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Avon Faces Legal Challenges and Corporate Risk from Bribery Allegations and Investigations

In February 2014, Avon disclosed to the SEC concerns over corporate risks that could affect investor interests. The company faced an investigation into bribery allegations arising from its China operations, incurring substantial legal fees, totaling $5 million initially, followed by $22.5 million in early 2011. Sales in China dropped significantly, leading to executive firings and an internal probe into compliance with anti-bribery laws. As of December 2013, Avon began searching for a new CEO, reflecting ongoing turmoil in its operational strategy and management.

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Avon Faces Legal Challenges and Corporate Risk from Bribery Allegations and Investigations

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  1. Appendix A FEB 24- AVON filed a report with The Securities and Exchange Commission (SEC) highlighting the event as a corporate risk factor that could cause investor loss. JUNE- An investigation began regarding allegations of bribery In the China division which extended to other countries (an allegation of improper expenses for items like travel and entertainment on behalf of a Chinese government official. AVON spent $5 million on legal fees and costs related to the investigation. AVON won a direct selling license and was approved to return to China. AVON spent $22.5 million on legal fees and costs related to the investigation in 1st quarter of 2011. 4th quarter sales of AVON’s China business posted an 8 percent drop in revenue and an operating loss of $3 million. MAY 5- AVON announced firing 4 executives. 2006 2007 2008 2009 2010 2011 2012 OCT- AVON discloses that the U.S. government is conducting a probe into whether it broke anti-bribery laws and disclosure laws. At least 4 AVON executives were suspended (in both Asia and U.S.) AVON said they widened the probe to review its practices related to FCPA and related U.S. and foreign laws in additional countries. U.S. sales hit $2.62 billion, only to start shrinkingin the following years. DEC 13- AVON announced it initiated a search for anew chief executive. CEO Andrea Jung announced stepping down and staying on as executive chairman. OCT- AVON launched an internal investigation into possible foreign Corrupt Practices Act (FCPA) violations in China (appeared to be linked to the payment of improper promotional expense). AVON spent $95 million on legal fees and costs related to the investigation. AVON reports the number of North American “reps” fell 8 percent in 2011 and says it is planning job cuts.

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