Avon Subsidiary Pleads Guilty in Manhattan Federal Court to Conspiring to Violate the Foreign Corrupt Practices Act
Preet Bharara, the United States Attorney for the Southern District of New York, Leslie R. Caldwell, the Assistant Attorney General for the Criminal Division of the Department of Justice (“DOJ”), and Andrew G. McCabe, Assistant Director-in-Charge of the Washington Field Office of the Federal Bureau of Investigation (“FBI”), announced today the guilty plea of Avon Products (China) Co. Ltd. (“Avon China”), a wholly owned subsidiary of the New York-based cosmetics company, Avon Products, Inc. (“Avon”), to a criminal Information charging Avon China with conspiring to violate the accounting provisions of the Foreign Corrupt Practices Act (“FCPA”) by concealing and disguising gifts, cash, non-business meals, travel, and entertainment it gave to Chinese government officials in order to obtain and retain certain business benefits for Avon China. In addition, the U.S. Attorney’s Office and DOJ entered into a deferred prosecution agreement (“DPA”) with Avon, relating to Avon’s role in the conspiracy and its failure to implement internal controls. Pursuant to the DPA with Avon, a criminal Information has been filed charging Avon with conspiring to violate the books and records provisions of the FCPA and with violating the internal controls provisions of the FCPA. In a proceeding today before United States District Judge George B. Daniels, the criminal Informations were filed against Avon and Avon China, and Avon China entered its guilty plea and was sentenced.
In total, Avon and Avon China have agreed to pay $67,648,000 in criminal penalties. Avon has also agreed to implement rigorous internal controls, cooperate fully with the Government, and retain a compliance monitor for at least 18 months.
In a related matter, Avon reached a settlement with the U.S. Securities and Exchange Commission (“SEC”) 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.
Manhattan U.S. Attorney Preet Bharara said: “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. 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.”
Assistant Attorney General Leslie R. Caldwell said: “Companies that cook their books to hide improper payments will face criminal penalties, as Avon China’s guilty plea demonstrates. Public companies that discover bribes paid to foreign officials, fail to stop them, and cover them up do so at their own peril.”
FBI Assistant Director-In-Charge Andrew G. McCabe said: “When corporations knowingly engage in bribery in order to obtain and retain contracts, it disrupts the level playing field to which all businesses are entitled. Companies who attempt to advance their businesses through foreign bribery should be on notice. The FBI, with our law enforcement partners, is continuing to push this unacceptable practice out of the business playbook by investigating companies that ignore the law.”
According to the allegations contained in the criminal Informations, which were filed today in Manhattan federal court, and other publicly available information:
From at least 2004 through late 2008, Avon and Avon China conspired to falsify Avon’s books and records by falsely and misleadingly describing the nature and purpose of certain Avon China transactions in order to disguise things of value that Avon China executives and employees gave to government officials in China. Specifically, Avon China disguised over $8 million in gifts, cash, non-business travel, meals, and entertainment it gave to Chinese government officials in order to obtain and retain business benefits for Avon China. Avon China attempted to disguise the payments and benefits through various means, including by falsely or misleadingly describing the nature or purpose of, or participants associated with, such expenses, and falsely recording payments to a third-party consultant as payments for legitimate services.
Moreover, 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, disciplining the culpable individuals, and implementing appropriate controls to address this problem, Avon and Avon China took steps to conceal the conduct, despite knowing that Avon’s books and records would continue to be inaccurate if steps were not taken to correct the conduct. Avon China thus continued operating in the same improper manner, until late 2008.
Avon has since cooperated with the Government, including by conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, translating, and organizing voluminous evidence. Avon has also undertaken extensive anti-corruption remedial efforts, including taking appropriate disciplinary action against culpable employees, and continuing to enhance Avon’s internal accounting, reporting, and compliance functions.
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Mr. Bharara praised the outstanding efforts of the FBI in the investigation. He also thanked the SEC’s Division of Enforcement for its significant assistance in the investigation.
The case is being handled by the Complex Frauds and Cybercrime Unit and the Fraud Section of the DOJ’s Criminal Division. Assistant U.S. Attorney Sarah E. Paul, and Senior Trial Attorney Laura Perkins of the Criminal Division’s Fraud Section, are in charge of the prosecution.