Question

See the “Avon Products, Inc.” case for this question.

If the citizens of certain foreign countries believe that the payment of bribes is an acceptable business practice, is it appropriate for U.S. companies to challenge that belief when doing business in those countries? Defend your answer.

Answer 1

Yes it is appropriate for U.S. companies to challenge that belief. The Foreign Corrupt Practices Act, 1977 specifically prevents such activities. The Foreign Corrupt Practices Act of 1977 is a United States federal law that prohibits U.S. citizens and entities from bribing foreign government officials to benefit their business interests.

The FCPA is applicable worldwide and extends specifically to publicly traded companies and their personnel, including officers, directors, employees, shareholders, and agents. Following amendments made in 1998, the Act also applies to foreign firms and persons who, either directly or through intermediaries, help facilitate or carry out corrupt payments in U.S. territory. The FCPA is jointly enforced by the Department of Justice and Securities Exchange Commission.

Case specific to Avon:

Since 2008, the conduct of various employees and executives of Avon has been investigated for possible violations of the law, including possible bribery and violations of the Foreign Corrupt Practices Act. Avon began a probe of its China division after allegations of bribery in June 2008. At least four executives, both in Asia and in the United States, were suspended in 2010, and later fired for their roles in the activities being investigated. According to The New York Times, Avon has spent over $170 million on legal fees and costs related to the investigation: $59 million in 2009 and $95 million in 2010, and $22.5 million for the first quarter of 2011. The Times reported that the final tally may be close to $250 million, after which Avon would report the findings to the United States Department of Justice and the Securities and Exchange Commission (SEC) and try to negotiate the penalties that those entities may impose. On February 24, 2011, Avon filed a report with the Securities and Exchange commission highlighting the investigation as a corporate risk factor that could cause investor loss.

In 2014 Avon settled the bribery charges for a total of $135 million; $68 million in criminal penalties, with the remainder in interest, disgorgement, and fines from a civil case brought by the SEC,

The fact remains that it is fundamentally wrong to give or take bribes. The cost of litigations, loss of jobs, not to mention the negative publicity as well as loss of investor confidence are significant impacts of violating the law.