On August 28, 2020, Herbalife Nutrition, Ltd. (Herbalife), a California-based dietary and nutritional supplement company, agreed to pay $123 million to the US Securities and Exchange Commission and the US Department of Justice to resolve allegations that it had violated the books and record and internal controls provisions of the Foreign Corrupt Practices Act.
According to the SEC Order and DOJ criminal Information, from 2006 to 2016 Herbalife’s Chinese subsidiaries (collectively, Herbalife China) provided at least $25 million in gifts and improper payments to Chinese officials at government agencies and a state-owned media company, for the purpose of (i) obtaining and retaining licenses facilitating the sale of Herbalife products, (ii) curtailing an ongoing Chinse government investigation into Herbalife China’s compliance with certain Chinese laws, and (iii) removing negative media reports about Herbalife China. Yanliang “Jerry” Li, and Hongwei “Mary” Yang, Herbalife China’s vice president of sales and head of external affairs, respectively, concealed these improper payments and gifts by ordering employees to record them as “travel and entertainment expenses.” Li and Yang also maintained false Sarbanes Oxley sub-certification letters in Herbalife’s books and records.
According to the SEC Order, during this time period Herbalife approved reimbursements of over $7.2 million in travel and entertainment spending, despite multiple internal audit findings that certain of these expenses violated Herbalife’s internal FCPA policies in China. This resulted in improper profits to Herbalife of approximately $58.7 million.
As a result of this conduct, Herbalife entered into a DPA with the DOJ, in which it agreed to pay a criminal fine of $55.7 million, and an administrative resolution with the SEC, in which it agreed to pay $58.7 million in disgorgement and $8.6 million in prejudgment interest. Herbalife also agreed to self-report on its compliance program enhancements to the DOJ and SEC for three years. Both the DOJ and SEC noted that the resolutions reflected Herbalife’s cooperation and remediation.