Canada: Avon Settles FCPA Related Class Action For $62 Million: Lessons For Canadian Companies On Undertaking Timely Investigations

Avon Products Inc. (Avon) and a group of its shareholders reached a $62 million settlement last month in a derivative class action law suit alleging securities fraud. The plaintiffs claimed that Avon and its officers had concealed that the company had given bribes to Chinese government officials by various means, including gifting Gucci bags and improper travel expense payments. This settlement follows the December 2014 payment of a total of $135 million in fines to both the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) for violating the Foreign Corrupt Practices Act (FCPA).


The class action claimed that Avon artificially inflated the price of its shares by intentionally misleading shareholders about the company's compliance with the FCPA. In particular, the plaintiffs alleged that the former CEO and former Chief Financial Strategy Officer knew that Chinese officials were being bribed years before the company publically disclosed in 2008 that it was investigating possible FCPA violations. The pleadings also alleged that Avon embraced a corporate culture that was "actively hostile" to effective oversight and hid its dependence on corrupt activities to boost sales revenues.


Class Action Liability Separate From Enforcement Actions

Increasingly, public companies not only have to pay hefty criminal and civil fines to enforcement agencies after years of costly internal and authorities-driven investigations, but then must also deal with derivative class action law suits brought by plaintiffs' law firms specializing in such actions. The amounts claimed in derivative law suits are often in excess of the fines imposed by the law enforcement authorities.

On the enforcement front, Avon had to contend with the criminal and civil aspects of the FCPA violations for over eight years before convincing the authorities that $135 million in criminal and civil penalties and a deferred prosecution agreement should result in the conclusion of the FCPA investigations into Avon's China operations. Of that amount, $68 million was paid to settle the DOJ's criminal investigation and $67 million settled the SEC's civil investigation. As part of the settlement, Avon was also required to retain an independent monitor to review its FCPA compliance program for a period of 18 months, followed by an additional 18 months of self-reporting on its ongoing compliance efforts.

Avon then entered into yet another round of settlement negotiations in response to a claim by some of its shareholders' lawyers. Avon decided to settle that class action for $62 million, despite the fact that the court granted its first motion to dismiss on the grounds that the plaintiffs had failed to demonstrate that Avon made any false statements regarding the use of bribes. Avon brought another motion to dismiss the plaintiffs' amended complaint, which apparently also had a considerable chance of success according to the statements made to the judge by the shareholders' lawyers in explaining the fairness of the settlement for the plaintiffs. Despite the frailties in the shareholder class action, Avon thought it best to reach an agreement to settle. In many cases, the serious disruption to the management of the company of a class action law suit, even one that has significant weaknesses, justifies a settlement.

Robust and Effective Internal Controls

Dealing with criminal and civil enforcement proceedings for several years, followed by having to defend derivative class action law suits, can be a severe distraction for a company and its management. Companies can avoid this disruption by implementing anti-corruption compliance programs, including strict management oversight of overseas operations.

However, having an anti-corruption compliance program on paper is not enough; the program must be robust and effectively implemented to adequately mitigate risks – particularly in high risk countries such as China. As we have noted previously, companies operating in China face high anti-corruption risks, and the slightest indication of wrongdoing should necessarily lead to a thorough investigation. In some cases, enforcement authorities will consider involving independent counsel with experience in conducting such investigations followed by the immediate implementation of remedial measures to be the only appropriate response.

When Avon first learned about potential FCPA problems in China through an internal audit report, it consulted an outside law firm but did not carry out a thorough investigation. Instead, it simply directed that internal control measures be instituted at the subsidiary. However, no such measures were taken, and there was no follow-up on the compliance initiatives. Avon began a full-blown internal investigation a few years later only after the CEO received a whistleblower letter. However, by this time, much of the damage had been done.

An appropriate early response commensurate with the level of risk of non-compliance is critical. Failure to conduct a thorough internal or independent investigation using outside experts when  the various risk factors warrant one heightens the risk of scrutiny by enforcement authorities and derivative class actions further down the road. Companies should consider risk factors such as the previous history of anti-corruption violations at the company, the geographic and political profile of the country, the nature of the industry, interaction with government officials, use of agents and consultants, methods of compensation for employees, agents and consultants, and effectiveness of the compliance program in responding to any indications of wrong-doing by company officials.


To minimize compliance costs, companies often choose to not respond appropriately, only to discover later that the enforcement authorities believe that the violation could have been uncovered if the company had undertaken a timely, thorough and independent investigation. The consequences of seeking to minimize disruption and costs in the first instance can result in more time-intensive and expensive steps being necessary later, including cooperating with enforcement authorities in conducting a more thorough internal investigation, responding to subpoenas and search warrants, paying hefty fines, and responding to class action law suits seeking enormous amounts for damages claimed to have been inflicted on a certain group of shareholders. The old proverb "a stitch in time saves nine" should be heeded by compliance officers seeking to galvanize internal corporate response to possible anti-corruption violations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.