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Coty Warns of Possible Israel Boycott Violations

September 18, 2013

UAE unit could have violated US laws.

Fragrance and Middle East politics don't mix. Coty may face penalties that result in a material loss after its United Arab Emirates unit possibly violated US laws that prohibit participating in a boycott of Israeli products. The subsidiary may have certified on some invoices that its shipments didn’t contain any materials of Israeli origin, the New York-based cosmetics company said today in a filing with the US Securities and Exchange Commission. Such certifications are part of the Arab League's boycott of Israel and may violate US laws against participating in unsanctioned boycotts, Coty said.

“A penalty or penalties that would result in a material loss are reasonably possible” because of the potential infractions, Coty said in the filing, adding that no reserve to cover those charges has been created. The company said it will incur costs to improve its compliance procedures as well.

Coty also said its UAE unit reshipped some products to Syria and Iran, possibly violating US export laws. Coty said those incidents didn't violate trade sanctions and that it voluntarily reported them to US government authorities. The company also provided the government with the results of an internal investigation into goods sold in a more than four-year period through March 2012. It disclosed the probes in earlier filings.

“These investigations relate to a very small portion of our sales," Catherine Walsh, a Coty spokeswoman, said in an e-mail to Bloomberg. ‘‘The investigations are in an early phase and we are cooperating with the authorities in the ordinary course. As noted in our filings, we cannot predict when the investigations will conclude, whether fines will be assessed or the order of magnitude if assessed.’’

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