Avon’s Alleged Foreign Bribes Spell Trouble

The image of the serene Avon Lady calling on charming housewives to sell beauty products is being replaced by a picture of hardened Avon executives across the developing world paying bribes to build their business.This is not a trivial matter. Avon is in trouble.

Both the U.S. Department of Justice and the Securities and Exchange Commission (SEC) are deep into investigations of violations by Avon Products Incorporated of the U.S. Foreign Corrupt Practices Act (FCPA), which makes it a crime for a U.S. company to bribe foreign government officials. The focus is mainly on Avon’s dealings in China.

Usually, companies being investigated like this seek to enter into a deal where they pay some fines to resolve matters. But, in this case it looks as if the negotiations on a settlement are in rough waters. Avon has just announced that it may have to shell out a total of around $132 million to reach a settlement. Grand Jury

But if a story by Wall Street Journal reporters is accurate, then this may be wishful thinking. The Journal’s story stated, “Federal prosecutors investigating whether Avon's U.S. executives broke foreign-bribery laws have presented evidence in the probe to a grand jury, people familiar with the matter said.” For many years the U.S. authorities were content to reach financial settlements of these kinds of cases that allowed the bribe-paying corporation to evade a clear admission that it was guilty of a crime. Mostly, the Justice Department has been willing to file civil, rather than criminal charges in these cases. But, times are changing and the authorities are getting tougher. Avon may find that it becomes a model of the ramped-up zeal of the prosecutors. Soon after taking office as head of the SEC last summer, former New York prosecutor Mary Jo White said defendants would no longer be allowed to settle some cases while “neither admitting nor denying” wrongdoing.  At the time The New York Times noted that the SEC had been criticized for being too lenient with some major companies.

The Department of Justice is also keen to be seen as a tough cop and certainly if it brought criminal charges against Avon that would send a sharp signal to large multinational corporations. The pressure right now is clearly on Avon’s leadership – it must not only find a way to resolve its problems with the U.S. authorities, which may force it to admit to possible FCPA violations in a range of countries, but it will need to find ways to re-polish its public image – this may be its toughest challenge.