International Flavors and Fragrances disclosed it is investigating potential improper payments made in Russia and Ukraine by an Israeli-based company it acquired last year.
In a Form 10-Q filed Aug. 5, International Flavors and Fragrances (IFF) said it “was made aware of allegations that two Frutarom businesses operating principally in Russia and Ukraine made certain improper payments, including to representatives of a number of customers.” IFF said it then “promptly commenced investigations of such allegations with the assistance of outside legal and accounting firms.”
Although IFF’s investigations are ongoing, “preliminary results indicate that improper payments to representatives of customers were made and that key members of Frutarom’s senior management at the time were aware of such payments,” the company stated.
During an Aug. 6 earnings call, IFF Chairman and Chief Executive Officer Andreas Fibig said the company has “notified relevant U.S. regulatory authorities and relevant Israeli regulatory authorities.” Fibig added IFF has not uncovered any evidence suggesting such payments had any connection to the United States. Thus, they may not have any connection to the U.S. Foreign Corrupt Practices Act.
“We believe that these improper payments are no longer being made,” Fibig said. According to the regulatory filing, the estimated affected sales represent less than 1 percent of IFF’s and Frutarom’s combined net sales for 2018.
“IFF does not believe the impact from these matters is, or will be, material to IFF’s results of operations or financial condition,” the regulatory filing stated. “The costs arising from these matters, however, could be material in a particular fiscal quarter.”
During the earnings call, Fibig touted the company’s ethics and compliance program. “We have a very robust program in place here—in particular when we take over companies,” he said. “We have taken, or will take, appropriate remedial actions with respect to the matters I have described, and I want to assure you that we have committed to the highest standards of ethics and compliance and have strict compliance policies in place.”
Based on the results to date and other compliance-related integration activities, Fibig added that “we are not currently aware of similar instances of misconduct in any other geographies.”
“We stick to what we have said in our disclosure: We feel very comfortable that we have a good handle on it,” Fibig said, “and I’m actually very proud about the program we are running here and how all the teams are working together.”