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Herbalife reserves $123 million to settle China FCPA investigation

LA-based Herbalife Ltd. has reserved $123 million to settle FCPA offenses, following the indictment last year of two company executives charged with spending $25 million on entertainment and gifts for Chinese officials.

In a 10-Q filing with the SEC Thursday first posted by FCPA Tracker, Herbalife said it had reached an “understanding in principle” for the material terms of a settlement with both the SEC and DOJ.

With the SEC, Herbalife said it would enter into an administrative resolution involving alleged violations of the books and records and internal controls provisions of the FCPA.

The company would separately enter into a three-year deferred prosecution agreement with DOJ, for a conspiracy to violate the FCPA’s books and records provisions.

Herbalife — which sells dietary supplements through multi-level marketing — said aggregate penalties, disgorgement, and prejudgment interest would be around $123 million.

In November 2019, the DOJ charged two former Herbalife executives with bribing Chinese officials for ten years and covering it up by lying to the SEC and destroying evidence.

Jerry Li, 51, a Chinese citizen, was the former head and managing director of Herbalife’s China subsidiary. The DOJ charged him with one count of conspiracy to violate the FCPA’s internal controls provisions, one count of perjury, and one count of destruction of records in federal investigations. 

Mary Yang, 51, also Chinese, formerly ran the external affairs department of Herbalife’s China subsidiary. She was charged with one count of conspiracy to violate the FCPA’s internal controls provisions. 

A criminal indictment filed in New York City alleged that Yang and others bribed Chinese officials to obtain licenses for Herbalife. Bribes were also intended to stop Chinese government investigations into Herbalife’s operations in China and suppress negative coverage of the company by Chinese state-owned media outlets.

Between 2007 and 2016, Herbalife’s external affairs department in China reimbursed its employees “more than $25 million for entertaining and gift-giving to Chinese Government officials,” the DOJ said in 2019.

By 2016, Herbalife’s China sales topped $800 million, or 20 percent of the company’s worldwide sales, the DOJ said.

The company first disclosed the FCPA investigation in January 2017, according to data from FCPA Tracker.

Herbalife conducted its own review and implemented remedial and improvement measures, including the replacement of certain employees, and enhancements of policies and procedures in China, among other things.

The potential resolution disclosed Thursday needs final approvals from Herbalife’s board of directors, the SEC, and DOJ, and may require court approval, the company said.

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