Beauty products company Avon said Thursday it has “reached an understanding” with the DOJ and SEC for settlement of FCPA offenses.
The company said the resolution will include payment of $135 million for “alleged violations of the books and records and internal control provisions of the FCPA.”
Avon will also enter into a three-year deferred prosecution agreement with the DOJ and retain a compliance monitor for at least 18 months.
The $135 million payment includes $68 million to the DOJ and $67 million to the SEC, the company said.
An Avon subsidiary in China will “enter a guilty plea in connection with alleged violations of the books and records provision of the FCPA,” Avon said.
In August last year, Avon said the DOJ and SEC had rejected an offer from the company to settle the FCPA offenses for $12 million.
Avon launched an internal investigation in 2008 linked to the payment of improper promotional expenses.
A shareholder lawsuit filed in 2012 accused Avon of paying a big severance to a former head of internal audit in 2006 to buy his silence about bribes in China.
By the end of last year, Avon had spent about $300 million on its internal FCPA investigation, according to reports.
The Wall Street Journal said in February 2012 that the DOJ had gone to a grand jury with evidence of FCPA violations against U.S. executives at Avon.
The story said the focus of the grand jury was a ‘2005 internal audit report by the company that concluded Avon employees in China may have been bribing officials.’
Former chief executive Andrea Jung left the company in 2012.
Avon fired vice chairman Charles Cramb in early 2012. He held the post less than a year. An earlier report in the Wall Street Journal linked him to compliance issues in China known since 2005.
Avon said Wednesday the final settlement is subject to “preparation and negotiation of documentation satisfactory to all the parties.” Approval is also needed from Avon’s board of directors. And the SEC settlement and the deferred prosecution agreement need court approval.
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Here’s the full FCPA disclosure from Avon Products Inc. in its Form 10-Q filed with the SEC on May 1, 2014. Dollar amounts are in millions. We’ve added some paragraph breaks for readability.
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 has been conducted under the oversight of our Audit Committee, began in June 2008.
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 have conducted these compliance reviews in a number of countries selected to represent each of the Company’s international geographic segments. The internal investigation and compliance reviews have 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. The internal investigation and compliance reviews of these matters are substantially complete.
In connection with the internal investigation and compliance reviews, certain personnel actions, including termination of employment of certain senior members of management, have been taken, and additional personnel actions may be taken in the future. 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.
As previously reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission (“SEC” and “Commission”) and the United States Department of Justice (“DOJ”) to advise both agencies of our internal investigation. We have cooperated and continue to cooperate with investigations of these matters by the SEC and the DOJ. We have, among other things, signed tolling agreements,
responded to inquiries, translated and produced documents, assisted with interviews, and provided information on our internal investigation and compliance reviews, personnel actions taken and steps taken to enhance our ethics and compliance program. We also have made factual presentations which are now substantially complete.
As previously reported, we have been engaged in settlement negotiations with the DOJ and the staff of the SEC with respect to these matters. We have now reached an understanding with respect to terms of settlement with each of the DOJ and the staff of the SEC. Based on these understandings, the Company would, among other things: pay aggregate fines, disgorgement and prejudgment interest of $135 with respect to alleged violations of the books and records and internal control provisions of the FCPA, with $68 payable to the DOJ and $67 payable to the SEC; enter into a deferred prosecution agreement (“DPA”) with the DOJ under which the DOJ would defer criminal prosecution of the Company for a period of three years in connection with alleged violations of the books and records and internal control provisions of the FCPA; agree to have a compliance monitor which, with the approval of the government, can be replaced after 18 months by the Company’s agreement to undertake self-monitoring and reporting obligations for an additional 18 months. If the Company remains in compliance with the DPA during its term, the charges against the Company would be dismissed with prejudice.
In addition, as part of any settlement with the DOJ, a subsidiary of Avon operating in China would enter a guilty plea in connection with alleged violations of the books and records provision of the FCPA. The expected terms of settlement do not require any change to our historical financial statements.
Final resolution of these matters is subject to preparation and negotiation of documentation satisfactory to all the parties, including approval by our board of directors and, in the case of the SEC, authorization by the Commission; court approval of the SEC settlement; and court approval of the DPA and acceptance of the expected guilty plea by an Avon subsidiary operating in China. We can provide no assurances that satisfactory final agreements will be reached, that authorization by the Commission or the court approvals will be obtained or that the court will accept the guilty plea or with respect to the timing or terms of any such agreements, authorization, and approvals and acceptance.
The Company recorded an additional accrual of $46 during the first quarter of 2014 with respect to these matters, bringing the total liability accrued at March 31, 2014 to $135.
If we do not reach final settlements on the expected terms or if the necessary approvals do not occur, either we may enter into further discussions with the DOJ and/or the SEC to resolve the matters under investigation on different terms and conditions or we may litigate the matters.
We cannot predict the timing of any such further discussions and we expect any such alternative settlements would include civil and/or criminal fines and penalties and non-monetary remedies, such as oversight requirements and additional remediation and compliance requirements. If we do not reach settlements with the DOJ and/or the SEC, or if the necessary approvals do not occur, we cannot predict the outcome of any subsequent litigation with the government, but such litigation could have a material adverse effect.
Until these matters are resolved, either through settlement or litigation, we expect to continue to incur costs, primarily professional fees and expenses, which may be significant, in connection with the government investigations. If the currently-contemplated settlements are approved, we will incur ongoing costs related to the compliance monitor and self-monitoring and reporting obligations. Furthermore, under certain circumstances, we may also be required to advance and/or reimburse significant professional fees and expenses to certain current and former Company employees in connection with these matters.
Richard L. Cassin is the Publisher and Editor of the FCPA Blog. He can be contacted here.