October 1, 2023

SEC reaches $26 million settlement with global advertising company to resolve FCPA-related charges

On September 28, 2023, the Securities and Exchange Commission announced that it reached a $26 million settlement with Clear Channel Outdoor Holdings, Inc. (“CCOH”), a Texas-based global outdoor advertising company, to resolve allegations that it had violated the Foreign Corrupt Practices Act.  More specifically, the SEC alleges that, between at least 2012 and 2017, Clear Media Limited, CCOH’s majority-owned subsidiary in China, made improper payments to Chinese officials to obtain outdoor advertising contracts, then falsely recorded these payments as legitimate expenses in CCOH’s consolidated books and records.  The SEC further alleges that, between 2012 and 2019, despite numerous red-flags, CCOH failed to ensure that Clear Media had sufficient internal accounting controls.

According to the SEC’s order, from at least 2012 and until 2017, Clear Media directly and indirectly bribed Chinese officials, including government transport authorities, in order to obtain and retain concession and advertising contracts required to sell advertising services to public and private sector clients and display their ads on public bus shelters, street furniture, and billboards.  Clear Media allegedly offered officials cash-equivalent gift cards, golf clubs, vases and other expensive gifts and forms of entertainment and provided them with improper benefits via agreements with third-party cleaning and maintenance vendors for unknown and undocumented services.  Beginning in approximately 2013, Clear Media also allegedly engaged in a “customer development expense” scheme to develop an off-book cash fund that undisclosed consultants could use to win, grow, or retain advertising business from private and government customers.  As part of the scheme, Clear Media purportedly disguised the cash withdrawals using sham intermediaries and false invoices.

The SEC also contends that, while CCOH’s internal auditors were aware of the elevated bribery risks at Clear Media and had reported their concerns about its compliance program and internal accounting controls, CCOH failed to adequately address their repeated concerns.  While audit reports indicate that some remedial actions were taken by CCOH, the SEC alleges that, between 2012 and 2017, CCOH’s internal auditors erroneously reported that identified issues were remediated, and, in certain cases, failed to elevate certain concerns to management.  The SEC further contends that, once the bribery risks were revealed, CCOH failed to test high-risk transactions in order to detect Clear Media’s payment schemes.

In 2018, CCOH revealed that it had self-reported potential FCPA violations by Clear Media to the Department of Justice and the SEC following an internal investigation into allegations of the misappropriation of funds.  CCOH also disclosed that it was under investigation by the Chinese police.  In 2019,  CCOH further revealed in an SEC filing that the SEC and DOJ launched investigations into potential FCPA violations by Clear Media.  The investigation uncovered that, from 2017 until 2019, an unnamed executive allegedly blocked CCOH’s internal auditors’ access to records, including payments made to cleaning and maintenance vendors.  Furthermore, despite Clear Media receiving an “unsatisfactory” rating in two internal audits conducted in 2019, CCOH was never able to verify that the payments to the cleaning and maintenance entities were appropriate, consistent with CCOH’s internal policies, and in compliance with anti-corruption laws.  Nevertheless, the SEC indicates that CCOH received approximately $16.4 million in benefits from Clear Media’s improper payments and inaccurate recordkeeping.  In 2020, CCOH disposed of its interest in Clear Media.

According to the SEC’s order, CCOH was charged with violating the Securities Exchange Act of 1934, including the anti-bribery provisions in Section 30A, the recordkeeping provision in Section 13(b)(2)(A), and the internal accounting provisions in Section 13(b)(2)(B).  Without admitting or denying the SEC’s findings, CCOH agreed to cease and desist from committing the alleged violations in the future and agreed to pay $20.1 million in disgorgement with prejudgment interest and a $6 million civil penalty.

The SEC reports that it accepted CCOH’s offer of settlement based on its cooperation with SEC investigators and remedial efforts.  Cooperation efforts cited by the SEC include CCOH’s prompt sharing of facts obtained in its internal investigation; its production of relevant documents, which were located overseas, that were received from Clear Media before and after the sale of CCOH’s interests; and the production, in real time, of documents related to audits of Clear Media’s internal controls during the course of the investigation.  The SEC also considered certain remediation efforts, including CCOH’s disposal of its interest in Clear Media and enhancement to CCOH’s anti-corruption policies, procedures and related internal accounting controls used to monitor third-parties, their payments and related contracts.

SEC Press Release | SEC Order