Avon Says It Probes Possible Corruption After Firing Four

Avon Says It Fired Four Executives in China Over Bribes
A customer looks through an Avon catalogue at the company's shop in Shanghai. Photographer: Kevin Lee/Bloomberg

Avon Products Inc., the world’s largest door-to-door cosmetics merchant, is probing possible corruption in other countries after firing four executives over bribes to officials in China, it said in a regulatory filing.

The company suspended the four in April 2010 as part of an internal investigation into its compliance with the U.S. Foreign Corrupt Practices Act. The executives included the general manager and finance chief of the company’s China unit, which generates 2 percent of Avon’s revenue. Other employees could be affected, according to the May 3 filing.

Avon, based in New York, is conducting compliance reviews “in a number of other countries selected to represent each of the company’s international geographic segments,” according to the filing. The reviews and internal investigation are focused on expenses for, among other items, entertainment and gifts “in connection with our business dealings, directly or indirectly, with foreign governments,” according to the filing.

“The firing is likely to be part of the company’s strategy in hoping to reach a settlement with U.S. authorities in respect of any criminal charges,” said Richard Chalk, head of Freshfields Bruckhaus Deringer LLP’s Asian disputes practice, who is not involved in the case. He is currently working for clients on two FCPA cases.

Brazil, India, Japan

As part of the internal probe, Avon has discovered millions of dollars in questionable payments to officials in Brazil, Mexico, Argentina, India and Japan, The Wall Street Journal reported yesterday, citing an unidentified person.

The fired executives are S.K. Kao, the former general manager; Jimmy Beh, the China chief financial officer; C.Q. Sun, the former head of corporate affairs for China; and Ian Rossetter, the former head of global internal audit and security, the newspaper reported.

Yoyo Wang, a public relations official for Avon in Shanghai, said she didn’t have the phone numbers of the former officials and that the company wouldn’t provide them.

Claudius O. Sokenu, a lawyer at Arnold & Porter LLP in New York, said yesterday in a phone interview that he is conducting the internal investigation. He declined to comment further.

Sokenu, who regularly represents companies in Foreign Corrupt Practices Act compliance, is an adjunct professor at the Georgetown University Law Center, according to Arnold & Porter’s website. He was formerly an enforcement lawyer at the Securities and Exchange Commission.

Shares Decline

Avon, led by Chief Executive Officer Andrea Jung, fell 59 cents, or 1.9 percent, to $30.32 yesterday in New York Stock Exchange composite trading. The shares have fallen 2.2 percent in the past year.

The cosmetics seller made 229 million revenue last year in China, 35 percent lower than in 2009, according to data compiled by Bloomberg. Avon had $10.9 billion total sales last year.

Avon said in a Feb. 24 SEC filing that it previously hired outside counsel to conduct the internal investigation and compliance reviews focused on the FCPA and related U.S. and foreign laws in China and other countries. The probe, being conducted under the oversight of Avon’s audit committee, began in June 2008, according to the filing.

The company, citing an earlier regulatory filing, said it disclosed in October 2008 that it had reported its internal probe to the SEC and the U.S. Justice Department.

“At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews,” Avon said in its Feb. 24 filing.

“The investigation is ongoing,” Jennifer Vargas, an Avon spokeswoman, said yesterday in an e-mailed statement. She declined to comment further.

Laura Sweeney, a Justice Department spokeswoman, declined to comment.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE