Beauty firm's business not pretty in China
Updated: 2014-12-26 12:54
By Amy He in New York(China Daily USA)
Avon, the world's largest direct seller of beauty products, pleaded guilty to violating the Foreign Corrupt Practices Act in China, joining other US companies that have violated the act in China in recent years.
Avon China, a wholly owned subsidiary of the New York-based cosmetics giant, said it conspired to violate provisions of the Foreign Corrupt Practices Act (FCPA), by giving more than $8 million in gifts, cash, non-business meals, travel, and entertainment to Chinese government officials. The company was trying to attain China's first direct sell license.
"Avon China and Avon admitted the improper accounting and payments and Avon entered into a deferred prosecution agreement to resolve the investigation," the US Department of Justice said in a Dec 17 statement.
It said that Avon and Avon China falsified the company's books and records through misrepresenting the nature and purpose of Avon China transactions. Gifts that were made to Chinese government officials were disguised as transactions and payments made for legitimate consulting services, according to the Justice department.
"The companies also admitted that in late 2005 Avon learned that Avon China was routinely providing things of value to Chinese government officials and failing to properly document them," the statement said. "Instead of ensuring the practice was halted, fixing the false books and records, disciplining the culpable individuals, and implementing appropriate controls to address this problem, the companies took steps to conceal the conduct, despite knowing that Avon China's books and records, and ultimately Avon's books and records, would continue to be inaccurate."
Avon is the latest US company failing to comply with the enforcement of the FCPA, with the news of its violation coming just two days after another US company was charged for similar offenses. On Dec 15, the Justice department said that Massachusetts-based Bruker Corporation, a scientific instrument manufacturer, paid approximately $230,000 to Chinese officials to win business.
The US Securities and Exchange Commission said that like Avon, Bruker falsely recorded transactions in its books as legitimate transactions and marketing expenses. The company paid $2.4 million to settle the SEC's charges.
"Bruker's lax internal controls allowed employees in its China offices to enter into sham 'collaboration agreements' to direct money to foreign officials and send officials on sightseeing trips around the world," said Kara Brockmeyer, chief of the SEC Enforcement Division's FCPA Unit, in the release.
JPMorgan Chase & Co, the largest financial institution in the US, is under SEC investigation regarding potentially corrupt hiring practices in China. The Justice department is looking into whether the bank hired children of China's elite in order to win business from the Chinese government.
In another FCPA-related case, a former managing director from Morgan Stanley had been found guilty of evading internal accounting controls in order to enrich himself and a Chinese government official. The Justice Department said in 2012 that Garth Peterson, who managed Morgan Stanley's real estate business, lied and cheated in order to attain personal wealth. Morgan Stanley was not accused of wrong doing.
GlaxoSmithKline, the US pharmaceutical giant, was charged in September by Chinese courts for bribing hospitals and doctors, and was fined $500 million, the largest-ever corporate fine in China, according to Xinhua. Though the company is still being investigated in the US and UK and has not been charged by the Justice department, it could potentially be fined in the US as well.
Chinese authorities had accused Glaxo executives of ordering employees to bribe companies and individuals on a "large scale" to boost the company's sales in China, as the country's pharmaceutical market boomed with a growing middle class and aging population. Five of Glaxo's executives, including a former China manager, received suspended prison sentences.