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Avon to Pay $135 Million for FCPA Violations, Bolster Compliance

Jaclyn Jaeger | May 1, 2014

Cosmetics giant Avon will pay $135 million to resolve long-standing civil and criminal charges resulting from violations of the Foreign Corrupt Practices Act in connection with its China operations.

Avon disclosed in a May 1 Form 10-Q filing with the Securities and Exchange Commission that it will $135 million in fines, disgorgement, and prejudgment interest with respect to alleged violations of the books and records and internal control provisions of the FCPA. It will pay $68 million to the Justice Department, and $67 million to the SEC.

As part of the proposed settlement, Avon also has entered into a three-year deferred prosecution agreement with the Justice Department. Avon also agreed to an external compliance monitor for a term of at least 18 months. After the 18-month term has expired, Avon, with the approval of the government, may self-report to regulators 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. Additionally, as part of its settlement with the Justice Department, 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.

Investigation Details

In October 2008, Avon voluntarily disclosed to the Justice Department and SEC that it was conducting an internal investigation of its China operations over possible violations of the FCPA, which prohibits the bribery of foreign officials. Avon said, under the oversight of the audit committee, that it commenced the investigation in June 2008 after receiving allegations that certain travel, entertainment and other expenses may have been improperly incurred in connection with the company's China operations.

In July 2009, in connection with the internal investigation, Avon said it commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in a number of countries in order to evaluate its compliance efforts. “The internal investigation and compliance reviews 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 company stated.

In connection with the completion of 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,” Avon stated.

Avon added that it also continues to enhance its ethics and compliance program, “including our policies and procedures, FCPA compliance-related training, FCPA third-party due diligence program and other compliance-related resources.”

Cooperation Details

Avon said it continues to cooperate with the SEC and the Justice Department in the investigations of these matters. Specifically, the company stated that it has:

  • Signed tolling agreements;
  • Responded to inquiries;
  • Translated and produced documents;
  • Assisted with interviews; and
  • Provided information on its internal investigation and compliance reviews, personnel actions taken, and steps taken to enhance its ethics and compliance program.

Final resolution of these matters must still be approved by Avon's board of directors, and the SEC. Avon must also obtain court approval of the SEC settlement, the DPA, and acceptance of the expected guilty plea by an Avon subsidiary operating in China.

Until these matters are resolved, Avon said it expects to continue to incur costs, primarily related to "professional fees and expenses, which may be significant, in connection with the government investigations,” the company stated. So far, Avon has spent more than $300 million since 2009 on such fees.