Shedding light on what the MLM industry gets up to in China, comes news today that Avon has plead guilty to conspiring to violate the Foreign Corrupt Practices Act (FCPA) and the Securities Exchange Act.

Two separate cases were filed by US regulators, one by the SEC and another the result of joint-investigation by the US Attorney’s Office, the Department of Justice and the FBI.

For those unfamiliar with the
Foreign Corrupt Practices Act
, it

was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.

In
the SEC’s case
, the regulator alleged that Avon first became aware of potential breaches of the FCPA in late 2005.

That same year

Avon received approval to test direct selling in China in 2005, and in March 2006, it received the first direct selling business license.

Upon learning off the potential breaches, Avon

management consulted an outside law firm, directed that reforms be instituted, and sent internal audit back to follow up.

Those reforms however were never instituted. Instead, Avon management swept the matter under the rug.

In 2008 a Chinese whistleblower contacted the company, and it was only then that Avon launched an investigation into the potential breaches.

As to the breaches themselves,

The SEC’s complaint alleges that the Chinese subsidiary made $8 million worth of payments in cash, gifts, travel, and entertainment to various Chinese officials to gain access to officials drafting and implementing direct selling regulations in China, to be among the first allowed to test the regulations, to be the first to receive a direct selling license, and, subsequently to keep the clean corporate image required to retain the license.

Oh Avon…

Bribing officials for access to those writing Chinese MLM laws, jumping to the front of the license list and “clean corporate image” license? I’m not a lawyer but that sounds like 
exactly
the sort of stuff FCPA was passed into law to prevent.

Some examples of payments alleged in the complaint include payments for travel within China or to the United States or Europe, corporate box tickets to the China Open tennis tournament, gifts of Louis Vuitton merchandise, Gucci bags, and Tiffany pens, and $1.65 million for meals and entertainment.

The complaint also alleges payments made to avoid fines or negative news articles that might have impacted Avon’s corporate image and affected the Chinese subsidiary’s direct selling license.

And it gets worse. Not only were Avon engaged in all of the above, they were also actively working to conceal their crimes.

In some instances, the payments were concealed by falsely recording the transactions as employee business expenses or as re-imbursement of a third-party vendor.

In other instances, the records for the payments set forth almost no detail at all.

The resulting books and records did not allow a reviewer to ascertain

🤖 Quick Answer

What violations did Avon plead guilty to?
Avon pleaded guilty to conspiring to violate the Foreign Corrupt Practices Act (FCPA) and the Securities Exchange Act. The company faced two separate cases filed by US regulators: one by the SEC and another resulting from a joint investigation by the US Attorney's Office, Department of Justice, and FBI.

What is the purpose of the Foreign Corrupt Practices Act?
The Foreign Corrupt Practices Act was enacted to make it unlawful for certain classes of persons and entities to make payments to foreign government officials for the purpose of assisting in obtaining or retaining business opportunities.

When did the SEC allege Avon first became aware of potential FCPA breaches?
According to the SEC's case, Avon first became aware of potential breaches of the Foreign Corrupt Practices Act in late 2005, the same year the

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