Avon Products confirmed Thursday that the SEC has issued a formal order of investigation into possible violations of the Foreign Corrupt Practices Act.
Avon’s disclosure appeared in its quarterly report filed with the SEC.
The company, which first disclosed an internal investigation in October 2008, said it has turned over evidence to the SEC and DOJ from ‘compliance reviews.’
The investigation, the company said, focused on expenses and accounting for ‘travel, entertainment, gifts, use of third party vendors and consultants and related due diligence, joint ventures and acquisitions, and payments to third-party agents and others.’
The Wall Street Journal said in May the internal investigation uncovered millions of dollars of questionable payments to government officials in China, Brazil, Mexico, Argentina, India, and Japan.
The company’s legal fees and costs for outside counsel conducting the investigation were $59 million in 2009, $95 million in 2010, and $22.5 for the first quarter of this year.
Last year, Avon reportedly suspended four employees pending its internal bribery investigation — three in China and one in New York.
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 appeared on our 2011 watch list.
Avon Products, Inc. trades on the NYSE under the symbol AVP.
Avon’s FCPA disclosure in its Form 10-Q (pdf) filed October 27, 2011 said:
* * *
As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, use of third party vendors and consultants and related due diligence, joint ventures and acquisitions, and payments to third-party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. In connection with the ongoing internal investigation and compliance reviews, certain personnel actions have been taken and additional personnel actions may be taken in the future.
For additional information, see Note 5 to our consolidated financial statements contained in our Form 10-Q for the quarter ended March 31, 2011 and “Risk Factors” contained in our Form 10-K for the year ended December 31, 2010. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. In connection with the internal investigation and compliance reviews, we continue to enhance our ethics and compliance program, including our policies and procedures, FCPA compliance-related training, FCPA third party due diligence program and other compliance-related resources.
On October 26, 2011, the Company received a subpoena from the United States Securities and Exchange Commission (“SEC”) requesting documents and information in connection with a Regulation FD investigation of the Company’s contacts and communications with certain financial analysts and other representatives of the financial community during 2010 and 2011. The Company was also advised that a formal order of investigation was issued by the SEC relating to the FCPA matters described above and the Regulation FD matters that are referenced in the subpoena. The Company intends to cooperate fully with the SEC’s investigation.
At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews and the SEC’s investigation.
* * *