In this series, we examine compliance violations and the resulting fines paid by companies. We will also explore the details of the violations to help other organizations steer away from these pitfalls.
In this ninth post, we will look into Clear Channel’s settlement. Along with examining the facts of this case, we will also delve into what other organizations can learn from these compliance violations.
Background of the Case
Clear Channel Outdoor Holdings, Inc., a San Antonio-based advertising company, has been charged with violating the Foreign Corrupt Practices Act (FCPA) due to the actions of its former Chinese subsidiary, Clear Media Limited. The settlement reached with the U.S. Securities and Exchange Commission (SEC) involves paying $26.1 million in penalties for bribery violations committed from 2012 to 2019. This case brings up issues like inadequate internal controls and the failure to implement effective compliance measures.
The Bribery Scheme
Between 2012 and 2019, Clear Media engaged in a systematic bribery scheme to secure outdoor advertising and public bus shelter spaces across China. The company sought to influence contract renewal negotiations with Chinese government officials by providing them with expensive gifts, entertainment, and travel. These luxuries were given without any pre approval and were intended to maintain favorable business relationships with officials who had the power to renew lucrative advertising contracts.
To disguise these illicit payments, Clear Media documented them falsely as payments to cleaning and maintenance companies. This fraudulent accounting included creating false invoices and tax records, and labeling the bribes as “customer development expenses.” Employees were instructed to avoid mentioning the true purpose of these expenditures and were prohibited from naming the gift recipients. The company maintained a reserve of $600,000 annually to fund special requests and entertainment for government officials, ensuring that relationships were kept intact without drawing public attention.
Internal Audit Failures
Despite repeated internal audits from 2012 to 2017 that highlighted deficiencies and red flags, Clear Media resisted taking corrective actions. Internal auditors faced pushback and were forced to report false information, which hindered the identification and correction of corrupt practices. The audits revealed many indicators of bribery, but Clear Channel failed to pursue aggressive remedial measures. The lack of diligence and follow-up allowed these unethical practices to persist unchecked until Clear Media was sold in 2020.
While this is a classic bribery scheme, the highlight is the failure of audits and the resulting action. Due to this uniqueness, other organizations can learn from this company’s mistake to avoid coming under the SEC’s radar.
Learnings from the Settlement
The Clear Channel case highlights many key lessons for organizations aiming to strengthen their compliance programs and prevent similar violations.
Importance of Strong Internal Controls
One of the fundamental failings in this case was the lack of effective internal controls. Despite clear indications of wrongdoing identified in internal audits, the company failed to implement necessary checks and balances to prevent further violations. Organizations must establish robust internal controls to detect and deter fraudulent activities. Regular audits, thorough documentation, and vigilant oversight are essential components of a strong compliance framework.
Proactive Remediation Measures
Clear Channel’s failure to pursue aggressive remedial actions after identifying deficiencies highlights the importance of proactive remediation. To avoid the ensuing actions, promptly address any red flags or indicators of corruption, ensuring that appropriate measures are taken to rectify issues and prevent recurrence. This may include conducting thorough investigations, revising compliance policies, and implementing enhanced training programs to educate employees about anti-corruption practices.
Cooperation with Regulatory Authorities
While Clear Channel eventually cooperated with the SEC investigation, the company’s initial lack of proactive measures highlights the importance of timely cooperation with regulatory authorities. Organizations that voluntarily disclose violations and cooperate fully with investigations may receive more favorable outcomes like reduced penalties. Clear Channel’s cooperation included sharing facts, producing relevant documents, and facilitating interviews with current and former employees, all of which helped mitigate the severity of the penalties imposed.
Enhancing Anti-Corruption Compliance Policies
Following the settlement, Clear Channel implemented changes to its compliance policies and procedures. The company disposed of Clear Media, enhanced its anti-corruption compliance policies, and increased resources for compliance efforts. These actions show other organizations that they must continually assess and improve their compliance programs to adapt to evolving regulatory requirements and industry best practices.
Effective Training and Communication
This is an obvious learning, but one that’s so important that it’s reiterated across many articles. Offer comprehensive training and communication programs to educate employees about compliance expectations and ethical behavior. Clear Media’s failure to prevent and address bribery practices highlights the need for ongoing training to ensure that employees understand the consequences of unethical conduct and are equipped to identify and report potential violations. Clear Channel’s enhanced training efforts following the settlement show the importance of creating a culture of compliance within the organization.
Thus, these are the significant learnings from the Clear Media case.
Final Thoughts
The Clear Channel settlement is a cautionary tale for organizations worldwide, emphasizing the importance of robust internal controls, proactive remediation, and cooperation with regulatory authorities. This case highlights the need for organizations to prioritize compliance and ethical conduct, particularly in international operations where cultural and regulatory differences may present additional challenges.