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Grand jury hears Avon FCPA case

Cosmetics company accused of breaking foreign bribery laws

Avon Products Inc. is learning that makeup can’t conceal all blemishes.

Last fall, federal prosecutors began investigating the New York-based cosmetics company for possible violations of the Foreign Corrupt Practices Act (FCPA). Today the Wall Street Journal reported that prosecutors recently presented evidence to a grand jury in the case against Avon.

Prosecutors are focusing on a 2005 internal audit report, in which Avon determined that employees in China may have paid hundreds of thousands of dollars to bribe Chinese officials. Avon previously had claimed it first learned of the bribery allegations in 2008, at which time it launched its own investigation into the misconduct.

The Federal Bureau of Investigation and U.S. prosecutors are investigating whether current or former Avon executives ignored the 2005 audit’s findings. Two people familiar with the matter told the Wall Street Journal that Avon executives didn’t disclose the audit’s findings to the board until 2008.

Avon executives could be held liable for the alleged bribery through a concept known as willful blindness, or avoiding learning of wrongdoing, even though they didn’t authorize illegal payments or try to hide evidence of the bribes.

Several high-ranking Avon executives were terminated following the probe. The company fired Vice Chairman Charles Cramb on Jan. 29, and it also fired Ian Rossetter, head of global internal audit and security, in May 2011. Last year, Avon fired three of its Chinese executives, including the general manager of the company’s Chinese unit, the CFO of the Chinese unit and the head of corporate affairs for China.

The case also has tarnished the reputation of Avon’s 12-year CEO Andrea Jung, who said in December 2011 that she would step down from her post once the company found a replacement.

Read the Wall Street Journal for more about the case.

Ashley Post

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