The world’s largest direct seller of cosmetics, Avon Products Inc, is to pay US$135 million to settle criminal and civil charges after its China unit pleaded guilty on Wednesday to conspiring to violate the US Foreign Corrupt Practices Act by bribing officials there.
Avon China entered the plea in federal court in Manhattan, New York, admitting it disguised US$8 million in gifts its employees gave to Chinese government officials from at least 2004 through late 2008 to gain access to officials who oversaw direct selling regulations. It admitted concealing and disguising cash, non-business meals, travel and entertainment it provided to obtain business benefits.
Avon, headquartered in Manhattan, agreed to US$68 million in criminal penalties and nearly an equal amount in disgorgement and prejudgement interest to settle a civil case brought by the US Securities and Exchange Commission (SEC).
China outlawed direct selling in 1998, but agreed to lift the ban in 2001.
The commission said Avon received the first direct selling business license in China in March 2006 as it showered officials with gifts including Louis Vuitton merchandise, Gucci bags, Tiffany pens and corporate box tickets to the China Open tennis tournament.
“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,” said Scott Friestad, an associate director in the SEC’s Division of Enforcement.
As part of Avon’s deal with the US government, federal prosecutors entered into a deferred prosecution agreement with the parent company, saying it had cooperated by conducting an extensive internal probe and by making its US and foreign employees available for interviews. The prosecutors said Avon also had begun extensive anti-corruption remedial efforts, including disciplining some employees.
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