Herbalife has agreed to pay $123 million to settle charges that it bribed Chinese government officials to promote and increase its business in China and disguised the payments as permissible legitimate expenses.
U.S. authorities said the corruption scheme lasted from 2006, when Herbalife applied for its first direct selling license in China, until 2016 and that high-level executives including Jerry Li, the managing director of Herbalife China, approved of the illegal payments.
The bribes allegedly enabled the multilevel marketer to obtain and retain direct selling licenses in China, improperly influence Chinese government investigations into its compliance with Chinese laws, and remove negative stories about the company from state-owned media outlets.
By 2016, Herbalife China accounted for approximately $860 million, or approximately 20%, of the company’s worldwide annual net sales. During the time of the alleged bribery scheme, it obtained licenses to engage in direct sales in 28 Chinese provinces.
Herbalife agreed to pay a criminal fine of more than $55.7 million to resolve Department of Justice charges that it violated the Foreign Corrupt Practices Act. It also reached a separate civil settlement of $67.3 million with the Securities and Exchange Commission.
“By engaging in a decade-long scheme to falsify its books and records to conceal corrupt and other improper expenditures, Herbalife misrepresented the information available to investors,” Acting Assistant Attorney General Brian Rabbitt said in a news release.
According to an SEC administrative order, Herbalife China obtained its first direct selling license in 2007 after bribing officials at the agency responsible for awarding licenses. “The money works well on him,” Li allegedly said of one official in a call with the company’s head of external affairs.
Officials were also treated to expensive meals with alcohol, the SEC said, with one Herbalife manager complaining that one evening was “so expensive, my hands were shaky.”
The manager, indeed, spent so much money that he asked a government official for more names so he could get under Herbalife’s per head spending limitation, the SEC alleged.
The DoJ said Herbalife maintained false accounting records to mischaracterize the improper payments as permissible business expenses.
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