Interpublic Settles Charges in Brazil for $13 Million

FCB, Lowe Were Caught Up in Ongoing Corruption Investigation

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In the latest step in Brazil's ongoing corruption investigation, Interpublic Group of Cos. has reached an agreement with Brazil's federal prosecutors to pay a fine of almost $13 million in connection with payments funneled on behalf of two of its agencies in Brazil to a corrupt politician who was arrested earlier this year.

Until six months ago, Brazil's ad industry didn't appear to be implicated in Operation Car Wash, a massive investigation into a huge price-fixing scandal in which Brazilian construction companies and other suppliers are said to have vastly over-charged state-controlled oil giant Petrobras, bribed Petrobras executives and funneled money to politicians.

In April, Interpublic's Borghi/Lowe and later FCB Brasil were drawn into the investigation. Federal prosecutors said that Ricardo Hoffman, Borghi/Lowe's former VP and head of the agency's office in the nation's capital Brasilia, instructed third parties to make payments to then-Congressman Andre Vargas in connection with two government accounts handled by Borghi/Lowe. Mr. Hoffman and Mr. Vargas, among others, were arrested and police went to the agency's offices to search financial and other records.

Two weeks later, FCB Brasil admitted authorizing a payment via a third party to a shell company called LSI, owned by Mr. Vargas.

The payments to Mr. Vargas arranged by Mr. Hoffman were intended to help Borghi/Lowe and FCB Brasil win government accounts from the Health Ministry, the Caixa Economica Federal bank and oil company Petrobras.

Interpublic has signed a "leniency agreement" with federal prosecutors and will pay the Brazilian government 50 million reais, the equivalent of about US$12.85 million, reported Meio & Mensagem, Ad Age's editorial partner in Brazil. The fine is based on the amount the two agencies would have made in the last five years from the Health Ministry, bank and Petrobras accounts. (Depending on the exchange rate used, Interpublic may benefit from the dramatic devaluation of Brazil's currency in recent months; less than a year ago the fine would have been the equivalent of more than $20 million).

Without naming Mr. Hoffman, Interpublic said in a statement to Ad Age: "An agreement between our local agencies and federal prosecutors in Brazil is related to a former employee that our company identified as having acted in a manner that was inappropriate and violated our code of conduct. We have cooperated with the authorities throughout the process and will continue in our efforts to reach an agreement with all governmental agencies in the local market."

The agreement is still awaiting final approval in Brazil. A second agreement is also pending with a government anti-corruption unit called the Controladoria-Geral da Uniao, but is considered likely to become part of the larger pact worked out with the federal prosecutors.

Mr. Hoffman left Borghi/Lowe at the end of 2014, and earlier this year the agency closed the office in Brasilia he ran. Borghi/Lowe has been renamed Mullen Lowe, following the merger of Lowe & Partners with Mullen.

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