Cosmetics giant Avon has agreed to pay a total of US$135 million to settle charges by the U.S. Department of Justice and the U.S. Securities and Exchange Commission (SEC) that the company bribed Chinese officials.
Avon spent a total of US$8 million in cash and gifts to bribe Chinese officials, including products from luxurious brands Louis Vuitton, Gucci, and Tiffany & Co.
Avon was able to “gain an edge over their competitors, and the company reaped substantial financial benefits as a result,” said Scott W. Friestad, associate director and special advisor to the Director in the Division of Enforcement of the SEC, in a statement issued by SEC.
Under the U.S. Foreign Corrupt Practices Act (FCPA), companies are banned from bribing foreign officials to obtain or retain business.
In 2006, Avon was the first company to obtain a license for direct selling in China, which had been banned in 1998. The company was able to complete the application for the license within a brief two-month period after the Ministry of Commerce (MOC) announced the filing procedure in December 2005.
According to the SEC statement, a portion of the payment to Chinese officials was to “avoid fines or negative news articles that would have impacted Avon’s clean corporate image,” a requirement to retaining the license.
Chinese officials can arrange for a company to avoid negative reports, because media is tightly censored in China, often receiving directives and notices from the central, provincial and municipal propaganda departments.
The Avon fine is the most recent of several high-profile cases involving possible violations of the FCPA.
In 2008, Siemens paid a more than US$1 billion fine when it violated the FCPA by paying bribes to Chinese officials to secure contracts.
In 2013, JPMorgan came under close scrutiny for violation of the FCPA for hiring children of top Chinese Communist Party officials.
In 2014, drugmaker GlaxoSmithKline was fined US$492 million for bribing doctors in China.