The United States Foreign Corrupt Practices Act of 1977 was enforced for the aim of making it illegal for entities to make any form of monetary gift to foreign government officials to help in obtaining markets or retaining business. The anti-bribery provisions of the act restrict the use of mails, means of instrumentality of interstate commerce corruptly to further an offer, payment or promise of payment under the knowledge that a portion of the money will be offered to a foreign individual to influence an act in violation of the their lawful duties or secure an improper advantage. The anti-bribery provisions of the act have been enforced to all U.S citizens and foreign providers of security. With the 1998 amendments, the act now applies to foreign firms that participate in acts that further corruption within the territories of the United States. The act requires that companies whose securities are listed in the United States to meet its provisions. Corporations covered under the act are required to maintain records that accurately reflect the transactions and establish an effective system of internal accounting restrictions. One such company convicted under the act is Avon Products Incorporated. The paper will discuss the validity of morality laws enacted by the United States Congress and if they can penalize companies actions that take place outside the United States territories with Avon as the case study.
Avon Products Incorporated is cosmetics and beauty related products manufacturer. The company founded in 1886 has its headquarters in New York and annual revenues of USD 9 billion. Avon is one of the largest player in the beauty industry and relies on a network of 6 million representatives to sell their products through direct sales. The company was involved in a corruption scandal between 2004 and 2008. The company was found in violation of the U.S Foreign Corrupt Practices Act. The company and the U.S Department of Justice settled a corruption case related to the company’s operation in China with a Deferred Prosecution Arrangement (DPA). The conviction resulted in a settlement of $135 million and an agreement to have an external monitor for 18 months and a responsibility to report on its compliance efforts in the months that followed. Before 2006 it was not possible for foreign companies to sell their products in China through the direct selling approach. Avon decided to take the opportunity to be among the first companies to sell their products by influencing government officials through offering exclusive luxury items, dinners, entertainment, trips and cash. The bribes amounted to close than $8 million to attain licenses, avoid fines and negative influences. The United States differentiates between facilitation and bribes in the Foreign Corrupt Practices Act. Facilitation of payments are little payments that accelerate administrative techniques that one has a right to receive for example paying customs officials to process shipment. The act defines a bribe as payments that invoke officials to do what they would not necessarily do.
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Most companies have clearly defined gift policies that restrict gifts to a certain value such as $50; if the gift surpasses the nominal value outlined an individual should ask for internal approval or report in a gift register. Although the policy outlines the constructs of a gift, it does not define the intention of the gift. If the gift is given to induce an official to do something they would normally not do then it constitutes a bribe. The main ethical issue around bribery is specifically difficult in the conduct of international business. In most countries, providing gifts is a conventionally accepted business conduct that underscores the value of a relationship. In most Asian countries such as China it is regarded as disrespectful when one does not accept a gift. Companies operating in such continents are therefore required to navigate such customs while maintaining respect for the ethical and legal obligations not to receive gifts that provide unfair advantage. Avon officials offered the Chines gifts, cash and entertainment to attain and maintain licenses and obtain favor from the judiciary and government to sell nutritional and healthcare products that had not yet met government standards. The key intention behind the gifts was to influence the decisions of government officials in their petition for a license. Avon officials were clearly aware that they were engaging in inappropriate behavior since they deliberately altered the descriptions of their expenses to misleadingly imply that they were employee travel, samples, or business entertainment. The officials also utilized the services of a consulting company to create false invoices; Avon transferred money to the said company which consequently made payments to the Chinese officials. The company’s wrongdoing in the case of bribery is pretty straightforward. Bribery is not allowed since it allows companies to receive unfair advantage due to their ability to influence officials rather than competency.
The complex issue surrounding the Avon case is about ethics of bribery for a company that operates in more than one jurisdiction. Avon was rightfully charged under the United States Foreign Corrupt Practices Act which regulates companies that have listing, subsidiary or history of transaction in U.S dollars. Avon is a United States Company with a listing at the New York Stock Exchange. The legitimacy of the law comes to question since the law does not clearly define the legal and ethical consequences for companies that have more tangible connection to the United States. The provision for extra-territorial reach is actually complex in cases where the U.S charges foreign companies with subsidiaries in the United States. The United States taking advantage of its economic power to enforce its regulations abroad raises the question of ethics since the definition of bribe is not universally agreed or United States laws conventionally accepted. The fight against corruption should be a universal fight therefore corruption laws in the United States should be enforced outside its territories to deter other companies that might participate in corruption.
The United States was the only country that convicted Avon for bribery; if the United States law was not enforced the company would have continued engaging in corruption. It would have been more appropriate if China had convicted Avon for inappropriate conduct. However it would be a complex issue since in most Asian countries it is considered rude for an individual to decline a gift. It is only recently that other countries have adopted laws governing corruption globally. Avon has presence in the Brazil, one of the countries that has recently adopted laws regulating corruption overseas. It would therefore be morally right for Brazil to impose its 20% penalty on annual revenues for Avon. Corruption is a vice that eliminates the chances for competency and instead uses the influence of money, the penalties for the vice should be harsh. Companies like Avon that engage in corruption should be fined in every country that has enforced international corruption laws. The $135 million fine is quite high considering other financial costs outlined in the Deferred Prosecution Arrangement. Avon was required to appoint an independent monitor that reports to the United States authority on the progress of compliance. Avon was required to pay for the costs of external consultants and invest internal management time to work on compliance and enhance processes and techniques to deal with the media and legal experts. The fines have affected the company’s name and share price consequently leading to lower revenues. The fines are definitely high considering that the company was involved in an $8 million scandal. For a company like Avon with annual revenues of $9 billion the fine could be considered as a cost of doing business rather than a deterrent for future violations of the Foreign Corrupt Practice Act. In Asian and Middle Eastern cultures what is considered a bribe or immoral is commonplace and widely accepted compared to United States cultures. Countries like the United States, United Kingdom, Brazil and Canada should implement laws against overseas bribery but be considerate of the context in which the acts of bribes occur. It is important that companies and corporations establish checks and balances to consider what is appropriate. For instance a company hoping to venture into a new market in Asia could present the officials gifts as a way for them to sample their products without the intention of influencing their decisions. Decisions such as creating a nominal value limit for all gifts could prevent lavish gifts. A company could set the limit at $50 dollars, if the gift surpasses the amount; then it would be considered a bribe. The United States is committed in the fight against corruption therefore it is within its right to convict a company such as Avon whose main intention for presenting gifts might be impure. Corruption in an instance such as Avon’s could cause the market to flood with low quality products that could eventually cause harm to the citizens of a given country. When governments are not devoted to executing anti-corruption laws bribery is rampant and companies that fail to engage in the vice may not be able to compete in a given market.
