Avon Products Inc.'s China unit pleaded guilty Wednesday for plotting to violate the Foreign Corrupt Practices Act by bribing local officials. The parent group, which is the world’s largest direct seller of cosmetics, will have to pay $135 million in fines to settle the criminal and civil charges against it.
Avon China had registered the case in Manhattan’s federal court and confessed that it paid Chinese officials gifts worth $8 million, between 2004 and 2008, according to The Associated Press (AP). The company said that it bribed officials because it wanted access to those who supervised direct selling regulations. The Chinese administration had banned direct selling in 1998 but lifted off the ban in 2001.
“Avon's subsidiary in China paid millions of dollars to government officials to obtain a direct selling license and gain an edge over their competitors, and the company reaped substantial financial benefits as a result," Scott W. Friestad, an associate director in the Securities and Exchange Commission's (SEC) division of enforcement, said, according to AP.
The New York-based company had given luxurious items including Louis Vuitton merchandise, Gucci bags, Tiffany pens, as well as tickets to China open tennis tournament to officials and had adjusted the expenditure in its books as “business entertainment,” “employee travel” or “public relations business entertainment,” Bloomberg reported, citing U.S. federal authorities. The SEC had also reportedly filed another case against Avon, claiming that the company got its first sales license in May 2006 by giving “over $100,000 in cash or things of value to government officials.”
The New-York based company reportedly learnt about the crimes its China unit was committing in 2005, but never brought in reforms, Bloomberg reported. The China division had viewed the Asian market to be worth $1 billion while the sales in the country increased 28 percent to $67.2 million in the fourth quarter of 2006.
The company reportedly hired Mayer Brown LLP to conduct an internal probe into its operations after a whistleblower wrote a letter to former CEO Andrea Jung. Following this, Avon reported the allegations to the Department of Justice and SEC.
"Avon China's conduct in this regard was wrong and violated its own policies and the policies of Avon Products Inc," Jeff Benjamin Avon's general counsel, said, according to Reuters.