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Ralph Lauren Pays $1.6M to Settle Foreign Bribe Scandal

Company reaches non-prosecution agreement with Department of Justice, Securities and Exchange Commission.

Ralph Lauren Corp.’s mea culpa over foreign bribes will cost it about $1.6 million but likely save it far more in penalties, effort and time.

The company will pay the U.S. Department of Justice $882,000 and the Securities and Exchange Commission nearly $735,000 to settle claims that it violated the Foreign Corrupt Practices Act when a manager at its subsidiary in Argentina offered bribes to government officials to avoid inspection and Customs requirements between 2005 and 2009.

“The misconduct was uncovered in an internal review undertaken by the company and promptly reported to the SEC,” according to the government agency.

The non-prosecution agreement with the SEC is the first such arrangement involving Foreign Corrupt Practices Act misconduct and also the first in the eastern district of New York for the Justice Department. A similar deal was struck with the DOJ. Non-prosecution agreements are rewarded in instances in which companies or individuals cooperate in investigations, saving agencies considerable cost and time. According to the NPA, the company brought the violations to the attention of federal authorities within two weeks of their discovery.

“When they found a problem, Ralph Lauren Corp. did the right thing by immediately reporting it to the SEC and providing exception assistance in our investigation,” said George Canellos, acting director of the SEC’s division of enforcement. “The NPA in this matter makes clear that we will confer substantial and tangible benefits on companies that respond appropriately to violations and cooperate fully with the SEC.”

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The leniency was granted despite the absence of an anticorruption program at the company during the five-year span and the lack of oversight and training on anticorruption standards at the Argentinian subsidiary, the Justice Department noted.

Both government agencies noted that the violations of the FCPA came to light as Ralph Lauren Corp. instituted programs to improve its worldwide controls and compliance efforts, including implementation of an FCPA compliance training program in Argentina.

“When these issues surfaced at our subsidiary in Argentina, we took immediate action to hire outside counsel and forensic specialists to conduct an internal investigation and reported the matter directly to both the U.S. Department of Justice and the Securities and Exchange Commission,” said a spokesman for Ralph Lauren. “We fully cooperated in the ensuing investigations and conducted a worldwide risk assessment.…There was no evidence that the improper activity in Argentina was known or authorized by anyone outside of Argentina or that similar practices were occurring at other foreign operations.”

The New York-based apparel giant also noted that it both “enhanced our compliance program and training and severed relationships with all responsible vendors.”

The official at the Argentinian unit wasn’t identified by the company or the federal officials. His legal status isn’t known.

According to the DOJ and SEC, the illegal activities included bribes to improperly obtain paperwork needed to clear Customs, to clear items without necessary paperwork and to avoid inspection entirely. The bribes were funneled through a Customs clearance agency that created fake invoices to mask the illegal action.

The bribes totaled $593,000, identical to the disgorgement amount paid by Lauren to the SEC. It also agreed to pay nearly $142,000 in prejudgment interest to the SEC in addition to the Justice penalty of $882,000.

“I’m pleasantly surprised and impressed that RLC got ahead of this and headed off far more serious consequences,” said Jonathan Fee, a Washington-based international trade law specialist with the law firm of Alston & Bird. “Other FCPA targets haven’t been as good at stemming the bleeding.

“A lot of people in the apparel industry would associate FCPA with defense contractors, medical equipment suppliers and construction companies, but then Wal-Mart and Avon happened and got some folks’ attention,” Fee continued. “This is just another inexorable step, a red flag to the industry that it can have just as much exposure as the defense industry.”

Avon brought evidence of bribery by its officials in China to the DOJ and SEC after launching a voluntary probe of the matter in June 2008. Four executives involved in the alleged violations were suspended in April 2010 and fired in May 2011. Avon is a nominal defendant in a related civil suit filed in New York Supreme Court in 2010.

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Avon said in 2010 that it suspended four executives following an internal investigation of its practices in China. While another SEC probe into possible violations of Regulation FD (Fair Disclosure) by Avon has ended, the FCPA inquiry is believed to be ongoing.

The case was investigated by the Federal Bureau of Investigation’s New York field office and is being prosecuted by Daniel Kahn of the DOJ’s criminal division fraud section, and Sarah Coyne, the U.S. attorney who serves as chief of the business and securities fraud section for New York’s eastern district.

Wal-Mart’s FCPA woes began with an investigative report by The New York Times detailing alleged violations in Mexico. The SEC and Justice Department investigation into Wal-Mart is ongoing, and this year the company has expanded its internal probe into its practices in China, Brazil, South Africa and India, as well as Mexico.

In January, Reps. Elijah Cummings (D., Md.) and Henry Waxman (D., Calif.) notified Wal-Mart chief executive officer Mike Duke that they were in possession of internal e-mails that suggest company officials had knowledge of the Mexican payoff scandal as early as 2005.