FASHION LAW RECAP: AVON PUTS A LEASH ON THEIR CHINESE SUBSIDIARY
Back in December 2014, the United States Securities Exchange Commission (SEC) has devastated Avon’s massive success in the foreign market by investigating the New York-based company’s ethical business practices. The SEC finds the beauty goods company’s subsidiary in China guilty of distributing $8 million in bribes to Chinese officials in exchange for licenses to sell directly to consumers; the goodies included designer wears, like Louis Vuitton merchandise, and entertainment, like box tickets to the China Open. Thus, the company is fined for $135 million by the SEC.
The briberies violate the Foreign Corrupt Practices Act, which shows that Avon failed to put in a system that detects and prevents bribery; the gifts have been recorded as employee business expenses and vendor payments. These kickbacks have won the company one of the first direct-selling business licenses in China at as early as March 2006, which SEC’s Scott W. Friestad comments “[helped] gain an edge over their competitors, and the company reaped substantial financial benefits as a result.” The company website states that Avon makes an annual revenue of $10 billion and has 6 million sales representatives globally.
According to a company settlement, the company has agreed to have a corporate compliance monitor for 18 months as part of the $135 million SEC and Justice Department settlement.