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Avon China corruption investigation is expanded

By Simon Pitman , 30-May-2011
Last updated on 31-May-2011 at 17:21 GMT

Avon Products confirmed earlier this month in an SEC filing that it is expanding its corruption investigation in China, while federal prosecutors yesterday stated they want to interview more staff.

Yesterday US Federal prosecutors in New York City confirmed that they had questioned a number of former Avon staff recently, and also confirmed that they wanted to expand the investigation to question yet more staff – according to a report in US newspaper, The Wall Street Journal.

The report also stated that the Justice Department is looking into the case, specifically to asses violations of the Foreign Corrupt Practises Act (FCPA).

The allegations of corruption and bribery amongst China executives first came to light in 2009, and, instead of being settled quietly, the investigation has escalated as evidence of wider spread corruption has come to light.

Four execs suspended and later fired

Initially the company announced the suspension of four executives in April of last year, following an investigation that was first initiated when the matter came to light, in 2009.

Those four executives – three of whom were based in China, the other being the company’s chief of global internal audit and security – were all fired over bribery charges that included improper use of travel and entertainment expenses.

But at the time Avon said it would be making more in depth investigations into the charges, which challenge that the executives flouted the FCPA.

Mounting costs make loom over small China turnover

The SEC filing at the beginning of this month stated that an investigation of possible bribery of foreign officials in China, citing the fact that the four executives who had previously been under suspension have now been fired.

The cost of the internal investigation has taken its toll on Avon, leading to an additional bill of almost $100m last year, while Avon estimates that the investigation expenses will be around the same this year.

This figure is particularly significant as China still only accounts for a small slice of the company’s total revenues. In 2010 the loss of its direct sales license meant that total sales only came in at $229m, compared to total net sales of $10.86bn for the group as a whole.

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