China

US watchdog fines Avon $135m for China bribes

The Avon Products headquarters is seen in midtown Manhattan area of New York, in this file photo taken 21 June 2013. Image copyright Reuters
Image caption Avon's Chinese subsidiary had paid out $8m in payments to Chinese officials, said the SEC

Beauty company Avon has been fined $135m (£87m) by the US Securities and Exchange Commission for paying out bribes and gifts to Chinese officials.

Avon's Chinese subsidiary paid out $8m from 2004 to 2008 in order to obtain a direct selling licence, said the SEC in a statement.

The payments included plane tickets for officials, and expensive gifts from Louis Vuitton, Gucci and Tiffany.

Avon is the world's largest direct seller of beauty products.

Under the US Foreign Corrupt Practices Act, companies are banned from paying money or giving anything of value to foreign officials to obtain or retain business.

Avon makes $10bn in annual revenue, according to its website, but it has been struggling with slowing growth in many of its major markets.

China had banned direct selling in 1998, but in later years decided to lift the ban. Avon became the first business to obtain a licence for direct selling in 2006.

'Gucci bags, Tiffany pens'

The SEC said that Avon had made the payments in cash, gifts, travel and entertainment to "gain access to Chinese officials implementing and overseeing direct selling regulations".

It also made the payments to "avoid fines or negative news articles that could have impacted Avon's clean corporate image", which was required to retain the licence.

The gifts include paid travel for Chinese officials within China or to the US or Europe, Louis Vuitton merchandise, Gucci bags, Tiffany pens, and tickets to the China open tennis tournament.

These payments were falsely recorded as business expenses incurred by employees, or reimbursements to third-party vendors, or recorded with "almost no detail at all".

SEC also said that Avon's headquarters had been alerted to this behaviour through an internal audit in late 2005, and while management issued a directive for reforms, "ultimately, however, no such reforms were instituted at the Chinese subsidiary".

It was only in 2008 when Avon launched a full internal investigation after its chief executive received a letter from a whistleblower, said the SEC.

Avon released a statement saying the fine was "in line with the expected terms the company previously reported".

It noted that it had co-operated with the investigation and provided "extensive remediation", which the US government has recognised.

The company has racked up more than $300m in legal and other related costs due to the corruption probe.

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