Avon’s Bribery Investigation Grows

Beauty-products giant Avon Products Inc. reportedly suspended four employees pending its internal bribery investigation. Reuters and others today said the world’s largest direct marketer put three executives in China and another in New York on administrative leave. The reports said the bribery investigation now involves “a dozen or more countries.”

In October 2008, Avon launched an internal investigation into possible Foreign Corrupt Practices Act violations in China. The investigation appeared to be linked to the payment of improper promotional expenses.

China imposed restrictions on direct selling in the late 1990s that forced Avon to market its products through shops and boutiques. But in 2006, the company convinced China’s regulators to allow its traditional door-to-door sales model. Avon’s FCPA disclosure referred to “certain travel, entertainment and other expenses” but didn’t say if the investigation involved promotional expenses for Chinese regulators involved in that decision.

Foreign companies often feel pressure to sponsor trips by Chinese regulators, who aren’t shy to ask for such perquisites. The FCPA includes an affirmative defense for payments to officials related directly to “the promotion, demonstration, or explanation of products or services” that are “reasonable and bona fide.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). That defense is loaded with uncertainty and very difficult for companies to safely use.

Avon hasn’t provided further details about the employee suspensions or its ongoing bribery investigation.

It’s original disclosure said:

Avon Products, Inc. (NYSE: AVP) announced today, October 20, 2008, that it is voluntarily conducting an internal investigation of its China operations, focusing on compliance with the Foreign Corrupt Practices Act (“FCPA”). The Company, under the oversight of the Audit Committee, commenced in June 2008 an internal investigation after it received an allegation that certain travel, entertainment and other expenses may have been improperly incurred in connection with the Company’s China operations. The company has voluntarily contacted the Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. The internal investigation is in its early stage and no conclusion can be drawn at this time as to its outcome.