By Charles S. Leeper and Gregory A. Mason
-- Avon Credited With Cooperation Despite Senior Executives’ Conspiracy to Conceal
On December 17, 2014, Avon Products, Inc. (“Avon”) resolved Foreign Corrupt Practices Act (FCPA) investigations being conducted by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) with a guilty-plea by indirect subsidiary Avon Products (China) Co. Ltd. (“Avon China”), a three-year deferred prosecution agreement for Avon, and settlement of a complaint filed by the SEC against Avon. As part of the settlement, Avon and Avon China will pay approximately $135 million: $67,648,000 to the DOJ in penalties and $67,360,000 to the SEC for disgorgement and interest.
According to the Criminal Information, from 2004 through 2008, Avon China illegally gave over $8 million in gifts, cash and non-business meals, travel and entertainment to Chinese government officials in order to obtain and retain business benefits for Avon China. See Information at 36-50. The Information and the SEC Complaint also alleged that Avon and Avon China conspired to cover up and disguise these payments, in violation of the FCPA “books and records” provision. Information at 30-35; Complaint at 15-35, 50-57. According to these allegations, Avon executives learned of the FCPA violations as early as June 2005, but did not report these violations to the authorities or implement remedial measures. Id.
As part of the settlement, Avon admitted to these violations of the books and records and internal controls violations of the FCPA. See DPA at 2. Avon China likewise admitted to FCPA violations in its plea agreement. See Plea Agreement.
It is notable that Avon obtained a DPA, rather than being required to plead guilty to FCPA violations, since Avon executives knew of the FCPA violations by Avon China as early as June 2005, actively sought to disguise and conceal those violations at that time, and did not make a voluntary disclosure until October 2008. The DPA specifically states that Avon’s voluntary disclosure “came relatively soon after the Company received a whistleblower letter alleging misconduct but years after certain senior executives of the Company had learned of and sought to hide the misconduct in China.” DPA at 4 (emphasis added). The Agreement also cites to Avon’s extensive remediation, commitment to enhancing compliance programs, and continued cooperation in related investigations. Id. Avon’s belated disclosure nevertheless earned it a 20 percent discount from the low end of the fine range prescribed by the U.S. Sentencing Guidelines. This outcome supports the premise that a late voluntary disclosure is better than no disclosure at all; especially when receipt of a whistleblower letter suggests that government discovery of the violations may be inevitable.