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Avon Faces FCPA-Related Derivative Suit

New York, NY: An Avon shareholder has filed a federal lawsuit against officers and directors of Avon Products Inc, alleging breach of fiduciary duty for failing to prevent alleged overseas bribery.

Specifically, the shareholder derivative suit filed by Murray White of Florida, an Avon investor for more than a decade, claims that shareholders have been "severely damaged" by individual directors' failure to monitor the company's costly Foreign Corrupt Practices Act (FCPA) compliance problems. The suit claims that Avon failed to implement effective internal controls to prevent its representatives from offering bribes in places like China, where the risk of corruption is high, the lawsuit alleges. Avon had previously disclosed it is investigating potential FCPA violations in China and more than a dozen other countries, according to media reports.

In the late 1990s, China had imposed a ban on door-to-door selling. This ban forced Avon to market its products in stores. However, in 2006 regulators allowed Avon to use its traditional house calls sales strategy. The company's October 2008 disclosure said the improper payments involved entertainment, travel and other unnamed expenses.

According to a media report, the company suspended four employees in April 2010, pending an internal bribery investigation, which by that time involved activity in more than a dozen countries. Three executives in China and another in New York were placed on administrative leave.

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Published on Jul-29-10


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