Herbalife to pay US$122m over bribe allegations case in China

31 Aug 2020 --- US-based Herbalife Nutrition has agreed to pay total penalties of more than US$122 million to resolve the US government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA). This penalty was due to Herbalife’s attempt to falsify books and records and provide corrupt payments and benefits to Chinese government officials, according to the US Department of Justice (DOJ). This was part of a bid to obtain, retain and increase Herbalife’s business in China, notes DOJ. Its verdict includes a criminal penalty of over US$55 million and approximately US$67 million to be paid to the US Securities and Exchange Commission (SEC).

“By engaging in a decade-long scheme to falsify its books and records to conceal corrupt and other improper payments to Chinese officials and state-owned entities, Herbalife misrepresented important information made available to investors,” says Acting Assistant Attorney General Brian Rabbitt, from the Justice Department’s Criminal Division.

“The integrity of our financial markets depends on the timely and accurate disclosure of material information about companies’ operations,” Rabbitt adds.

Herbalife entered into a deferred prosecution agreement with the Criminal Division’s Fraud Section and the US Attorney’s Office for the Southern District of New York in connection with a criminal information filed in the Southern District of New York. This charged Herbalife with one count of conspiracy to violate the books and records provision of the FCPA. 

Herbalife has agreed to continue to cooperate with the US government in any ongoing or future investigations.Acting US Attorney Audrey Strauss of the Southern District of New York notes: “As admitted in the deferred prosecution agreement entered into today, Herbalife approved the extensive and systematic corrupt payments to Chinese government officials over a ten year period to promote and expand Herbalife’s business in China.” 

“Moreover, in an effort to conceal this widespread corruption scheme, Herbalife maintained false accounting records to mischaracterize these improper payments as permissible business expenses. In addition to admitting its criminal conduct, Herbalife has agreed to pay combined penalties of more than US$123 million. This case signifies this office’s commitment to ensuring that companies operating in the US do not gain an unfair advantage through corruption and illegal bribes of foreign officials,” Strauss stresses.

NutritionInsight has reached out to Herbalife for comment on the matter.

Providing corrupt payments and benefits
According to its admissions, between 2007 and 2016, Herbalife’s actions to obtain, retain and increase its business in China included:

• Obtaining and retaining certain direct selling licenses for its wholly-owned subsidiaries in China (Herbalife China). 
• Improperly influencing certain Chinese governmental investigations into Herbalife China’s compliance with Chinese laws.
• Improperly influencing certain Chinese state-owned and state-controlled media for the purpose of removing negative media reports about Herbalife China. 

According to the DOJ, Herbalife China provided corrupt payments and benefits to Chinese government officials in late 2006 through early 2007. This was during the time period that Herbalife China’s application for its first direct selling license was pending. The payments and benefits included those to government officials responsible for awarding that direct selling license and falsely recorded and booked those corrupt expenses. 

Around the same time period, an officer and high-level executive of Herbalife suggested to a high-level executive of Herbalife China that the company’s personnel falsify expense reimbursement documents in connection with entertainment of Chinese government officials.

Thereafter, Herbalife continued to provide improper payments and benefits to Chinese government officials. Herbalife also continued to falsely record certain improper payments and benefits as “travel and entertainment expenses” and to maintain false Sarbanes-Oxley sub-certification letters in Herbalife’s books, records and accounts, states the DOJ.

Herbalife cooperates
As part of the deal, Herbalife has agreed to continue to cooperate with the US government in any ongoing or future criminal investigations concerning the company, its executives, employees or agents. In addition, under the agreement, Herbalife has agreed to enhance its compliance program and to report to the government on the implementation of said program. 

The government reached this resolution with Herbalife based on a number of factors, including the failure to timely disclose the conduct that triggered the investigation; the nature and seriousness of the offense, which spanned approximately a decade and involved high level employees; the lack of an effective compliance program at the time of the misconduct; and credit for the company’s cooperation. 

Herbalife also engaged in remedial measures, including terminating and disciplining individuals who orchestrated the misconduct, adopting heightened controls and anti-corruption protocols and significantly increasing the resources devoted to compliance.

The criminal monetary penalty for Herbalife reflects a 25 percent reduction off the bottom of the US Sentencing Guidelines fine range because of Herbalife’s full cooperation with the government’s investigation.

In a related matter with the SEC, Herbalife agreed to pay the SEC disgorgement and prejudgment interest totaling approximately US$67 million.

Edited by Kristiana Lalou