Avon Products Said to Be Focus of U.S. Grand Jury Probe of Chinese Bribery

Avon Products Inc. (AVP) is the subject of a U.S. grand jury investigation into whether ex-employees in China paid bribes to officials in violation of U.S. anti- corruption laws, according to a person familiar with the matter.

Jennifer Vargas, a spokeswoman for New York-based Avon, the world’s largest door-to-door cosmetics merchant, declined to comment on the probe by the Manhattan grand jury.

In regulatory filings last year, Avon said it had fired four executives suspected of paying bribes to officials in China. The company also disclosed an internal investigation into its compliance with the U.S. Foreign Corrupt Practices Act. The ex-executives included the general manager and finance chief of the China unit, which generates 2 percent of Avon’s revenue.

The internal probe is focused on entertainment and gift expenses “in connection with our business dealings, directly or indirectly, with foreign governments,” according to one of its filings.

The U.S. Securities and Exchange Commission is also investigating, Avon said in October.

The U.S. probe disclosed by the person, who declined to be identified because the matter isn’t public, was reported earlier by the Wall Street Journal.

An internal Avon audit found several hundred thousand dollars in questionable payments to Chinese officials and third- party consultants in 2005, the newspaper reported.

Executives Leave

Avon executives who saw the audit report didn’t disclose the findings to board audit or finance committees or the full board, the newspaper said.

Jerika Richardson, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment.

Avon in January said Charles Cramb, vice chairman of its developed market group, left the company amid the internal investigation into bribery. Cramb, who was previously chief financial officer, departed on Jan. 29, Avon said in a filing.

Cramb is the most senior executive to leave in connection with the internal probe, which began in 2008 with scrutiny of allegations of improper travel, entertainment and other expenses at Avon’s Chinese operations.

The company has also fired four executives including S.K. Kao, the general manager in China, and Jimmy Beh, the finance chief of the China unit.

None has been accused of wrongdoing.

Compliance Reviews

Avon announced in December that Chief Executive Officer Andrea Jung was stepping down. Jung, who had run Avon since 1999, remains as chairman.

In its filings Avon has said it is conducting compliance reviews “in a number of other countries selected to represent each of the company’s international geographic segments.”

Avon has hired outside lawyers to conduct the internal investigation, the company said. The probe is being conducted under the oversight of Avon’s audit committee, according to a company filing.

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net

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