Dive Brief:

• Trade body the Association of National Advertisers (ANA) confirmed in a letter to members Wednesday that it has been contacted by and had "limited discussions" with the FBI as part of the bureau's ongoing criminal investigation into non-transparent media-buying practices among advertising agencies. The letter, penned by ANA President and CEO Bob Liodice and shared with Marketing Dive, follows a Sept. 27 report in The Wall Street Journal that broke news that the FBI had begun issuing subpoenas as part of its investigation.

• The letter encouraged members that believe themselves to be victims of fraud to retain legal counsel, along with performing audits and reviewing their media buying history and contracts. It noted, in italics, that large-scale federal investigations often require assistance in identifying victims, witnesses and evidence. The ANA emphasized that it is not acting as a "conduit" between the FBI and its members, and is not assisting the bureau beyond facilitating communications and information. The group did, however, note that its own outside counsel, Reed Smith, can offer guidance and help to coordinate with members' individual legal teams.

• The FBI's investigation is reported to be driven, at least in part, by an industry report commissioned by the ANA and conducted by the consultancy K2 Intelligence. Published two years ago, the "K2 Intelligence Report" uncovered widespread non-transparent business practices, including kickbacks and cash rebates, among major agency firms, though it didn't name individual bad actors. More recent reports along similar lines, from McKinsey and ID Comms, suggest some of these practices continue and are potentially doing financial damage to marketers' business, according to the letter.  

Dive Insight:

In many ways, it feels like the proverbial other shoe is about to drop on the agency space. The K2 Intelligence Report has loomed large over the industry since it was published in the summer of 2016, and is believed by many to have helped accelerate a "Mediapalooza," where a record number of advertising accounts went under review as brands reassessed their agency partnerships.

It's unclear what the consequences of the FBI investigation will be —​ Vivendi's Havas was among the shops reported by the Journal to have been subpoenaed so far — but it will certainly cause further degradation in the already shaky trust between agencies and their clients. The ANA, in essence, recommending that its members who believe they are victims of fraud to lawyer up indicates the reverberations could be long-lasting, complicated and ugly.

"The opening of a federal criminal investigation is a significant event to the industry and to ANA members," Liodice wrote in the letter. "As such, you may want to forward this memorandum to your CEO, CFO, or legal counsel (internally or externally)." 

Prior to news of a federal probe into agency practices, there was already a great deal of business on the move in 2018, with some analysts, including Pivotal Research's Brian Wieser, forecasting that the year could mirror or even surpass the first Mediapalooza in scale. The current probe will further compound on the already significant business pressures impacting traditional ad agencies.

Agencies are grappling with continued digital disruption, growing competition from alternative marketing services providers like consultancies and the in-housing of more marketing duties. The number of advertisers with in-house shops has increased to 64% from 42% a decade ago, according a recent study by the researcher Forrester and the In-house Agency Forum.

ANA members number more than 1,100 companies, which collectively own roughly 25,000 brands and account for $400 billion in marketing and advertising spending each year, according to the trade group's website. Those companies include some the top advertisers by media spend in the world, such as Procter & Gamble and Unilever — advertisers that have helped drive trends such as the streamlining of agency rosters and the push for more in-house marketing work.