At the heart of the investigation are more than 2,000 videos secretly filmed by Vladimiro Montesinos, former President Alberto Fujimori's national security adviser, during the turbulent decade the president ruled Peru. Mr. Fujimori resigned as president in November 2000 in a fax sent from Japan, where he remains.
One video aired on Peruvian TV appears to show Mr. Montesinos handing what the government claims is $2 million in U.S. dollars to Eduardo Calmell del Solar, a shareholder in local cable station Canal 10 and editor of the newspaper Expreso. Both Expreso and Canal 10 defended Mr. Fujimori's regime and fiercely criticized his opponents. An arrest warrant has been issued charging Mr. Calmell del Solar, who the government said is now in hiding, with corruption of a government employee.
In the last years of the Fujimori regime, the Peruvian government became the largest advertiser in Peru, the seventh largest Latin American ad market, which is valued at $1 billion a year. As part of a wide-ranging investigation of corruption at all levels of government, the current administration has made public the fact it's investigating whether Messrs. Fujimori and Montesinos manipulated public opinion by lavishing money on media that supported the government and attacked the opposition.
In fact, in 1999, Mr. Fujimori's Ministry of the Presidency outspent Procter & Gamble Co., until then the country's largest advertiser. The Ministry of the Presidency doled out $24.6 million to media and ad agencies, while the Council of Ministers, one of several other government agencies that advertise, spent another $10.2 million. By the first quarter of 2000, four of the top 10 advertisers were government agencies, spending a combined $16.9 million in three months, according to Supervisora de Medios y Publicidad, a private Peruvian company that tracks ad spending.
The ad industry was drawn into the scandal when a now-famous video, leaked to an opposition party and aired on Peruvian TV in September, appeared to show Mr. Montesinos handing $15,000 in cash to an opposition congressman, Alberto Kouri, to switch parties.
Appearing in the video as onlookers are Oscar Dufour, a member of the board of directors and son of the founder of Interandina TBWA, a Peruvian ad agency (affiliated with Omnicom Group's TBWA Worldwide) that handles government accounts, and Jose Francisco Crousillat, until last month VP of Peru's largest TV network, America Television.
In a separate audio recording released in late January, Mr. Montesinos is heard telling Mr. Crousillat how to slant coverage on the network's news program. Mr. Crousillat later resigned from the network owned by his father. Initial official investigations indicate that $27 million of America Television's $251.7 million in advertising last year came from the Peruvian government.
Mr. Kouri, who according to local news reports fled to Miami in September, is being investigated by the Peruvian government for corruption for allegedly taking the bribe. Messrs. Crousillat and Dufour have testified broadly about corruption before several investigative commissions. Peru's district attorney is now weighing their testimony.
Messrs. Crousillat and Dufour didn't return calls for comment.
"Simply having contact with Montesinos is not a sin," said Pilar Dufour, a director of the agency and a sister of Mr. Dufour, who has not been formally charged with any crime. "Going to his office is not a crime. What is a crime are the accusations against Interandina, trying to link us to wrongdoing."
Robert Rosenthal, the New York-based president of TBWA Latin America, called the Peru situation "a classic case of government scandal." Mr. Rosenthal said he is not overly concerned because TBWA has no equity stake in Interandina TBWA and Mr. Dufour is a member of the board of directors, rather than a staff member of the family-owned agency. Mr. Rosenthal said that he spoke to Oscar Dufour and Mr. Dufour assured him he is innocent. "What is on the line is to ensure the TBWA name has not been tarnished and I don't believe it has been," Mr. Rosenthal said.
The ad industry was dragged deeper into the corruption scandal when Daniel Borobio, a Fujimori adviser with his own ad agency, Borobio Asociados, gave an explosive interview on local TV in late January. Mr. Borobio claimed in that interview that he and three other ad agencies-the aformentioned Interandina TBWA; a local agency acquired last year by Publicis Groupe; and local independent shop Publicidad Causa-funneled nearly $60 million in advertising spending to pro-government media in a scheme called Operation Bulldozer.
On TV, Mr. Borobio apologized for "having helped create a false image that Fujimori was good." He said he would not take the fall for others. "I am not going to allow the other actors to deny their responsibility," he said. A day after the interview aired on Jan. 21, Mr. Borobio left suddenly to return to his native Argentina. Peru's special prosecutor has accused him of abuse of authority and misuse of state funds, although there is no official charge. Mr. Borobio could not be reached in Argentina for comment.
All three agencies denied Mr. Borobio's allegations in the TV interview, saying he is trying to spread the blame for his own misdeeds. "These accusations cannot be taken seriously given the source," said Publicis Asociados Chairman Julio Winitzky, whose son, Ricardo, was cited by Mr. Borobio in the interview. "He is trying to get away by blaming others." Ricardo Winitzky was traveling on business in Europe and could not be reached for comment.
A spokesman for Publicis in Paris said the company had purchased a majority stake in the Peruvian agency just last year, and had no involvement with the local agency prior to that. "We did due diligence when we bought the agency last year," he said. "None of this showed up. In the Publicis Groupe, we always make it a rule not to work on political campaigns."
"Publicidad Causa never received an order to discriminate against any media outlet," said Managing Director Fernando Florez-Estrada. "These accusations are insulting."
Jose Ugaz, the special prosecutor investigating the allegations, said the formal accusation against Mr. Borobio is now with the district attorney and that Mr. Ugaz's office is considering a request by Mr. Borobio to take advantage of a witness protection law in exchange for information.
"We are evaluating his request, and if the information is true, we will begin formal investigations against [Ricardo] Winitzky ... and the others mentioned by Borobio," Mr. Ugaz said.