International Flavors & Fragrances has disclosed that it is investigating whether officials of an Israeli company it acquired last year made improper payments to customers.

The $7 billion acquisition of Frutarom reportedly made IFF the largest flavoring company in the world. It was also the second-largest purchase of an Israeli company ever.

In a regulatory filing, IFF said that during the integration of Frutarom it “was made aware of allegations that two Frutarom businesses operating principally in Russia and Ukraine made certain improper payments, including to representatives of a number of customers.”

The company has been conducting an internal investigation and “preliminary results indicate that improper payments to representatives of customers were made and that key members of Frutarom’s senior management at the time were aware of such payments.”

IFF said it had not “uncovered any evidence suggesting that such payments had any connection to the United States.” But Crain’s New York Business reported that even if no payments took place in the U.S., “IFF could still have an expensive problem on its hands thanks to the Foreign Corrupt Practices Act.”

The law bars companies that issue stock in the U.S. from bribing foreign officials for government contracts or other business. In June, Walmart agreed to pay $282 million to settle an FCPA case involving subsidiaries in Brazil, China, India, and Mexico.

IFF had $4 billion in sales last year but Crain’s noted that “flavorings are a tough business because in any given year about 20% of products containing IFF ingredients are discontinued by manufacturers. That means if the company wants to increase its revenue by 5% a year, it needs to grow its product portfolio by 25%.”

When it was acquired by IFF in May 2018, Frutarom, which is based in Haifa, had about 30,000 customers, most of which were smaller to mid-sized companies.

According to IFF, the estimated sales affected by any improper payments represented less than 1% of IFF and Frutarom’s combined net sales for 2018 but the costs “arising from these matters … could be material in a particular fiscal quarter.”

PATRICK KOVARIK/AFP/Getty Images

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