Current and ex-employees at WPP-owned media agency detained in China, sources say

Four people linked to WPP-owned (WPP.L) media agency GroupM have been questioned by authorities in Shanghai, according to two people with knowledge of the matter.

One current employee and two former staff were detained, one of the people said. The fourth, GroupM China’s CEO and country managing director for WPP China, Patrick Xu, was questioned by police but not detained, the person said.

WPP declined to comment on news of the investigation and detentions. Calls to GroupM's office in Shanghai to seek comment went unanswered and Xu did not immediately respond to an email requesting a response.

An employee stationed in the closest police precinct to WPP's Shanghai office said police could not comment.

Both sources said police visited the WPP campus in Shanghai on Friday. There has been no official confirmation regarding the nature of the investigation into GroupM's current and former employees, but one of the sources said it was related to rebate mismanagement.

Both sources declined to be named citing the sensitivity of the situation. The detentions and police visit to WPP's offices in downtown Shanghai were first reported by the Financial Times.

The investigation is likely to reverberate around China's foreign business community, which is already unnerved by a widespread crackdown on consulting and due diligence firms as well as a new national security law, leading some business leaders to warn that foreign firms may hesitate to invest further in the market.

GROWTH STRATEGY

China is a major growth engine for WPP and GroupM, with global executives vocal about their intention to invest in the market long-term in recent months.

According to a story published by Chinese state media in July, GroupM was expecting China's total advertising revenue to increase by 7.9% to $150.6 billion this year.

"As our fourth largest market globally, China will continue to play a crucial role in WPP's long-term growth strategy. We believe abundant opportunities will undoubtedly rise in the years ahead," WPP CEO Mark Read was quoted as saying at the time.

This is just the most recent in a string of raids and investigations launched into foreign businesses operating in China this year.

Last month, advertising company Clear Channel Outdoor Holdings (CCO.N) agreed to pay more than $26 million after being accused by the SEC of bribing Chinese government officials to obtain ad contracts in violation of U.S. law.

In March, the Beijing office of U.S. law firm Mintz was raided and five Chinese members of staff were detained. Police visited U.S. management consultancy Bain & Co's Shanghai office in April, then in May, state TV aired a program showing a raid of consultancy Capvision Partners' offices.

Capvision said in a statement soon after the broadcast that it would abide by national security rules, but declined to comment further, while Bain confirmed the raid on its Shanghai office without giving more details in a statement at the time.

Mintz confirmed the detention of its employees and the closure of its China business in a statement following the raid and was later fined the equivalent of $1.5 million by authorities in Beijing.