Label-maker Avery Dennison Corporation, whose compliance problems in China were described in an LA Times story last January, has resolved civil and administrative charges brought by the Securities and Exchange Commission.
The SEC filed settled enforcement actions in the United States District Court for the Central District of California charging Avery with violating the FCPA’s books and records and internal controls provisions. In the administrative action, the SEC ordered Avery to disgorge $273,213 and $45,257 in prejudgment interest. In the federal civil action, Avery agreed to a final judgment requiring it to pay a civil penalty of $200,000.
From 2002 through 2005, the Reflectives Division of Avery (China) Co. Ltd. paid or authorized the payment of kickbacks, sightseeing trips, and gifts to Chinese government officials amounting to about $30,000. In one transaction, Avery China secured a sale to a state-owned end user by agreeing to pay a Chinese official a kickback of nearly $25,000 through a distributor. Avery China earned $273,213 in profit from the transaction, which it inaccurately booked as a sale to the distributor rather than to the end user.
The SEC said, “In addition, after Avery acquired a company in June 2007, employees of the acquired company continued their pre-acquisition practice of making illegal petty cash payments to customs or other officials in several foreign countries, resulting in illegal payments of approximately $51,000. Avery failed to accurately record these payments and gifts in the company’s books and records, and failed to implement or maintain a system of internal accounting controls sufficient to detect and prevent such illegal payments or promises of illegal payments.”
The SEC charged Avery, a Delaware corporation headquartered in Pasadena, California, with violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. The Justice Department didn’t announce any charges.
A spokesperson for Avery told the FCPA Blog, “What’s important to us is the fact, noted in the SEC’s administrative order, that we discovered the questionable actions. We investigated them and took disciplinary action, and reported them to the Securities Exchange Commission and Department of Justice (DOJ). As the SEC’s administrative order notes, in some cases we prevented them. We believe ethical conduct is critical to our reputation and our success, and we back that up with a rigorous training and reporting process to help employees make the right decisions. Our training includes training on the FCPA.”
Don Lee’s January story in the LA Times was unique for its first-hand accounts of the China violations. Here’s one vignette:
During 2003 and 2004, it became common for Avery managers to retain Chinese “consultants” to secure contracts in exchange for a share of the proceeds. One was a midlevel Public Security Ministry official who said he could connect Avery with a state-owned truck manufacturer in northeastern China that needed red-and-white reflective stickers for the backs of trucks. Avery’s expense accounts also showed lavish spending on entertaining clients, according to people who recorded the reports. By summer 2004, things were changing. On a Friday morning in September, [salesman Ding Yong] said he was called to the 11th-floor conference room of Avery’s offices in southwest Shanghai. Sales were running at triple the pace of two years earlier, and Ding thought his superiors might want to renew his contract. Instead, Avery sent him packing.
Avery Dennison Corporation trades on the New York Stock Exchange under the symbol AVY.
The SEC’s Litigation Release No. 21156 and Accounting and Auditing Enforcement Release No. 3020 (b0th dated July 28, 2009) in Securities and Exchange Commission v. Avery Dennison Corporation (United States District Court for the Central District of California, Civil Action No. CV09-5493 DSF (CWx)) can be viewed here.
Download the SEC’s July 28, 2009 cease and desist order in Accounting and Auditing Enforcement Release No. 3021 and Administrative Proceeding File No. 3-13564 here.