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Avon settles bribery charges for $135M

Avon settles bribery charges for $135M (photo: AVON)Travel, entertainment and gifts continue to be a central focus of FCPA enforcement. Earlier this month, and last month, the Commission filed settled FCPA actions centered on these items. Now the SEC and the DOJ have settled with Avon Products, Inc. in a case which again centers on these same items.

Avon Products is a global manufacturer and marketer of beauty products. The company sells product primarily through direct marketing by over 6 million active independent sales representatives. The firm is active in over 100 countries.

In the PRC company subsidiary Avon Products China began operations in 1989. In 1999 the firm hired an executive to bring Avon to the attention of relevant organizations and develop business. The executive became a vice president in the corporate affairs department of the China subsidiary.

In 1998 when China banned all direct selling the company had to alter its typical business model. By 2001, however, China agreed to permit direct selling as part of its admission to the WTO. Avon wanted to influence that process and obtain the first license. Employees in the corporate affairs department furnished government officials with gifts, entertainment and travel to influence the laws and the companies to be selected. In 2003 the company was told informally that when China opened its markets to direct selling Avon China would be the first to receive a test license.

The next year Avon China retained the services of a third-party consulting company to manage public relations related affairs with the government and others. The contract did not contractually bind the consulting company to comply with the FCPA. In April 2005 Avon China was the first to receive test approval to conduct direct selling in certain areas of China.

In April 2005 Avon’s global internal audit flagged gifts to government officials and inadequacies in related recordkeeping as an area of concern. Eventually a report was prepared noting that it was common for Avon China to offer gifts and meals to various government officials and that a majority of the government related activities at the subsidiary were not adequately documented. The legal department took over the inquiry. After additional field work, and consulting a major law firm, the legal and government affairs department told the law firm the company had “moved on.”

In December 2005 China’s new direct selling regulations became effective. For the company to obtain a license it was required to satisfy a number of conditions including “a good business reputation” requirement. At the same time the General Counsel decided to reform certain practices at Avon China. A policy was initiated which required the creation of a log listing government officials and entertainment and gifts. The reforms also required contracts to contain certain representations and warranties. The reforms did not require a description of the business purpose of any meeting with government officials. None of the measures were implemented.

In March 2006 Avon obtained the first direct sale license. In April the company provided over $100,000 in cash or items of value to government officials. At the same time the company implemented a “zero penalty” policy under which cash and items of value were given to government officials and media to reduce or eliminate potential fines and avoid negative news articles.

In May 2008 a terminated Avon China executive wrote to the CEO of the company alleging improper payment to Chinese government officials over several years. Eventually the letter was forwarded to the audit committee which launched an internal investigation and self-reported to the SEC and the DOJ.

Overall, Avon China provided about $8 million in cash and items of value to government officials between 2004 and 2008. Those included payments for meals and entertainment, tickets to events, travel, and to avoid fines. The Commission’s complaint alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

To resolve the matter with the SEC the company consented to the entry of a permanent injunction based on the Sections cited in the complaint. In addition, the firm agreed to pay disgorgement of $52,850,000 and prejudgment interest. The Commission considered the cooperation and remedial efforts of the company in the settlement.

To resolve the action with the DOJ the parent company entered into a deferred prosecution agreement after admitting responsibility. Avon China pleaded guilty to an information charging conspiracy to violate the accounting provisions of the FCPA. The Avon entities will also pay criminal penalties totaling $67,648,000. In total the firm agreed to pay $135,013,013 to resolve the actions.

JDSupra       December 18, 2014

 
Italy police break up international money laundering ring in Rome

Italy police break up international money laundering ring in Rome (photo: ilcorrieredellacitta.com)Italian finance police on December 17 arrested 17 people accused of running an international money laundering ring through a British-based money transfer services company which was used to shuttle illegal proceeds abroad, mostly to China.

Managers of Rome branches of Sigue Global Services Ltd. were among those suspected of international conspiracy and money laundering that investigators said amounted to more than 1 billion euros ($1.24 billion) in just over two years.

The bulk of the cash leaving Italy went to China in hundreds of thousands of transactions just under the limit - now set at 1,000 euros - at which stringent money laundering regulations are applied, finance police Colonel Claudio Petrozziello told reporters.

No taxes were paid on any of the money transferred, causing a loss of about 500 million euros to the Italian state, Petrozziello said.

A man who identified himself as a manager at Sigue's British headquarters said the company's branches in 50 countries operated independently and local owners signed contracts pledging to respect money laundering laws.

