On July 28, 2009, the SEC filed a civil action and an administrative order, against Avery Dennison Corporation (“Avery”), a manufacturer of self-adhesive materials, office products and labels incorporated in Delaware and headquartered in California.49 The Complaint and Order alleged violations of the FCPA’s books and records and internal controls provisions based on improper payments and promises of improper payments to foreign officials through its subsidiary, Avery (China) Co. Ltd. (“Avery China”), and various acquired entities. The company consented to the entry of a Cease and Desist Order, without admitting or denying the Commission’s allegations, and agreed to pay a $200,000 civil penalty, and disgorge $273,213 in profits and $45,257 in prejudgment interest.
According to the Complaint50 and Order,51 between 2002 and 2005, the Reflectives Division of Avery China paid approximately $30,000 for gifts, sightseeing trips and kickbacks to Chinese government officials in an effort to secure business. In addition, Avery China authorized additional illicit payments as part of two kickback schemes that were discovered before any improper payments had been made. The most significant of Avery China’s kickback payments occurred in mid-2005, when a Reflectives Division sales manager arranged to pay an employee of a state-owned customer almost $25,000 in commission payments, through a distributor, to secure a sale resulting in profits of $273,213 for the company.
The sales manager inaccurately recorded the transaction as “a sale to the distributor, rather than to the end-user.”52
The Complaint and Order further alleged that several entities acquired by Avery made improper petty cash payments of approximately $51,000 to local customs and tax officials in several foreign countries following their acquisitions. One of these entities, a local Indonesian contractor integrated into Avery in 2005, made monthly payments of $100 each to three local customs inspectors. To acquire the requisite $300 in payments each month, an entity employee would collect $10 from petty cash on a daily basis, which was then inaccurately recorded as a daily employee travel expense.
According to the Complaint and Order, Avery also discovered through a whistleblower that another entity it acquired in 2007, the Paxar Corporation, paid $5,000 to customs and tax officials in Indonesia and then fabricated invoices to conceal these payments. A subsequent internal audit revealed that Paxar Pakistan also made $30,000 in improper payments to local customs officials, while a company global trade compliance review identified an additional $16,000 in improper payments at Paxar China.
Although the Avery settlement is not particularly note-worthy in terms of the amounts involved or facts, the matter highlights the need to perform rigorous due diligence on all potential acquisition targets and to ensure that post-acquisition FCPA compliance policies and procedures are implemented promptly.
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