A China subsidiary of Avon Products Inc. pleaded guilty Wednesday in federal court in Manhattan to one count of conspiring to violate the Foreign Corrupt Practices Act. It will pay a $67.7 million criminal fine and the Avon parent will enter into a three-year deferred prosecution and appoint a compliance monitor.
Also on Wednesday, Avon Products agreed to settle FCPA civil charges brought by the SEC with a payment of more than $67 million.
The SEC said Avon failed to have adequate internal controls “that could have detected and prevented payments made to Chinese government officials by employees and consultants at an Avon Chinese subsidiary from 2004 through the third quarter of 2008.”
Avon’s books and records also failed to accurately record the details and purpose of the payments, the SEC said.
In the SEC settlement, Avon agreed to disgorge $52.85 million, plus prejudgment interest of $14.5 million. It also agreed to retain an independent monitor to review its FCPA compliance program for 18 months, “followed by an 18-month period of self-reporting on its compliance efforts,” the SEC said.
The SEC settlement is subject to federal court approval.
The Chinese subsidiary made $8 million worth of payments in cash, gifts, travel, and entertainment to various Chinese officials. Avon needed their approval for direct selling in China. In March 2006, it became one of the first companies to receive a direct selling license.
Avon management learned in late 2005 of potential FCPA problems in China. It didn’t start a full-blown internal investigation until 2008, after its CEO received a letter from a whistleblower in China.
U.S. Attorney Preet Bharara said, “Avon China was in the door-to-door influence-peddling business, and for years its corporate parent, rather than putting an end to the practice, conspired to cover it up.”
The DOJ information and SEC complaint alleged payments for officials’ travel within China or to the United States or Europe, corporate box tickets to the China Open tennis tournament, gifts of Louis Vuitton merchandise, Gucci bags, and Tiffany pens, and $1.65 million for meals and entertainment.
In early May, Avon said it had reached an understanding with the DOJ and SEC for the $135 million settlement.
By the end of last year, Avon had spent more than $300 million on its internal FCPA investigation, according to reports.
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.
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The DOJ’s criminal information (charging document) against Avon Products (China) Co. Ltd is here (pdf).
Avon Products’ deferred prosecution agreement with the DOJ (with statement of facts, corporate compliance program, and compliance monitor) is here (pdf).
The SEC’s Litigation Release No. 23159 and Accounting and Auditing Enforcement Release No. AAER-3616 (both dated December 17, 2014) is here.
The SEC’s complaint in Securities and Exchange Commission v. Avon Products, Inc., Civil Action No. 14-cv-9956 (KPF) (S.D.N.Y.) is here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.
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