Herbalife Nutrition Ltd. was a California-based multi-level marketing corporation that sold health care, personal care, and other products in more than 90 countries around the world, including China. While multi-level marketing is legal in the United States, it is prohibited under Chinese law, which allows only "direct selling," i.e. selling a company's products through independent sales representatives. Herbalife operated in China through a group of wholly-owned subsidiaries--Herbalife (Shanghai) Management Co., Ltd.; Herbalife (China) Health Products Ltd.; Herbalife (Jiangsu) Health Products Ltd.; and Herbalife NatSource (Hunan) Natural Products Co. Ltd.--collectively known as Herbalife China. Throughout the relevant period, Herbalife China’s financial statements were consolidated with those of Herbalife.
According to the documents in this case, between 2007 and 2016, Herbalife engaged in a scheme to falsify its books and records and provide corrupt payments and benefits to officials of the Chinese government as well as a Chinese state-owned media outlet. This scheme was perpetrated by Herbalife China’s then-Managing Director, Yanliang Li, aka “Jerry Li,” and Herbalife China’s then-Director of External Affairs, Hongwei Yang, aka “Mary Yang” and others for the purpose of (1) obtaining and retaining certain of Herbalife China’s direct selling licenses; (2) improperly influencing certain Chinese governmental investigations; and (3) improperly influencing certain Chinese state-owned and state-controlled media to remove negative media reports about Herbalife China. In all, Herbalife's books reflected that Herbalife China reimbursed External Affairs employees more than $25 million for purportedly entertaining and giving gifts to the Chinese officials, some of which was used for improper purposes.
On August 28, 2020 the DOJ filed a single count Information in the Southern District of New York against Herbalife alleging conspiracy to violate the books and records provisions of the FCPA. On the same date, the company entered into a deferred prosecution agreement with the DOJ. Under the terms of the agreement, Herbalife agreed to pay a criminal fine of $55,743,093, which represents a 25% downward departure below the bottom of the U.S. Sentencing Guidelines range, and to self report to the DOJ for three years on the status and implementation of the company's enhanced anti-corruption compliance policies and procedures. The DOJ noted Herbalife's cooperation and remediation.
In a related administrative proceeding settled on August 28, 2020, the SEC ordered Herbalife to cease and desist violations of the books and records and internal controls provisions of the FCPA. Under the terms of the proceeding, Herbalife agreed to pay disgorgement of $58,669,993.00 plus prejudgment interest of $8,643,504.50 and to report the status of the company's remediation and implementation of compliance measures to the SEC for three years. The SEC noted the company's cooperation and remediation and agreed not to impose a civil penalty because a criminal penalty was imposed in the parallel DOJ action.
In related proceedings, both filed on November 14, 2019, the DOJ filed a three count indictment in the Southern District of New York against Li and Yang alleging (1) conspiracy to violate the anti-bribery and internal controls provisions of the FCPA, (2) perjury, and (3) destruction of records in a federal investigation, and the SEC filed a civil complaint against Li in the Southern District of New York alleging violations of the anti-bribery, books and records, and internal controls provisions of the FCPA. Those actions are ongoing.