Growing up in a village of 1,054 in central Wisconsin, I was not exposed to oil and gas companies, defense contractors, or other companies that tend to have a high FCPA risk profile.
Yet one person I did have contact with on a near daily basis, because she lived around the corner, was the "Avon Lady."
Thus, a bit of my youthful innocence was taken away upon learning last week that Avon Products Inc. (here) of all companies "suspended four executives amid an internal investigation into alleged bribery that began with the company's China operation" and "now involves a dozen or more countries" according to the Wall Street Journal. According to the WSJ, the executives suspended include the president, chief financial officer and top government affairs executive of Avon's China unit as well as a senior executive in New York who was Avon's head of internal audit until the middle of last year.
According to the WSJ, Avon's chief exectuive, Andrea Jung is a "corporate celebrity" in China and she has met frequently with "senior government officials."
The conduct at issue involves alleged "purchase of trips to France, New York, Canada, and Hawaii for Chinese government officials with ties to Avon's business." However, according to the WSJ, "the scope of the investigation has since widened to regions including Latin America, where the company garners the bulk of its sales and profits."
According to the WSJ, what sparked the investigation was "an employee who wrote a letter to Ms. Jung alleging improper spending related to travel with Chinese government officials."
Here is what the company had to say in its 2009 Annual Report (filed in March 2010):
"As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the FCPA and related U.S. and foreign laws in China and additional countries. The internal investigation and compliance reviews, which are being conducted under the oversight of our Audit Committee, began in June 2008. We voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation and compliance reviews and we are, as we have done from the beginning of the internal investigation, continuing to cooperate with both agencies and have signed tolling agreements with them.
The internal investigation and compliance reviews, which started in China, are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third-party agents and others, in connection with our business dealings, directly or indirectly,
with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing. At this point we are unable to predict the duration, scope or results of the internal investigation and compliance reviews."
Based on information that is publicly available, this potential FCPA enforcement action fits the mold of Lucent Technologies and UTStarcom (here), in that it appears focused on excessive travel and entertainment benefits to Chinese "foreign officials."
However, looking to the prior "on-point" Lucent and UTStarcom enforcement actions may not provide much useful guidance. But you probably already knew that, this is FCPA enforcement after all, where predictabilty and transparency are not distinguishing features.
If ever two FCPA enforcement actions were carbon-copies of each other, it would be the December 2007 enforcement action against Lucent and the December 2009 enforcement action against UTStarcom ("UTS") Both enforcement actions involved telecommunications companies, both enforcement actions principally concerned business conduct in China, both enforcement actions involved payment of excessive travel and entertainment expenses, and both enforcement actions were resolved through a DOJ NPA and an SEC settled civil complaint and consent decree. Despite these similarities the end results were significantly different.
UTS settled its matter by agreeing to pay $3 million in total fines and penalties for FCPA antibribery, books and records and internal control violations. However, Lucent settled its matter by agreeing to pay $2.5 million in total fines and penalties for merely FCPA books and records and internal controls violations – in other words no antibribery violations. This despite the fact that, per the government’s statement of facts and allegations, Lucent sponsored more trips than UTS (315 compared to 225) and spent more money on the problematic trips than UTS ($10 million compared to $7 million) to influence more foreign officials in the hopes of winning billion dollar and multi-million contracts. Also relevant is that UTS was charged with antibribery violations and paid a higher combined fine/penalty amount compared to Lucent (based on less severe allegations) despite the fact that UTS, per the DOJ’s release, voluntarily disclosed the conduct at issue – a factor noticeably absent in the DOJ’s Lucent release.