It's Not Just the Russians

By Doug Wood

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On May 28, 2021, the U.S. Attorney's office for the Eastern District of New York announced that following a multiyear FBI investigation, a Brooklyn jury convicted Aleksandr Zhukov, a Russian national, of wire fraud and money laundering stemming from a digital advertising scheme that bilked brands out of more than $7 million. Zhukov was arrested in Bulgaria in November 2018 and extradited to the United States in January 2019. He now awaits sentencing.

As described in the press release, Zhukov and his co-conspirators claimed that their company, Media Methane, delivered advertisements "to real human internet users accessing real internet webpages." In truth, the users and web pages were fake. In deals with other supply chain providers, Media Methane received payments in return for placing tags on websites, thousands of which were fabricated through computer servers in datacenters in the United States and Europe. In all, their scheme spoofed more than 6,000 legitimate domains through more than 650,000 IP addresses fraudulently registered on Comcast and Time Warner Cable. Doing so made it appear that traffic was coming from residential computers accessing the internet through legitimate service providers. To give the impression that their attribution data was human, they used fake browsers, fake mouse movements around a site, fake scrolling, illusory starting and stopping of video players, and false sign-ins on social media platforms.

Victims identified in the press release included The New York Times, the New York Post, Comcast, Nestle Purina, the Texas Scottish Rite Hospital for Children, and Time Warner Cable.

Sound familiar? It should. Bad actors like Zhukov have plagued digital media since clicks first became the currency of the internet upon which brands have now paid billions to an opaque supply chain.

But everyone knows that. Right?

While the FBI deserves credit for bringing down Zhukov's criminal enterprise, his time behind bars will do little, if anything, to clean up digital fraud. What Zhukov stole is only a drop in the bucket. In 2021, eMarketer estimates that spending on digital advertising is expected to exceed $455 billion. And the grand jury investigation out of the Southern District of New York where subpoenas were issued to agencies, brands, and media owners appears dormant. If the feds or the FBI really want to clean up the landscape, they have to follow the money up the supply chain and hold the gatekeepers at every level responsible for assuring that the flow of funds is paid to legitimate enterprises in exchange for true value. But that's a lot harder than taking down a single operator like Zhukov. The truth is that incarcerating him isn't going to change anything.

It's not as though the industry has been in the dark about what is happening. The Association of National Advertisers (ANA) and White Ops (now Human), a cybersecurity company, have issued multiple reports on bot fraud, offering advice on how to minimize bot traffic. In 2016, the ANA released the K2 Intelligence Report. The report concluded that questionable behavior in digital advertising went beyond fraudsters like Zhukov, asserting that undisclosed rebates and other incentives were rampant in the digital media buying supply chain and used complex schemes to hide revenue from brands. In 2017, the ANA published a report that confirmed a 50 percent waste factor in digital advertising previously reported by the World Federation of Advertisers (WFA). That alarming level of waste was confirmed again in a 2020 report by the Incorporated Society of British Advertisers (ISBA) and yet again in a 2021 report from the Australian Association of National Advertisers (AANA). The waste factor is actually worse since the WFA, ANA, ISBA, and AANA studies looked only at transactions in parts of the supply chain between brands and publishers. If one adds the dilution that occurs from the publisher to the consumer — the realm were Zhukov extracted his millions — the waste factor is much higher. Just how high is hard to tell, but an article in Forbes has reported that it is well above what the previous trade association reports concluded. Yet brand spending on digital media has risen exponentially in the years since fraudsters and profiteers first began ripping off brands with bots and related schemes, and a supply chain found novel ways to siphon money off buys before they reached publishers through hidden transactions, rebates, conflicts of interest, and more. All the Zhukov case did was yet again confirm that corruption in the digital media landscape is largely ignored as too many operators within the system put financial integrity aside to achieve key performance indicators that fallaciously measure performance.

We know that too, don't we?

Everyone seems to agree that the corruption and fraud needs to stop or at least be exposed. But no one seems to know how to do it. Even the best of contracts barely scratch the surface since so few brands insist on true transparency. Worse, contracts are only as good as the governance that oversees them. Too many brands put their contracts in drawers, never to be looked at again until it's time to renew them. Nor does it appear that boycotts have worked. And with too few audits being conducted by expert auditors who know the tricks of the trade, there is not much incentive for the supply chain to clean up its own act.

So now what?

In April 2021, the ANA, in association with the WFA and ISBA, invited interested experts and consultants to respond to a study, "Programmatic Media Transparency RFP: Eliminating Waste Throughout the Entire Programmatic Marketplace." The goal of the study is to identify areas of wasteful and unproductive spending, make the entire digital media supply chain more transparent and understandable, and help brands shift their dollars from wasted spending to driving business and brand growth. More than two dozen companies and groups have responded with an interest in being considered and are in the process of developing their proposals. A final selection is anticipated in the coming months. At this point, there is no way to tell how long the study will take, but the RFP is a clarion call to the entire supply chain — media agencies, DSPs, SSPs, walled gardens, and publishers — that it's time to clean up their act before brands are victimized further by criminals like Zhukov and profiteers in the system who make their money on hidden transactions that provide no value in return.

If you would like to learn more about the latest industry efforts, plan on attending the ANA Media Conference (in person or virtually) on June 16-18 at the JW Marriott Turnberry Resort in Aventura, Fla. I will be joined together with Bill Duggan and Mark Stewart of the ANA on a panel discussing the new RFP and more.

Douglas Wood is Senior Counsel with Reed Smith, LLP, a global law firm, and is the ANA's General Counsel.