Avon 2013 Annual Report Download - page 120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. Contingencies
FCPA Investigations
As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on
compliance with the FCPA and related U.S. and foreign laws in China and additional countries. The internal investigation, which has been
conducted under the oversight of our Audit Committee, began in June 2008. As previously reported in July 2009, in connection with the
internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in
order to evaluate our compliance efforts. We have conducted these compliance reviews in a number of countries selected to represent each
of the Company’s international geographic segments. The internal investigation and compliance reviews have focused on reviewing certain
expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, use of third-party vendors and
consultants and related due diligence, joint ventures and acquisitions, and payments to third-party agents and others, in connection with our
business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of
these matters are substantially complete. In connection with the internal investigation and compliance reviews, certain personnel actions,
including termination of employment of certain senior members of management, have been taken, and additional personnel actions may be
taken in the future. In connection with the internal investigation and compliance reviews, we continue to enhance our ethics and
compliance program, including our policies and procedures, FCPA compliance-related training, FCPA third-party due diligence program and
other compliance-related resources.
As previously reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission (“SEC”) and the
United States Department of Justice (“DOJ”) to advise both agencies of our internal investigation. We have cooperated and continue to
cooperate with investigations of these matters by the SEC and the DOJ. We have, among other things, signed tolling agreements, responded
to inquiries, translated and produced documents, assisted with interviews, and provided information on our internal investigation and
compliance reviews, personnel actions taken and steps taken to enhance our ethics and compliance program. We also have made factual
presentations which are now substantially complete.
As previously reported in our Quarterly Report on Form 10-Q for the period ending June 30, 2013, we made an offer of settlement to the
DOJ and the SEC in June 2013 that, among other terms, would have included payment of monetary penalties of approximately $12.
Although our offer was rejected by the DOJ and the staff of the SEC, we accrued the amount of our offer in the second quarter of 2013.
Our settlement negotiations with the DOJ and the staff of the SEC have continued. In the fourth quarter of 2013, based on the status of our
current negotiations, including the levels of monetary payments being discussed, we recorded an additional accrual of $77, resulting in an
aggregate accrual for these matters of $89 at December 31, 2013. Based on the status of our current negotiations with the DOJ and the
staff of the SEC, we estimate the aggregate amount of any potential settlements with the government could exceed this accrual by up to
approximately $43. While it is reasonably possible that the aggregate monetary payments in any settlements will exceed $89 there is no
amount within the estimated potential settlement range that we consider to be a better estimate than any other amount; therefore, we
have accrued the estimated minimum amount of probable loss in connection with the potential settlements of these matters or $77 during
the fourth quarter of 2013 and $12 during the second quarter of 2013.
Although we are working to resolve the government investigations through settlement, there can be no assurance that our efforts to reach
settlements with the government will be successful or, if they are, what the timing or terms of any such settlements would be. We expect
any such settlements will include civil and/or criminal fines and penalties, and may also include non-monetary remedies, such as oversight
requirements and additional remediation and compliance requirements. We may be required to incur significant future costs to comply with
the non-monetary terms of any settlements with the SEC and the DOJ. If we do not reach settlements with the DOJ and/or the SEC, we
cannot predict the outcome of any subsequent litigation with the government but such litigation could have a material adverse effect.
Until these matters are resolved, either through settlement or litigation, we expect to continue to incur costs, primarily professional fees and
expenses, which may be significant, in connection with the government investigations. Furthermore, under certain circumstances, we may
also be required to advance and/or reimburse significant professional fees and expenses to certain current and former Company employees
in connection with these matters.