The Lesson of Avon: Ignoring Export Violations Is an Expensive Strategy

Kelby Woodard | April 8, 2012 | Export Compliance
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Blindness-Willful-Woman_covering_eyesWe have all heard the excuses. That is the way business is done here. We can't impose our corporate values on our overseas partners. If we did that, we would not be competitive.

And of course the most condescending message of all: You just don't get it, do you?

The list of excuses goes on ad nauseam. At some point in our careers we may have even believed these excuses were valid. As a result, all of the resources we spend to write elaborate global ethics policies and increase awareness of the complex web of laws regarding corruption and bribery under the Foreign Corrupt Practices Act are often treated as a kind of unattainable utopia.

That may have been exactly what the executives at Avon thought. (See, Avon Pays $135 Million for China FCPA Resolution.)

In case you missed it,  Avon fired its vice chairman after a four year investigation. In 2011 the fallout included four key executives including the head of global internal audit and security. (As an aside, I think this case is yet another reason why the global security team should be independent of the audit team. Conflict of interest anyone?)

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Don't Let This Happen to You!

The problem started with revelations from an audit report in 2005 that called in to question payments being made to Chinese officials as part of Avon's Asian expansion. That report was swept under the rug and never reported to the Board of Directors. That is until an internal investigation was conducted in 2008 and more issues were raised by an employee of the China operation.

The result of this investigation was a drop in Avon stock price, the expense of $225 million and counting, and the reputation of an American icon that will be hard to regain. As if that was not enough, a federal grand jury is now contemplating criminal charges against more key executives.

It is not apparent that these executives physically made these questionable payments or even approved them. The reason they are the subject of a federal grand jury is a little thing our lawyer friends like to call willful blindness.

Ignoring the Warning Signs of an Export Violation

Yes executives beware. You can be liable in overseas bribery cases even if you were not directly involved in approving illegal payments or even if you did not attempt to hide evidence of bribes.

Under willful blindness, you can be found guilty of simply taking steps to avoid learning of wrongdoing. While this is undoubtedly difficult to prove, it should be enough to gain the attention of occupants of corner offices throughout the world. (See the blog post, No Bull: Export Compliance Means Watching for Red Flags.)

Ensuring your company is ethical and compliant in the exciting and profitable world of global trade is serious business. To be successful in the new world economy requires the attention of serious global security professionals and the use of independent reviews of operations. If your company does not employ either one, then your company may have already succumbed to willful blindness.

In March of this year, a shareholder lawsuit was filed alleging that the head of internal audit who left the company in 2006 was the beneficiary of a hefty severance package. The purpose of this package may have been to ensure he keep quiet about the growing allegations of wrongdoing in Avon's global operations. In turn he has threatened to disclose damning memos to the Security and Exchange Commission that would of course further erode investor confidence in the company.

In other words the drama continues for us global security junkies. Stay tuned.

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