Avon’s Story
How did Avon, which relies on China for 2% of its revenues, come to this pass? The company was reportedly told by an employee in 2008 about improprieties in connection with Avon’s travel spending for government officials in China. The company’s audit committee started an investigation in June that year.
“We voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation,” Avon says in its filings. “We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.”
In a sign of how seriously it was taking the allegations, Avon engaged top-notch lawyer Claudius Sokenu and his law firm, Arnold & Porter LLP, which explains in part why the company has spent US$154 million so far. The probe has also been widened beyond China to include “compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries.”
The recent firing of the four executives – in addition to the China CFO, the China general manager, China head of corporate affairs and head of global internal audit and security were also told to go – may be only the tip of the iceberg.
Quoting an unnamed source in Avon, the Wall Street Journal reports that the investigators have also discovered millions of dollars in questionable payments to officials in Brazil, Mexico, Argentina, India and Japan.
That is not farfetched, given the wide scpe of the internal investigation and compliance reviews. According to Avon, the investigators have been asked to focus 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.”
What Companies Can Do
The beauty company is now in full damage control. “We continue to enhance our ethics and compliance program, including our policies and procedures, FCPA compliance-related training, FCPA third party due diligence program and other compliance-related resources,” Avon stressed in its filings.
These are useful initiatives that other organizations may wish to emulate and extend to also cover the UK Bribery Act. This legislation, seen in some ways as even more draconian than the FCPA, applies even to an organisation that is not incorporated or formed in the United Kingdom and to a person who is neither a UK national or resident, provided the organisation carries on a business in the UK or part of a business in the UK.
Part of the training programme should include the provisions in both laws, particularly what is permissible and what is not with regards to payments. In the FCPA, for example, “facilitation payments for routine governmental actions” are permissible. The statute lists the following examples:
- obtaining permits, licenses, or other official documents
- processing governmental papers, such as visas and work orders
- providing police protection, mail pick-up and delivery
- providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products
- scheduling inspections associated with contract performance or transit of goods across country
2013, May 26 
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