Avon pleads guilty to violating Foreign Corrupt Practices Act in China

The cosmetics seller Avon will pay a $135m fine to the US government to settle charges that it gave Chinese authorities $8m in gifts and cash while it sought to obtain the first “direct sell” license in China.

“For years in China it was ‘Avon calling’,” US attorney Preet Bharara said in a statement on Thursday. “Avon China was in the door-to-door influence-peddling business, and for years, its corporate parent, rather than putting an end to the practice, conspired to cover it up,” Bharara said about the company’s Chinese subsidiary.

Cases in the Securities and Exchange Commission and the US Department of Justice charged the subsidiary of the $10bn-per-year publicly traded cosmetics corporation with violating the Foreign Corrupt Practices Act when it gave Chinese officials gifts such as Louis Vuitton bags, tickets to a China Open tennis match and Tiffany pens.

Ultimately, Avon’s China subsidiary pleaded guilty in Manhattan federal court on Wednesday to violating accounting provisions in the Foreign Corrupt Practices Act.

An agreement to settle the charges would delay prosecution of the company by the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) for three years, as long as no problems are found by an independent monitor.

“We are pleased to have reached agreements with the DOJ and the SEC,” Sheri McCoy, CEO of Avon Products Inc, said in a statement.

The improper payments occurred between 2005 and 2008, and were discovered by the Avon corporation through an internal report in late 2005, the SEC said in a statement. Though the New York-based company’s corporate parent, Avon Products Inc, ordered Avon China to institute reforms, the subsidiary never did. A “full-blown” investigation into Avon China’s practices was not started until the CEO received a letter from a whistleblower, an SEC statement said.

“Avon’s subsidiary in China paid millions of dollars to government officials to obtain a direct selling license and gain an edge over their competitors,” Scott W Friestad, an associate enforcement director at the SEC, said in a statement. “The company reaped substantial financial benefits as a result.” He said that “years of additional misconduct” could have been avoided.

Avon, which markets itself as “the company for women”, is one of the oldest “direct sell” companies in the US. Founded in 1886, the company tasks its own consumers, or “independent Avon sales representatives”, with selling cosmetics to other consumers. Currently, six million people sell the company’s products.