The Federal Bureau of Investigation's probe into agency media-buying practices will focus on the extent to which agencies covered up attempts to take revenue that clients maintain is theirs, the Association of National Advertisers' top lawyer said Friday.
"It is a very serious investigation," Doug Wood, a partner at Reed Smith and the Association of National Advertisers' general counsel, said during a presentation at the organization's Masters of Marketing conference in Orlando. "They have issued some subpoenas. They will be issuing more subpoenas," he said. "It may turn out to be nothing is wrong," he added, but "it could turn out quite the opposite…we'll know that in the next six months to a year."
The investigation, which Wood estimated began in April, concerns allegations that agencies engaged in non-transparent practices, including collecting cash rebates from media vendors and not passing it along to clients. The probe was sparked in part by a 2016 ANA report conducted by independent firm K2 Intelligence. Earlier this month, the ANA revealed that the FBI had recently contacted Reed Smith about the investigation in attempt to get cooperation from ANA members, which include some of the largest media spenders in the nation. The ANA is leaving the decision up to individual advertisers, but suggesting they do not talk to the FBI without a lawyer.
Wood suggested criminal liability for agencies will come down to what, if anything, they did to conceal their behavior to clients. If a shop lied about it, that could put agency execs in legal jeopardy. For instance, if an agency mailed a letter to a client claiming it did not engage in improper media-buying behavior, and the FBI can prove it indeed did, that could amount to mail fraud, Wood said. Email communications could result in wire fraud charges. "If more than two people at an agency talked together and decided to do it, that's potentially conspiracy," he said. "If they did it more than five times, that's potentially racketeering."
The 4As, a trade association representing agencies, has downplayed allegations of improper media-buying practices. In the wake of the ANA's 2016 report, 4As slammed it as "anonymous, inconclusive, and one-sided." In April, agencies faced more pressure from a report by McKinsey & Co. claiming that rebates and other "non-transparent" incentives from media companies to agencies "remain common." 4A's CEO Marla Kaplowitz responded by saying the majority of agencies claimed they don't take rebates, or that when they do, they are disclosed to clients.
The 4A's has declined comment on the FBI investigation.
The ANA next week is expected to share a white paper with members giving detailed instructions about how to deal with the FBI, as well as the ramifications of the probe.
