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Kickback Culture Alive and Well in Advertising, as Settlement Between Aegis and Danone Shows

Aegis (AGS.L) has settled kickback allegations brought by Danone (BN.PA) for an undisclosed sum, according to the German media, thus sparing new CEO Jerry Buhlmann the need to explain to shareholders why his media-buying agency was getting sued by its own client for taking bribes.

Aegis' annual shareholder meeting is scheduled for June 16 in London. The settlement -- reportedly announced in a brief statement that gave no details -- locks up Aegis' dirty laundry behind a wall of secrecy and gives Buhlmann a legal reason to refuse to answer questions about the scandal, which dates back to the early 2000s.

The settlement is a reminder to advertising clients that crookery is alive and well in the ad business, and knows no borders. (Clients and procurement officers should read "Client Hell! BNET's Guide to the Advertising Underworld," for more information on ad agency dodges.) Aegis controls an American billboard network and Carat, the respected ad airtime buyer. Its clients include Kellogg (K) and Johnson & Johnson (JNJ). Several years ago, it emerged that Aegis' president, Aleksander Ruzicka, and five others had been siphoning credits given to the agency by TV companies for free media airtime to a private company, and then selling them on for their own profit.

Outraged that rebates earned by its ad budget were embezzled by Aegis' top brass, Danone sued and won a ruling in a German court that would have required Aegis to reveal all the ad discounts it received between 2003 and 2005. As much as $22 million (€15m or £13.2m) could have been at stake. A source tells BNET Aegis paid €30 million to settle the case, for rebates that occurred as recently as 2005. Aegis did not respond to an email requesting comment.

The suit triggered interest from prosecutors who began a fraud probe of 50 executives at 15 European media buyers. The probe and the ruling combined raised the prospect that European ad agencies would finally be forced to turn over their books -- including the secret books that record under-the-table booking of "volume discounts" as agency revenue -- to clients' auditing teams.

In what I am sure was a completely unrelated coincidence, Aegis reorganized its management ranks.

It's not clear where the Danone settlement leaves the criminal probe. It may be that the pact legally seals evidence from the view of investigators -- that's the kind of weird non-transparency that's frequently favored in Europe.

Don't worry about Aegis though. The company won new business from Nokia, Kellogg's, Ikea, BMW, and Coca Cola in Europe last year, and Buhlmann's base salary was raised 57 percent from the outgoing CEO, in addition to £2.1million in stock as a potential performance bonus. I wonder if successfully drawing a veil over the Danone business will be a factor in that award?

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