Sigue "is not involved in any criminal activity", said the manager, who spoke on condition of anonymity because he said he was not authorised to speak to the media.

Italy, the euro zone's third-biggest economy, has one of the highest rates of tax evasion in the European Union. Earlier this year, the country's Court of Accounts estimated it to be as much as 130 billion euros per year.

"We were shocked by the numbers," Rome prosecutor Nello Rossi, who led the investigation, told reporters. "It's money laundering of a scale that saps the country's wealth."

With Italy's economy steeped in its third recession in six years, Italian Prime Minister Matteo Renzi plans to reap 3.5 billion euros in revenue by cracking down on tax evasion next year.

Of the 18 warrants issued, some were held under hour arrest rather than taken into custody. One man, the regional director of Sigue's activities around Rome, was not found and was suspected to be in Greece, investigators said.

Reuters         December 17, 2014

 
EU agrees tougher money-laundering law

EU agrees tougher money-laundering law (photo: European Commission)Owners of secretive companies in Europe will have a harder time keeping out of the public eye, EU negotiators agreed Wednesday, in another blow against opaque business practices after the LuxLeaks scandal.

The agreement reached by the European Commission, European parliament and member states approves the creation of a central register that will expose the ultimate ownership of all Europe-based companies or trusts.

Crucially, the registry will be accessible to anyone with a "legitimate interest" in identifying owners, such as investigative journalists and concerned citizens, though activists had hoped the access would be fully public.

"For years, criminals in Europe have used the anonymity of offshore companies and accounts to obscure their financial dealings," said Krisjanis Karins, rapporteur for the proposed law in European parliament.

"Creating registers of beneficial ownership will help to lift the veil of secrecy of offshore accounts and greatly aid the fight against money laundering and blatant tax evasion," he said.

The deal comes a month after the so-called "LuxLeaks" scandal that exposed often secret deals that saved some of the world's largest companies billions of dollars in taxes by setting up shop in Luxembourg while Jean-Claude Juncker -- the new president of the European Commission -- was the country's prime minister.

Juncker last week urged swift approval of the measure, though under the condition it will be limited to those with a legitimate interest in accessing the information.

He made the call in a reply to a letter from investigative journalists who pressed him on the directive.

Most financial transparency activists acknowledged the deal was a step forward, but criticised the limited scope.

"It is disappointing that amidst financial secrecy scandals and promises for more transparency, the EU fell short of allowing the public to see who is behind anonymous shell companies and trusts," said Tamira Gunzburg, of the ONE advocacy group in Brussels.

According to the group, Germany, Spain and Britain resisted opening up the list to a broader audience, ultimately leaving it to "member states to determine who will have access to the information".

The EU measure however goes further than transparency guidelines agreed by G20 ministers this year.

In addition, Juncker's commission has promised more proposals against tax fraud and evasion, including the automatic exchange of information on tax breaks handed to companies in individual member states.

Since June, the commission has also launched investigations into the tax affairs of Amazon and Fiat in Luxembourg, Apple in Ireland and Starbucks in The Netherlands to determine whether sweetheart tax deals could constitute illegal state aid.

To help its case, the commission on Wednesday said it would widen its anti-trust probe to all member states and called on national authorities to share information on tax rulings, the mechanism by which tax deals are handed to companies.

EUbusiness        December 17, 2014

 
Corruption prevention in focus of OSCE-led seminar in Georgia

Corruption prevention in focus of OSCE-led regional seminar in Georgia (photo: OSCE)BATUMI, Georgia, 16 December 2014 - Senior and mid-level anti-corruption officials from across the South Caucasus and Eastern Europe as well as international experts gathered in Batumi today for the start of a two-day regional seminar on effective measures in preventing corruption.

The seminar is organized by the Office of the Co-ordinator of OSCE Economic and Environmental Activities, in close co-operation with the Government of Georgia, the  UN Office on Drugs and Crime (UNODC) and the Organisation for Economic Co-operation and Development (OECD) Anti-Corruption Network for Eastern Europe and Central Asia (ACN).

“Corruption is a complex phenomenon which requires a comprehensive approach, including strong prevention as well as criminalization and enforcement measures,” said Alexey Stukalo, Deputy Co-ordinator of OSCE Economic and Environmental Activities. “Most recently, on 5 December, the OSCE Ministerial Council in Basel, recognized the importance of stepping up anti-corruption efforts and adopted the Decision on the Prevention of Corruption”.

