Avon fined $135m over bribery payments in China

Global beauty products company Avon has agreed to pay $135m in fine to US regulators to settle cases of bribery allegations related to its Chinese subsidiary.

The US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have charged Avon with violating the Foreign Corrupt Practices Act (FCPA) by paying bribes to Chinese officials.

According to the SEC, Avon’s subsidiary in China made $8m worth of payments in cash, gifts, travel, and entertainment to obtain licence to launch its direct selling business in the country.

The bribes paid to the Chinese officials included paid travel within China or to the US or Europe, gifts as Louis Vuitton merchandise, Gucci bags, Tiffany pens, and corporate box tickets to the China Open tennis tournament.

The company became the first to be allowed to launch direct sales in China in March 2006. The bribery payments occurred from 2004 to 2008.

SEC said proper records were not maintained of the payments made.

"In some instances, payments were concealed by falsely recording the transactions as employee business expenses or as reimbursement of a third-party vendor. In other instances, the records for the payments set forth almost no detail at all."

An internal audit report in 2005 brought the violations to the notice of Avon’s management but no reforms were initiated. A full-blown probe began in 2008 after its CEO received a letter from a whistleblower, SEC added.

Under the settlement, Avon will pay $68m in fines to the DOJ and $67m in disgorgement and prejudgment interest to the SEC.

In addition, it will allow an external corporate compliance monitor for 18 months and will undertake internal monitoring for another 18 months.

Avon is one of the largest direct sellers of cosmetics for women with annual revenue of $10bn. It has six million active independent sales representatives in over 100 countries.

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Image: Avon records annual revenue of $10bn from its products for women. Photo: courtesy Avon Products.