Herbalife to pay $122 million over alleged corruption in China

Herbalife Nutrition Ltd., a multi-level marketer of protein bars and shakes, vitamins and sports hydration products, has agreed to pay total penalties of more than $122 million to resolve a government probe into violations of the Foreign Corrupt Practices Act (FCPA).

The settlement stemmed from a scheme by Herbalife in which it falsified books and records and provided crooked benefits and payments to Chinese government officials, according to an Aug. 28 news release from the U.S. Department of Justice. Herbalife engaged in the illicit behavior, the release stated, so it could obtain, keep and increase its business in China.

Herbalife has agreed to pay a criminal penalty of more than $55 million and roughly $67 million to the U.S. Securities and Exchange Commission in a related matter, DOJ announced. The company entered into a deferred prosecution agreement with the government in connection with a criminal information filed in the Southern District of New York, which charged Herbalife with one count of conspiracy to violate the books and records provision of the FCPA.

“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,” Acting U.S. Attorney Audrey Strauss of the Southern District of New York said in DOJ’s news release. “Moreover, in an effort to conceal this widespread corruption scheme, Herbalife maintained false accounting records to mischaracterize these improper payments as permissible business expenses.”

Herbalife agreed to continue to cooperate with the U.S. government in any ongoing or future criminal investigations concerning the company, its executives, employees or agents, according to DOJ. The company also agreed to improve its compliance program and report to the government its implementation of the enhanced program.

An SEC order found "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," according to an SEC news release. 

Herbalife did not immediately respond to a request for comment.

This is the second major settlement Herbalife has announced with the U.S. government in recent years. In 2016, the company agreed to restructure its U.S. business operations and pay $200 million to compensate consumers to settle Federal Trade Commission charges that it deceived consumers into believing they could earn substantial sums selling its products.

The company recently reported net sales of $1.3 billion in the second quarter, an 8.6 percent increase over the prior-year period and the largest quarterly sales in its history. Sales in China grew 12 percent to $209.5 million.

John Agwunobi, chairman and CEO of Herbalife Nutrition, attributed the company’s results to its distributors’ efforts. “They worked hard to respond to increasing demand for quality nutrition products and to meet the needs of individuals seeking economic opportunity,” he said in an Aug. 6 earnings release.