Advertising agencies expressed outrage today at a report into the way they allegedly took rebates from the media companies where they place ads.
An investigation by the Association of National Advertisers (ANA) published Tuesday alleged agencies are routinely taking hidden cash and credit deals, and other non-transparent practices.
The rebates are “pervasive” in the US ad-buying system, the ANA says, despite ad agency groups persistently denying they happen.
The 4A’s (the ad agency lobby group) said the report was unfair: “The immense shortcomings of the … report released today — anonymous, inconclusive, and one-sided — undercut the integrity of its findings.”
But neither advertisers nor their agencies should be too surprised by these allegations, as there is a long public record of ad agencies that were caught engaging in similar behaviour.
Here’s a selection of them:
- Haribo, the German candy maker, in 2013 obtained a court order requiring its buying agency, Mediaplus, turn over any details of rebates it received on its $47 million account. The case is currently being appealed.
- In 2012, Leo Burnett’s Greek subsidiary went bankrupt after the agency’s chairman allegedly operated a Ponzi-style check-kiting scam that fell apart when a local TV company it was colluding with in a media credit scam went out of business. The collapse left about €150 million in unpaid bills. Senior management at Publicis — who were surprised by the scheme — called it “very stupid, very insane” at the time.
- Also that year, a now-defunct unit of Aegis was investigated by the FBI for an alleged $20 million accounting fraud in which outdoor poster execs had a “rebate agreement” with a media vendor that returned to the agency 5 to 10 per cent of its media spend, or $5.8 million overall. Two executives pleaded guilty to fraud later that year.
- Aegis also paid €30 million to settle a case in 2010, brought by Danone alleging that 2010 its former president siphoned Danone’s TV media credits for himself.
- Leo Burnett’s Chicago office paid $15.5 million to settle litigation brought by the US Army alleging that it had padded its bills to the military when it “improperly submitted an invoice from its Internet division and affiliated company as third party independent contractors to increase its profit margin,” according to court papers.
- Interpublic Group settled an SEC probe over $250 million in improperly booked volume discounts, from Europe, back in 2008. Interpublic had to restate its quarterly earnings disclosures when the SEC disclosed that Interpublic’s McCann agency had kept $600 million in European rebates that should have been paid back to clients.
- Grey Advertising, before it was acquired by WPP, took $5.6 million in kickbacks on its printing accounts in London for P&G and SmithKline Beecham in the 1990s. The scam was discovered because Grey London’s financial director secretly taped his meetings with Grey’s managing director. The agency settled a civil suit in the case.
- In the late 1990s, a San Francisco print shop called In Sync bankrupted itself due to the excessive number of gifts it gave executives at FCB, the agency that had given In Sync the print production duties on the $100 million AT&T ad account. No legal claims were brought against anyone at FCB but detailed allegations about the gifts came out in several civil lawsuits between former employees who were trying to recoup their costs. The cases have all been closed.
- Similarly, Grey New York — also prior to its acquisition by WPP — was the center of a print ad kickback scam that led to 12 indictments across the New York advertising world. Grey executive vice president Mitch Mosallem was sentenced to 70 months in federal prison for the fraud.
- In the decade from 1994 to 2004, the US Department of Justice indicted 60 ad execs for kickback scams that frequently involved media rebates. Most pleaded guilty or were convicted at trial. Only a few were found innocent.
Why bring this up now, when these are all old, long-settled cases? Well, until today ad agencies had always argued that these cases were the lone bad apples in the barrel.
The ANA report suggests it’s worse than that.
If you have evidence of kickbacks or non-transparent volume discount rebate schemes in the ad business, please email Business Insider’s advertising editor, Lara O’Reilly, in confidence, at [email protected] We’d love to tell your story.
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