Herbalife Nutrition Ltd. on Friday agreed to pay $123 million to settle charges that it provided corrupt payments to government officials in China and falsified its books and records.
The Los Angeles-based multilevel-marketing company entered into a deferred prosecution agreement with federal prosecutors in Manhattan during a virtual court hearing with U.S. District Judge Gregory Woods. It also reached a parallel agreement with the U.S. Securities and Exchange Commission.
The settlements resolve criminal and civil violations of the U.S. Foreign Corrupt Practices Act, which prohibits the payment of bribes to foreign government officials and requires companies to keep accurate books and records.
A spokesperson for Herbalife didn’t respond to a request for comment.
Herbalife, which conducts business in China through a group of subsidiaries, needed certain licenses to sell its products in China through independent sales representatives, according to the agreements.
From around 2007 to 2016 the company had engaged in a scheme to bribe Chinese officials in order to obtain the direct-selling licenses, federal prosecutors said. During that time, Herbalife obtained licenses in 28 provinces, they said.
The company also paid bribes to influence Chinese government investigations into Herbalife subsidiaries’ compliance with Chinese laws, as well as to influence Chinese state-controlled media to remove negative media reports, prosecutors said.
By 2016, Herbalife’s business in China represented about 20%—$860 million—of Herbalife’s global annual net sales, according to prosecutors. To conceal the bribes, Herbalife falsely recorded payments and other benefits as travel and entertainment expenses, they said.
Two former Chinese Herbalife executives helped facilitate the scheme, prosecutors said. The executives, Yanliang Li and Hongwei Yang, were charged last year with conspiracy to violate the FCPA.
Mr. Li also faces criminal perjury and destruction of records charges, and civil FCPA charges brought by the SEC. Efforts to reach the former executives for comment were unsuccessful.
Herbalife’s deferred prosecution agreement on Friday described numerous instances in which Mr. Li, Ms. Yang and other unnamed executives allegedly arranged so-called red envelopes, or monetary payments, and other gifts for Chinese officials.
In January 2017, for example, Mr. Li and Ms. Yang discussed a Chinese government official that Mr. Li had “taken care of” before having to answer questions about a provincial direct-selling license application, prosecutors said.
“[T]he money works well on him!” Mr. Li said, according to prosecutors.
Another remark cited by prosecutors occurred around November 2007, when a high-level Herbalife executive told Mr. Li that he wanted to live in Shanghai. But such a move would be too risky for legal reasons, the unnamed executive allegedly said. “There’s something called the FCPA, the Foreign Corrupt Practices Act and all of that stuff.”
Herbalife’s penalties include a $55.7 million criminal fine. The company also agreed to return about $67.2 million in illicit profits and interest on those profits.
The Justice Department said Herbalife hadn’t voluntarily disclosed the alleged misconduct. But it credited the company for its cooperation with the government and for allocating greater resources and personnel to its compliance program. As a result, an independent compliance monitor was unnecessary, the department said.
—Rebecca Davis O’Brien contributed to this article.
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Appeared in the August 29, 2020, print edition as ‘Herbalife Settles U.S. Allegations of Bribery in China.’