery allegations. Instead, the Accounting Firm noted several red flags regarding Vendor A, such as the India Subsidiary failing to obtain comparative quotes from other vendors or properly vetting Vendor A. After receipt of the Accounting Firm’s report, WPP allowed India Subsidiary to continue routing DIPR’s media purchases through Vendor A.” In other words, if not a whitewash, the report by the investigative firm in India did not bring any significant untoward conduct forward.
Serious investigative counsel means more than simply knowing the law. It is working with the client so that they understand the posture they find themselves in. WPP demonstrated a desire to put profits before all else, doing business ethically or even obeying the law. So, the first thing defense counsel must do is to disabuse any notion that this is not an extremely serious matter. Investigative counsel then has to engage in the investigation, root cause analysis and remediate. The investigative counsel hired by WPP failed in all of these requirements. Was it incompetence? Was it a truncated investigative scope? Was it a desire not to bring bad news to a big client? At this point, we do not know. All we do know is that the investigation into the whistleblower allegations was certainly substandard.
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