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Avon unit pleads guilty to bribing Chinese officials

Bloomberg News

Avon Products Inc.'s Chinese subsidiary bribed local officials with Gucci bags and foreign travel to sell products directly to the nation's consumers, the U.S. said as the company ended a six-year federal investigation with a guilty plea and $135 million in fines.

Avon is also subject to a deferred prosecution agreement requiring it to adopt "rigorous" internal controls and avoid further violations for three years before the case will be dropped. The plea, which includes an outside monitor, was announced at a hearing Wednesday in Manhattan federal court.

The world's largest door-to-door seller of cosmetics had said in May it would settle the probe. Its Chinese unit pleaded guilty to conspiring to violate U.S. anti-bribery law by falsifying records of a four-year scheme to pay off Chinese authorities, who ended a direct sales ban in 2006.

"For years in China it was 'Avon calling,' as Avon bestowed millions of dollars in gifts and other things on Chinese government officials," Manhattan U.S. Atty. Bharara said. "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."

Avon China provided gifts and entertainment to Chinese officials "and falsified these transactions on its books and records," Avon general counsel Jeff Benjamin told U.S. District Judge George Daniels. "Avon China's conduct in this regard was wrong."

Three Avon China executives and two lawyers paid at least $8 million in gifts and other gratuities to local authorities to circumvent China's direct sales ban, the government said. The gifts allegedly included meals, expenses and travel, as well as the "personal luxury items like designer wallets, bags or watches." In return, Avon China obtained direct sales licenses and favorable judicial treatment.

Included was an 18-day sightseeing trip in 2006 for four Chinese officials, with visits to cities including New York, Montreal, Las Vegas and Washington, the U.S. said. Avon China employees spent hundreds of dollars on accessories, such as an $800 Gucci bag, and $8,100 on meals and entertainment in 2006.

The payments were hidden on company records as "business entertainment," "employee travel" or "public relations business entertainment," according to the government.

The Securities and Exchange Commission filed a parallel lawsuit Wednesday, describing how Avon allegedly obtained the first sales license in March 2006 after it "provided over $100,000 in cash or things of value to government officials."

New York-based Avon learned of potential wrongdoing at the subsidiary in late 2005, the SEC said, but proposed reforms were never put in place.

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