Avon Gets FCPA Prosecution Deferred

Avon Products (China) Co. Ltd. (Avon China), a wholly owned subsidiary of the New York-based cosmetics company, Avon Products Inc. (Avon), pled guilty to conspiring to violate the accounting provisions of the Foreign Corrupt Practices Act (FCPA) to conceal more than $8 million in gifts, cash and non-business meals, travel and entertainment it gave to Chinese government officials in order to obtain and retain business benefits for Avon China.

Avon China and Avon admitted the improper accounting and payments and Avon entered into a deferred prosecution agreement to resolve the investigation.

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Avon was represented by Evan Chesler and Benjamin Gruenstein of Cravath Swaine & Moore in New York.

“For years in China it was ‘Avon calling,’ as Avon bestowed millions of dollars in gifts and other things on Chinese government officials in return for business benefits,” said U.S. Preet Attorney Bharara.  “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.  Avon has now agreed to adopt rigorous internal controls and to the appointment of a monitor to ensure that reforms are instituted and maintained.”

Avon China pled guilty to a criminal information filed in the U.S. District Court for the Southern District of New York charging the company with conspiring to violate the books and records provisions of the FCPA.

Avon, the parent company, entered into a deferred prosecution agreement and admitted its criminal conduct, including its role in the conspiracy and its failure to implement internal controls.

Pursuant to the deferred prosecution agreement, the Department filed a criminal information charging Avon with conspiring to violate the books and records provisions of the FCPA and violating the internal controls provisions of the FCPA.  In total, the Avon entities will pay $67,648,000 in criminal penalties.

Avon also agreed to implement rigorous internal controls, cooperate fully with the department and retain a compliance monitor for at least 18 months.

Avon settled a related FCPA matter with the U.S. Securities and Exchange Commission (SEC) today, and will pay an additional $67,365,013 in disgorgement and prejudgment interest, bringing the total amount of U.S. criminal and regulatory penalties paid by Avon and Avon China to $135,013,013.

According to the companies’ admissions, from at least 2004 through 2008, Avon and Avon China conspired to falsify Avon’s books and records by falsely describing the nature and purpose of certain Avon China transactions.  Specifically, the companies sought to disguise over $8 million in gifts, cash and non-business travel, meals and entertainment that Avon China executives and employees gave to government officials in China in order to obtain and retain business benefits for Avon China.  Avon China attempted to disguise the payments and benefits through various means, including falsely describing the nature or purpose of, or participants associated with such expenses, and falsely recording payments to a third party intermediary as payments for legitimate consulting services.

The companies also admitted that in late 2005 Avon learned that Avon China was routinely providing things of value to Chinese government officials and failing to properly document them.

Instead of ensuring the practice was halted, fixing the false books and records, disciplining the culpable individuals, and implementing appropriate controls to address this problem, the companies took steps to conceal the conduct, despite knowing that Avon China’s books and records, and ultimately Avon’s books and records, would continue to be inaccurate.

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