Chinese prosecutors seek lengthy prison sentences for former GroupM executives as scale of bribery allegations revealed

Eye-opening details from the ongoing trial of three former senior executives of GroupM China are providing the industry with a new understanding of the scale and operations of so-called 'black box' media rebates between media owners, agencies and intermediary brokers in the market. 

Multiple sources who attended the initial two-day hearing of the Shanghai Second Intermediate People's Court on December 23 and 24 have provided Campaign with accounts and details of the proceedings that outline the seriousness of the allegations against three former senior executives of GroupM China—Fei Di (also known as Rycan), Lan Yao, and Xin Hong (Diana)— related to a bribery scandal that emerged in October 2023.

According to these records, Chinese state prosecutors are alleging that the scale of the bribery activities could involve sums totalling $110 million and therefore are seeking lengthy prison terms for the accused, including life imprisonment for Di. 

Di served as GroupM China’s chief investment officer (CIO), where he focused on investment strategies and portfolio management while overseeing the media purchasing business. He reported directly to former GroupM China CEO Jun Xu (Patrick), who exited the agency group in early 2024. Yao was managing director of negotiations who specialised in negotiations with media partners alongside Hong, who was also a managing director of negotiations.

During the court hearing, the Chinese state prosecutor presented evidence against the three defendants regarding alleged bribery actions that took place from 2017 to 2020. These alleged actions further involved three intermediary companies, or brokers, namely Mega Gravity Communication Corporate 众引 Zhongyin, Yunion-Media 浩御 Haoyu and County Media 郡州传媒 Junzhou. It also included a DSP company. 

Audits conducted by the Shanghai Economic Crime Investigation Department (ECID) of the financial records from these four intermediary companies revealed that RMB 820 million (US $112 million) in total was transferred into the accounts of the three defendants while at GroupM along with other associated individuals. 

Specifically, presented evidence alleges that Di received RMB 330 million (US $45 million), Yao received RMB 290 million (US $40 million), and Hong received RMB 9 million (US $1.23 million). During the court proceedings, Yao and Hong acknowledged guilt in accepting money, though there are some contradictions, disputes and inconsistencies raised in all the defendants' statements about facts and figures involved.

It was further disclosed that Yao also refunded a sum of roughly RMB 30 million (US$ 4 million) of the funds originally transferred to him. Given their alleged level of criminal involvement and cooperation with the investigation, prosecutors disclosed they are seeking lesser, but still substantial, prison sentences 11 years for Yao and five years for Hong, according to sources at the proceedings. 

The proceedings revealed that Di, in contrast, disputed the bribery allegations in court, claiming that his involvement in accepting the funds were instead part of 'duty-related encroachment' (or private sector embezzlement) in his role at GroupM, which typically carries a lesser sentence of five to six years according to Chinese law, but can be larger depending on the scale of embezzlement.

Rebate schemes

As revealed during the hearing, the central basis of the scheme involved the manipulation of media rebates. It was alleged that the accused executives negotiated inflated rebates with media platforms. Instead of returning these rebates to their clients, the funds were funnelled through intermediary companies and ultimately ended up in the pockets of the three defendants.

When Di served as the CIO, he negotiated with clients on the media agency’s standard practice of using intermediaries (brokers) as buying channels. The presence of brokers is a common market practice in China. As Di explained to the court, typically a media agency group, media platforms, and brokers, usually affiliated with certain media publishers or platforms, enter into tripartite agreements, which serve as the foundation for their cooperation.

These tripartite agreements are kept highly confidential by the media agency group, Di explained, as they directly reveal the media rebate allocations that the media agency group receives from the media platform. In Di's defence during the court proceedings, he argued that the media rebate differences outlined in the tripartite agreement would allow both the media agency group and the media platform to reclaim money from brokers.  

According to Di, the media agency group has strong bargaining power to negotiate rebates, which in one contract submitted by Di's lawyer as an example ran as high as 29.5% on inventory with a popular video streaming platform.

One way that media agencies and brokers typically take advantage of these media rebates is to negotiate higher rates for their own businesses while also earning interest income from managing the rebates retained by the media agency groups. 

In court, Di argued that GroupM hid the exact amount of media rebates that should have been returned to clients by using tripartite agreements kept separate from the individual audits of advertisers.

Yao was responsible for overseeing operations involving these intermediaries. In court, he stated that his trading department managed the intermediary fund pool and that the GroupM China CEO Jun Xu (Patrick) was involved in the approval process.

Xu, meanwhile, did not appear at the court proceedings due to illness, according to sources present, but provided a statement to the court that the actions of the three defendants were not approved by GroupM.

During the court proceedings, the prosecutor presented an interrogation transcript from an intermediary broker. The transcript revealed that most media rebates were returned to the media agency group, while the brokers kept a small portion to purchase industry reports produced by media agency research teams. In addition to these rebates, the intermediary also profited from the price differences with the media platform.

Furthermore, it was disclosed that GroupM would recoup some of the retained rebate proceeds by selling media resource packages, involving research reports and other media resources, back to the brokers. The prosecutor stated in court that both Di and Yao misused their positions to sell such resource packages. 

An inventory digital media advertising purchase contract and its appendices from 2022, provided to the court by Di's lawyer, explained that GroupM could convert acquired discounted media inventory worth RMB 10 (US$ 1.36) into a higher priced media buy of RMB 22 (US$ 3) through the use of a broker. 

According to industry sources contacted by Campaign, the situation in this case is even more complex and opaque because the media agency groups and intermediary brokers place orders based on annual framework rebates. Brokers typically have their own annual rebate agreements with media platforms rather than for specific advertisers, such as a brand. As a result, it is difficult to match orders on a case-by-case basis. This creates a lack of transparency and encourages opaque practices, which can lead to opportunities for corruption. Industry professionals Campaign has spoken to agreed that this represents a loophole and a grey area.

Given the nature of fast-tracking in Chinese courts, sentencing could take place within a couple of hearings, though no official timeline has been confirmed. Campaign understands, however, that a verdict may be given before the lunar new year holiday. 

GroupM response

When for further comment, a GroupM spokesperson provided a similar statement to the one published by Campaign prior to the December 23-24 court hearings: 

“We are aware that the former GroupM employees detained by police in their personal capacity on charges of commercial bribery last year appeared before the court in Shanghai. The verdict of this trial is still pending; therefore, it would be inappropriate to comment further at this stage.
 
“The employment of these individuals was terminated in 2023 and trade was suspended with any external organisation deemed to be part of the police investigation. The former employees’ dishonest actions violated our code of conduct and are not aligned with the values and principles that guide our business. We have fully cooperated with the authorities and conducted our own internal investigation with an independent third-party auditor.”

Campaign further understands that since the Shanghai ECID began investigating the case, including through office raids more than a year ago, GroupM has been reviewing controls of its investment teams in China and is working to implement client safeguards. A key step here has been the appointment of a chief investment governance officer, namely Dandan Liu, who was formerly the chief risk officer at Morgan Stanley Bank China after serving as head of operational risk at BNP Paribas China.