Herbalife Nutrition Ltd. will pay more than $122 million in penalties to resolve a U.S. government investigation into bribery and falsified records concerning its operations in China. The Department of Justice announced the resolution on August 28, detailing a scheme to improperly influence Chinese officials to secure and maintain business licenses.
The company engaged in a decade-long pattern of corrupt payments and benefits aimed at obtaining and retaining direct selling licenses in China. This practice became necessary because Herbalife’s business model, structured as a pyramid scheme, could not succeed organically in the Chinese market. The improper payments were often disguised as legitimate business expenses.
Records show that as early as 2006 and 2007, Herbalife China personnel falsified expense reimbursement documents related to entertaining government officials. A conversation documented by the Securities and Exchange Commission involved a managing director inquiring if a specific official had been “taken care of” with money, to which the response confirmed payment and noted its effectiveness. Herbalife secured its initial direct selling license in March 2007, followed by gifts to officials involved in the process.
The U.S. government’s investigation, which also involved the SEC, uncovered extensive efforts by Herbalife to conceal these illicit transactions. The company falsified its books and records to hide corrupt payments and benefits provided to Chinese government officials. This resolution brings to light previously obscured business practices of U.S. multilevel marketing firms operating internationally.