Avon Products, Inc.’s China unit pleaded guilty Wednesday in connection with a bribery scheme and the firm agreed to pay $135 million to resolve related civil and criminal charges, in an announcement which likely will resonate among MLM watchers.
The global beauty products manufacturer and seller pleaded guilty to conspiring to violate the Foreign Corrupt Practices Act by bribing officials in China.
Avon Products allegedly violated FCPA
The Securities and Exchange Commission charged Avon Products for failing to put in place 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. Moreover, the SEC noted that Avon’s accounting systems failed to accurately record the details and purpose of the payments.
The SEC said Avon Products Inc. (NYSE:AVP) management learned in 2005 of potential FCPA problems in China, following an internal audit report. The company also began a full-blown internal investigation in 2008 after its CEO received a letter from a whistleblower in China.
As part of the settlement, Manhattan-headquartered Avon agreed to pay $68 million in criminal penalties and an almost equal amount in disgorgement and prejudgment interest to resolve a civil suit brought by the SEC.
The world’s largest direct seller of cosmetics entered the plea in federal court in Manhattan on Wednesday, admitting it disguised $8 million in gifts its employees gave to Chinese government officials between 2004 and 2008 to gain access to officials who oversaw direct selling regulations. The beauty products major admitted concealing and disguising cash, non-business meals, travel and entertainment it provided to obtain business benefits.
Showered officials with gifts
Some of the examples of payments alleged in the SEC complaint include payments for 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 a statement, U.S. Attorney Preet Bharara said the company was in the door-to-door influence-peddling business for years. He said: “For years in China it was ‘Avon calling,’ as Avon Products bestowed millions of dollars in gifts and other things on Chinese government officials in return for business benefits”.
The court records revealed, Avon Products during the scheme sold its beauty, home and health products in more than 100 countries, mostly through door-to-door sales carried out by 5 million to 6 million sales representatives who bought products from Avon at a discount and then sold them directly to customers.
In September, Avon Products announced that it is withdrawing from the Direct Selling Association. The company said its management considered withdrawing from the organization for more than a year before actually doing so. Analysts say withdrawing from the organization means that Avon may be feeling the heat and doesn’t want to be associated with other companies that are facing similar allegations.
The details of the SEC’s complaint against Avon can be accessed here.