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Suit Alleges Avon Execs Knew About China Bribes

Chris Matthews of the Wall Street Journal reported yesterday that an amended shareholder lawsuit accuses Avon Products of paying a big severance to a former head of internal audit in 2006 to buy his silence about bribes in China.

Aruna Viswanatha of Reuters also had this report.

According to Viswanatha's story, 'The former global internal audit director, Fabian LaPresa, threatened to turn over to the U.S. Securities and Exchange Commission a draft internal report prepared by an Avon auditor that allegedly showed executives paid bribes to Chinese government officials as the company sought permission to sell products door-to-door, the lawsuit said.'

The extra severance benefits allegedly provided to LaPresa for his silence, according to the lawsuit, could only have been approved by the company's former finance chief Charles Cramb, suggesting Cramb too knew of the internal report as early as 2006, Reuters said.

Cramb was named vice chairman in 2011 but was fired in January this year. A story in the Wall Street Journal linked him to reports that the China compliance issues were known since 2005.

Joe Palazzolo and Emily Glazer at the Wall Street Journal said in February that the DOJ had gone to a grand jury with evidence of FCPA violations against U.S. executives at Avon Products.

The WSJ story, based on at least three unnamed sources, said the focus of the grand jury was a '2005 internal audit report by the company that concluded Avon employees in China may have been bribing officials.'

Avon disclosed the potential FCPA violations in 2008. Two years earlier, the company won China's first license given to a Western company to sell products door-to-door.

In May last year, Avon suspended four executives allegedly involved in the bribery in China. Three were in China and one was in New York.

CEO Andrea Jong said in December she would resign. Her departure apparently was due to Avon's financial performance. She hasn't been linked to the bribery allegations.

Avon's internal investigation launched in October 2008 apparently targeted the payment of improper promotional expenses that benefited Chinese officials.

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