In its most recently filed Form
10-Q, Avon Products, Inc. detailed efforts
to reach a settlement with the SEC and the Department of Justice on compliance with the Foreign
Corrupt Practices Act (FCPA). As previously
reported in October 2008, the company voluntarily contacted the SEC and DOJ to
advise both agencies of its internal investigation, overseen by the audit
committee, focused on FCPA compliance issues and reviews. The company said that has cooperated and will
continue to cooperate with investigations of these matters by the SEC and the
DOJ. The company has, among other things, signed tolling agreements, responded
to inquiries, translated and produced documents, assisted with interviews, and
provided information on its internal investigation and compliance reviews,
personnel actions taken and steps taken to enhance corporate ethics and
compliance program.
As
far as the internal investigation and compliance reviews, the company noted
that they have focused on reviewing certain expenses and books and records
processes, including, but not limited to, travel, entertainment, gifts, use of
third-party vendors and consultants and related due diligence, joint ventures
and acquisitions, and payments to third-party agents and others, in connection
with our business dealings, directly or indirectly, with foreign governments
and their employees. The internal investigation and compliance reviews of these
matters are substantially complete. In connection with the internal
investigation and compliance reviews, certain personnel actions, including
termination of employment of certain senior members of management, have been
taken, and additional personnel actions may be taken in the future. In
addition, the company said that it continues to enhance its ethics and
compliance program, including FCPA compliance-related training and FCPA
third-party due diligence programs.
As
previously reported in August 2012, the company is in talks with the SEC and the
DOJ regarding resolving the government investigations. As previously reported
in its Form 10-Q for the period ending June 30, 2013, the company made an offer
of settlement to the DOJ and the SEC in June 2013. Although that offer was
rejected by the DOJ and the staff of the SEC, the company accrued the amount of
its offer in the second quarter of 2013. In September 2013, the SEC staff proposed
terms of potential settlement that included monetary penalties of a magnitude
significantly greater than the company’s earlier offer.
The
company disagrees with the SEC staff's assumptions and the methodology used in
its calculations; and believes that monetary penalties at the level proposed by
the SEC are not warranted. The firm anticipates that DOJ also will propose
terms of potential settlement, although they have not yet done so. If the DOJ’s
offer is comparable to the SEC’s offer, and if the company were to enter into
settlements with the SEC and the DOJ at such levels, observed the 10-Q, the company’s
earnings, cash flows, liquidity, financial condition and ongoing business would
be materially adversely impacted.
Although
the company said it is working to resolve the government investigations through
settlement, these discussions are at early stages and at this point the success
of these efforts is uncertain, as is the timing or terms of what such
settlements would be. The company expects that any settlements with the SEC and
DOJ will include civil and/or criminal fines and penalties, and may also
include non-monetary remedies, such as oversight requirements and additional
remediation and compliance requirements. The company may be required to incur
significant future costs to comply with the non-monetary terms of any
settlements with the SEC and the DOJ.
There
can be no assurance that the company’s efforts to reach settlements with the
government will be successful. If settlements are not reached with the SEC
and/or the DOJ, the company cannot predict the outcome of any subsequent
litigation with the government; but added that any such litigation could have a
material adverse effect on corporate earnings, cash flow, liquidity, financial
condition and ongoing business.
Finally,
the third quarter 10-Q noted that the company has not recorded an additional
accrual beyond the amount recorded in the second quarter of 2013 because at
this time, in light of the early stages of discussions of possible settlement
terms with the government, the magnitude of the difference between the earlier
offer and the amount proposed by the SEC and the absence of a proposal from the
DOJ, and the inability to predict whether the company will be able to reach
settlements with the government, the firm cannot reasonably estimate the amount
of additional loss above the amount accrued to date.
Until
these matters are resolved, either through settlement or litigation, the
company expects to continue to incur costs, primarily professional fees and
expenses, which may be significant, in connection with the government
investigations. Furthermore, under certain circumstances, the company may also
be required to advance and/or reimburse significant professional fees and
expenses to certain current and former company employees in connection with
these matters.