Asset declaration systems are a key element of corruption prevention. “While many countries already have asset disclosure mechanisms and conflict of interest regulations in place, they often lack the capacity to effectively implant them in practice and monitor the implementation,” said Stukalo. “The next two days will be about building the capacities of relevant institutions and anti-corruption bodies, with a strong practical component.”

Minister of Finance of Georgia Nodar Khaduri said: “Introduction of effective prevention measures in order to successfully fight corruption and other serious economic and financial crimes is one of the most significant priorities of Georgia. Constructive discussions held today will help the region improve its Anti-Corruption Strategies and shape up the action plans for the years ahead.”

Over 50 participants from anti-corruption agencies, prosecutorial authorities, financial intelligence units, tax/revenue bodies, Ministries of Justice and others will acquire deeper knowledge on corruption prevention international standards, in particular those related to the United Nations Convention against Corruption (UNCAC).

OSCE        December 16, 2014

 
EU states keen to protect identity of Europe's shadow rich

European parliamentEU states are trying to stop the general public from finding out who really owns what in Europe’s offshore firms, trusts, foundations, and other opaque structures.

The anti-money laundering directive (AMLD) is entering the final stage of negotiations on Tuesday (16 December) in Brussels in so-called trialogue talks between MEPs, diplomats, and European Commission officials.

It is designed to clamp down on tax evasion and organised crime.

Some campaigners say it could also have strategic consequences by exposing the scale of corruption in EU neighbouring countries, such as Russia.

The EU parliament wants national governments to set up a publicly accessible register on “beneficial ownership”.

“We are doing everything that we can to have that through in the final text of the directive,” Latvian centre-right deputy Krisjanis Karins, one of the assembly’s two lead negotiators, told EUobserver.

But a leaked compromise text - seen by this website - indicates that a blocking majority of member states is keen to maintain a veil of secrecy.

They don’t oppose creating the register. But they insist on restricting access to “competent authorities”, such as national Financial Intelligence Units (FIUs).

The commission’s proposal is to restrict access, but to let people who can demonstrate a “legitimate interest” - such as investigative journalists or NGOs - see the registry as well.

Tamira Gunzburg, the Brussels director of the One campaign - a pro-transparency pressure group - said Austria, Croatia, Denmark, France, Finland, Slovenia, Sweden, and the UK back public access.

But Germany, Poland, and Spain oppose it, while the commission doesn’t have a vote.

Some countries want the register to give the name and date of birth of the owner, while others also think this is too much.

Meanwhile, there is uncertainty on how to close loopholes on trusts - among the most tricky of the “discretionary structures” used by people to hide their wealth.

“The momentum for transparency is growing every day,” Gunzburg noted.

At the same time, Karins said "it's not quite clear in the end how trusts will or will not be directly handled in this directive … ideas are simple, cheap, and easy, but actually finding the language which casts the net properly is a challenge."

LuxLeaks

Pressure is mounting on the EU to do more after media revelations of tax-dodging schemes in Luxembourg.

Leading journalists from 23 countries last week wrote to commission chief Jean-Claude Juncker, a former Luxembourg PM, to take action after the “LuxLeaks” scandal.

He responded to say he backs the AMLD register, but repeated the commission line that only people with a “justified legitimate interest” should get access.

The parliament’s Karins noted the AMLD and LuxLeaks cover different ground.

“This directive is really about money-laundering and terrorism financing, whereas LuxLeaks is a tax avoidance issue which raises serious questions about competition,” he explained.

But he said the Juncker furore has come up in the AMLD trialogues in terms of political atmosphere.

MoscLeaks?

For her part, Elena Panfilova, the Moscow chief of Transparency International, a European NGO, believes corruption also has a strategic meaning.

On one hand, state embezzlement in Russia has depleted the Kremlin’s rainy-day fund and its ability to resist EU and US sanctions.

But on the other hand, clandestine Russian money is used to influence European companies, politicians, and media.

Panfilova told EUobserver that if the general public in Russia could see how much of their money the nomenklatura has stashed in Europe it would harm Vladimir Putin’s popularity.

It might also help to rein in the administration’s greed.

“A strong AMLD is one of the most important contributions the EU could make to reform and rule of law in Russia”, she said.

“The missing money means schools not funded properly, hospitals not built. For Russian people it’s not funny money, it’s literally killing them”.

EUobserver       December 15, 2014

 

 
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