Herbalife Nutrition fined $123m over corrupt payments

Global supplement and weight management company Herbalife Nutrition Ltd has been ordered to pay over $123m (£91m) in fines and penalties for accounting violations, including the payment of bribes, following two regulatory actions in the US

The Securities and Exchange Commission (SEC) said Herbalife has agreed to pay more than $67m to settle charges that it violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA). 

In a parallel action, the US Department of Justice and the US Attorney’s Office for the Southern District of New York announced that Herbalife will pay a criminal fine of more than $55m. 

The SEC alleged that Herbalife’s Chinese subsidiaries made payments and provided meals, gifts, and other benefits to Chinese officials in connection with obtaining sales licenses, curtailing government investigations of Herbalife China, and removing negative coverage of Herbalife China in state-owned media. 

The regulator said Herbalife China managers asked employees to falsify expense documents in an effort to conceal the improper payments. 

It claimed that Herbalife executives received reports of high travel and entertainment spending in China and violations of Herbalife’s internal FCPA policies, but failed to detect and prevent improper payments and benefits and the falsified expense reports. 

In addition, the improper payments and benefits were recorded inaccurately in Herbalife’s books and records and the SEC said that Herbalife failed to devise and maintain a sufficient system of internal accounting controls. 

Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, said: ‘Herbalife’s inadequate internal accounting controls allowed an environment of corruption to exist in its Chinese subsidiaries for more than a decade.

‘A strong system of internal controls is vital for issuers, especially those with operations around the globe.’

Herbalife agreed to cease and desist from committing violations of the books and records and internal accounting controls provisions of the FCPA.  The company is to pay disgorgement of more than $58.6m and prejudgment interest of more than $8.6m, and to report on the status of its remediation and compliance measures to the SEC for a three-year period.

In November 2019 the SEC charged Herbalife China’s then-managing director, Jerry Li for his role in orchestrating the scheme to bribe Chinese government officials.       

As well as the SEC action Herbalife entered into a deferred prosecution agreement with the Department of Justice and the US Attorney’s Office for the Southern District of New York over charges of one count of conspiracy to violate the books and records provision of the FCPA.

Acting US attorney Audrey Strauss of the Southern District of New York, said: ‘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.

‘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 $123m.  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.’

The criminal monetary penalty for Herbalife reflects a 25% reduction because of Herbalife’s full cooperation with the government’s investigation.

SEC Order

Average: 5 (2 votes)