Herbalife Nutrition Ltd. agreed Friday to pay the DOJ and SEC $123 million in penalties and disgorgement to resolve FCPA offenses in China.
In an internal administrative order, the SEC charged Herbalife with violating the FCPA’s books and records and internal controls provisions. The U.S.-headquartered nutrition company agreed to disgorge $58.7 million plus prejudgment interest of $8.6 million.
In the DOJ enforcement action, Herbalife paid a criminal penalty of $55.7 million and entered a three-year deferred prosecution agreement.
Between 2007 and 2016, Herbalife and wholly-owned subsidiaries in China (Herbalife China) conspired with others to falsify its books and records and provide corrupt payments and benefits to Chinese government officials, the DOJ said Friday.
According to the SEC, Herbalife China submitted an application in 2006 to the Chinese government for its first direct selling license, which was ultimately granted for two cities in one province. To facilitate licensing approval, Herbalife China provided improper benefits, including payments, to government officials employed by the agency responsible for awarding direct selling licenses in China. The transactions were falsely recorded and booked, the SEC said.
During a telephone call in January 2007, Herbalife managing director Jerry Li asked external affairs director Mary Yang whether Herbalife China had “taken care of” an official at a Chinese Government Agency. Li asked, “We have given the money to [Official 1], haven’t we?” to which Yang replied, “Of course we have.” Li then stated, “The money works well on him.”
In March 2007, Chinese government officials informed Herbalife China that it would receive its first direct selling license.
Soon after Herbalife China received license approval, Yang told Li on a phone call, “I will take care of those people. I will still have to invite them out for dinner next time I come anyway.” Li responded, “Right, good idea. We will talk later about how you are going to take care of them.”
During another call, Yang told a colleague to “grab a pen and write down the gift list.” After listing the names of 17 individuals, including Chinese government officials involved in the application process for Herbalife China’s pending direct selling license, Yang instructed the Herbalife employee to “go and get 260,000 yuan (approximately $33,700) and then divide the money among them, with a total of approximately 60,000 yuan (approximately $7,800) distributed to 16 Chinese Government officials.”
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,” according to the DOJ.
Li and Yang were charged in November 2019 with FCPA and obstruction offenses. Those charges are pending.
The DOJ said Friday, “As admitted in the deferred prosecution agreement entered into today, Herbalife approved the extensive and systematic corrupt payments to Chinese government officials over a 10-year period to promote and expand Herbalife’s business in China.”
Herbalife’s China sales topped $800 million by 2016, 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.
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