Bribery penalties could reach US$132 million, Avon says

PUBLISHED : Friday, 14 February, 2014, 2:54pm
UPDATED : Friday, 14 February, 2014, 2:54pm

Avon Products, the world’s largest door-to-door cosmetics seller, said it may have to pay as much as US$132 million to resolve criminal and civil probes into whether it paid bribes in China and other countries.

About US$77 million was added in last year’s fourth quarter to a reserve for the potential settlements with the US Securities and Exchange Commission and Department of Justice, bringing the total set aside for the matter to US$89 million, New York-based Avon said on Thursday.

Potential settlements might exceed that amount by as much as US$43 million, the company said.

Though the final settlement will probably be lower than the 10 largest fines ever paid by companies to resolve possible violations of the Foreign Corrupt Practices Act, the five-year-old investigation has cast a pall over Avon, which has struggled with slowing growth, posted net losses for two years and undergone changes in the executive suite during the inquiry.

Chief executive Sheri McCoy, who took the helm in April 2012 from Andrea Jung, has been trying to reach a settlement with the government while working to reduce Avon’s costs and abandon unprofitable markets such as South Korea, Vietnam and Ireland.

Avon’s revenue in China has plunged during the investigation, which a person familiar with the inquiry said is close to being resolved.

“We’ve made significant progress,” McCoy said during an earnings call about the prospects for resolving the probe.

She said negotiations with the government were continuing and, “while differences remain, our team was working hard to bring these matters to a close”.

The company has spent more than US$300 million over the past five years on an internal investigation and compliance reviews amid the probe, making the case one of the most expensive investigations under the FCPA, which bars payment of money or anything of value to foreign officials to obtain or retain business.

Avon sought last year to end the SEC probe by offering to pay US$12 million, although regulators sought a “significantly greater” amount, according to company filings.

The investigation dates to mid-2008, when Avon began looking into allegations of improper payments on the mainland. Beijing ended a ban on direct sales in 2006.