Caixin
Sep 29, 2020 06:01 AM
BUSINESS & TECH

Exclusive: Top Baidu Sales Executive Detained in Illegal Ad Probe

In the second quarter this year, the company’s online advertising revenue declined 8% to 17.7 billion yuan.
In the second quarter this year, the company’s online advertising revenue declined 8% to 17.7 billion yuan.

A veteran executive of China’s search engine giant Baidu Inc. was detained by police on allegations of illegal online advertising operations, including promotions related to gambling, separate sources told Caixin.

The detention of Shi Youcai, head of Baidu’s Mobile Ecology Group, who oversees the company’s sales system, followed investigations of several other Baidu staffers starting weeks ago, including Vice President Li Zhongjun.

“Baidu insists on zero tolerance against all violations of laws and regulations,” the company said in a statement to Caixin.

Baidu said the case is still under investigation and no details could yet be provided. Shi denied allegations that he made illegal transactions personally with advertising agencies, sources said.

The detention of Shi is part of a broader crackdown on illegal online advertising involving pornography and gambling, according to a marketing executive at another internet company.

Chinese regulators have stepped up a clampdown on cross-border gambling this year, making it a top priority to eliminate social and financial risks. According to the Ministry of Public Security, illegal cross-border gambling drives more than 1 trillion yuan ($147 billion) of capital outflow each year, posing mounting risks to the financial system.

One person close to the matter said Shi was detained Sept. 15. Shi’s contract with Baidu expired in June, but Baidu asked him to stay on until November pending arrival of a successor, the person said.

Shi joined Baidu one year after the company’s founding in 2000 and has been a long-term senior executive in charge of the company’s sales and marketing system. Shi left Baidu in 2011 but returned in June 2019 as a special adviser to the company's newly restructured mobile ecology division. Shi became the de facto head of Baidu’s sales system, assuming duties of former Senior Vice President Xiang Hailing, who departed in May 2019.

Shi opened the door for illegal advertising on Baidu’s platform and benefited personally from the business, one person close to Baidu’s management told Caixin. A number of third-party advertising agencies working with Baidu in Wuxi, Hebei and other regions were also investigated by police, the person said.

A Baidu business partner said Shi tightened control over Baidu’s advertising partners and offered favors to agencies with whom he had ties. Business with regulatory risks including promotion of card games could be conducted only with certain agents, the executive said.

It is almost impossible that senior management didn't notice such practices, several industry sources said.

In 2016, Baidu was scrutinized by regulators for allowing banned ads to go through its platform at night, such as those related to illegal gambling. Baidu blamed third-party ad agencies and denied it had direct responsibility for the problem. The same year, the company was shaken by a public outcry when a college student died after the company’s search engine led him to a bogus and expensive experimental cancer treatment.

In June 2019, Baidu said it removed 1.1 billion ads from its platforms as regulators ratcheted up pressure to eliminate inappropriate content.

Baidu’s business is gradually reviving from the Covid-19 pandemic. In the second quarter this year, the company’s online advertising revenue declined 8% to 17.7 billion yuan. Net profit, however, rose 48%, thanks to cost reductions on sales and administrative spending. Revenue dropped 1% to 26.3 billion yuan.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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