Women’s Make Up Retailer, Avon, has been in the news recently for a large FCPA action against the company. The following article is an interesting recap of the $135 million Avon FCPA fine for $8 million in bribes falsely recorded as T&E or vendor payments. The long and short of the story is that Avon’s indirect subsidiary in China intentionally disguised certain payments of things of value. They accomplished this by dividing the payments into smaller payments that were insignificant on a standalone basis, but large in aggregate.
The enforcement action against Avon lasted a long time and it appears that Avon’s failure to take steps to stop and remedy the issues in China after it learned of the problems resulted in the higher settlement amount. Implementing automated monitoring and analysis is so easy and quick, there is no impediment for companies not to act quickly to gain greater insight into activities and begin a policy of “inspecting what is expected”. Little to no IT involvement is required and most companies can be leveraging automated monitoring and analysis within three weeks.
For FCPA monitoring in particular, this is why a focus on payment size and payment recipients is insufficient. Oversight Insights On Demand™ for FCPA/Anti-Bribery and Corruption Risk focuses on payment and entity behaviors in order to identify high risk transactions. We focus on trends of payments and automatically aggregate payments in order to understand the overall impact and materiality of the payments. We don’t rely on “easy” identifiers like payments made to government entities because we know that these payments are going to occur in the course of normal business. It is more important to understand patterns and types of payments within the expenditures and examine how “normal” those expenditures are. Truly effective anti-bribery and corruption efforts cannot rely exclusively on preventive controls and approvals. They are simply too easy to circumvent.
For a fully comprehensive approach, we recommend a game plan that leverages both preventive and detective controls. With hefty FCPA fines and a company’s reputation at stake, why risk it? My guess is that Avon could monitor their T&E for less than $100,000 per year even if FCPA monitoring were included. FCPA for AP would be similarly inexpensive.
Of course, one could argue that $135 million is a small price to pay for access to one of the first direct selling licenses in China (worth somewhere above $1 billion per year and growing over time). However, in addition to the fine there is the added expense of 18 months of external monitors that will cost both monitor time (probably more than $800 per hour) and the internal costs of dealing with the monitor and putting in place post-facto systems. The challenge in the real world is that someone in these companies needs to focus on the actions necessary to be fully compliant. When the cost of the fine is so much less than the advantages gained, many cynics will view FCPA violations as the cost of doing business.