Pressure increases for Avon in on-going bribery investigation

By Michelle Yeomans

- Last updated on GMT

Pressure increases for Avon in on-going bribery investigation

Related tags North america Americas Bribery

The global cosmetics firm is concerned that its business could be affected by the Securities and Exchange Commission's recent proposal of a much larger penalty to settle bribery allegations than it had initially expected.

Avon filed with the Securities and Exchange Commission last week, revealing that a proposed penalty from federal regulators in September was "significantly greater" than an offer it had made to settle the matter for $12 million to resolve the long-running investigation over the summer.

The firm is now concerned that the sum being proposed is of a 'significantly greater magnitude' and one that could put its business in hot water.

Avon has been embroiled in a bribery investigation since 2008, when it had contacted the regulatory bodies to notify them of possible inappropriate actions with officials at the company possibly violating the Foreign Currency Practices Act to bribe foreign officials in China and potentially in Brazil, Mexico, Argentina, India and Japan as well.

According to the Wall Street Journal, shares have already dropped by more than 20% since the filing and CEO Sherri McCoy has spoken out on there being "no shortage of challenges​" for the troubled company.

The cosmetics giant has already racked up to $340 million in legal and related costs since 2008, and has just recently reported a loss for its third quarter reflecting lower sales in North America and the Asia Pacific region.

Current financial state

Avon reported a poor third quarter for 2013 as a result of low sales in North America and weakness in emerging markets. In a quarter that the company frankly describes as “tough,” ​sales and net revenues both fell significantly lower than anticipated by analysts.

In total, revenue and sales both fell by 7% relative to 2012. This effect was most severe in the Americas, with the worst drops occurring in North America and Mexico. In Mexico, sales dropped by 5%, due in part to mistakes made by the company whilst pricing their inventory and fierce competition from competitors.

Staff numbers were also cut, with the number of company sales reps dropping by 3% over the course of the financial period.

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