DOJ and the SEC settled concluded its long-pending FCPA investigation of Herbalife Nutrition Ltd (“Herbalife”).
Herbalife entered into a 3-year deferred prosecution agreement (“DPA”) with DOJ and an administrative order with the SEC, and agreed to pay $55 million in criminal penalties and $67 million in disgorgement and prejudgment interest to the SEC. In light of the criminal penalties, the SEC declined to impose any civil penalties.
The government filed a one-count Information charging Herbalife with conspiracy to violate the books and records provisions of the FCPA.
In November 2019, DOJ indicted Yangling Li, aka Jerry Li, and Hongwei Yang, aka Mary Yang, two former Herbalife executives in China for participating in a ten-year bribery scheme. Li was the former head of Herbalife’s Chinese operation, and Yang headed Herbalife’s external affairs department. Both defendants were charged with conspiracy to violate the FCPA. Yangling Li was also charged with perjury for lying under oath for false statements made during an SEC deposition and destruction of evidence. Both defendants remain at large.
Herbalife Bribery Scheme
Over a ten-year period, Herbalife built a multi-level sales operation in China, which accounted for approximately 20 percent of Herbalife’s global annual sales of $4 billion.
Herbalife’s external affairs unit in China was responsible for interacting with Chinese government agencies and media operations. External affairs employees entertained Chinese officials, provided meals, hospitality and gifts. Over a ten-year period, external affairs employees were reimbursed for roughly $25 million in expenses for meals, hospitality and gifts.
Herbalife’s China business also depended on securing licenses for direct selling operations from central and provincial governments connected to the Ministry of Commerce (“MOFCOM”). The regulation and oversight of direct selling operations was conducted by central and provincial entities as part of the Administration for Industry and Commerce. China Economic Net is a state-owned media company that published articles about business issues in China.
The bribery scheme was executed by Herbalife executives to ensure that Herbalife secured direct selling licenses, avoided government investigations and oversight, and suppressed negative coverage by government-owned media outlets.
As an example, DOJ cited the fact that, in late 2006 through early 2007, while Herbalife’s initial application for direct selling license was pending, Herbalife made various payments and benefits to Chinese government officials responsible for review and approval of its license application. A Herbalife executive suggested to a China executive that they falsify expense reimbursement documents in connection with the entertainment of Chinese government officials.
Continuing thereafter, Herbalife continued to provide illegal payments and benefits to Chinese government officials, make false records regarding these expenses as travel and entertainment expenses,” and execute false Sarbanes-Oxley false certification letters.
DOJ Settlement
In reaching this settlement, DOJ applied its Corporate Enforcement Policy factors. Herbalife did not voluntarily disclose the matter. Herbalife’s conduct was persistent and lasted for approximately a decade. The bribery scheme was carried out by senior level executives. Herbalife did not maintain an effective compliance program.
Herbalife was credited with cooperation with the investigation and for its remediation efforts. Herbalife terminated and disciplined individuals involved in the misconduct, enhancing its compliance program and increasing the resources dedicated to compliance.
Based on all of these factors, DOJ was awarded a 25 percent reduction from the bottom of the applicable U.S. Sentencing Guidelines range.
