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U.S. says Herbalife to pay $123.1 million to resolve China bribery case

Herbalife Ltd. independent distributors look at available products before placing orders at the Los Angeles Distribution Center in Carson, California

Patrick T. Fallon | Bloomberg | Getty Images

Herbalife Nutrition will pay $123.1 million to settle criminal and civil charges it bribed Chinese officials in government agencies and media outlets to boost its business in China, the U.S. Department of Justice said on Friday.

The multi-level marketing company, whose products include dietary supplements, entered a three-year deferred prosecution agreement in which it admitted to conspiring to violate the books and records provision of the Foreign Corrupt Practices Act, an anti-bribery law.

Authorities said Herbalife schemed from 2007 to 2016 to bribe Chinese officials with cash, entertainment, meals and travel to obtain direct selling licenses, reduce government scrutiny and suppress negative coverage by state-controlled media.

China accounted for 19% of Herbalife’s $4.49 billion of net sales in 2016, up from 7% in 2006, regulatory filings show.

Herbalife approved “extensive and systematic corrupt payments” to Chinese officials, while falsifying records to make the bribes appear as legitimate business expenses, Acting U.S. Attorney Audrey Strauss in Manhattan said in a statement.

The company will pay a $55.74 million criminal fine, plus $67.31 million in disgorgement and interest to resolve a related U.S. Securities and Exchange Commission civil case.

Herbalife, which has offices in Los Angeles, said it previously set aside funds for the settlement, which also requires it to upgrade compliance procedures.

Last November, U.S. prosecutors filed related corruption charges against Yanliang Li, who led Herbalife’s Chinese unit, and Hongwei Yang, who led its external affairs department. Both are Chinese citizens and remain at large.

Six weeks earlier, Herbalife agreed to pay $20 million to settle SEC charges it misled investors about its Chinese business.

Hedge fund manager William Ackman made a $1 billion bet against Herbalife starting in 2012, accusing it of violating Chinese direct-selling laws and being a pyramid scheme. He later unwound his position as Herbalife’s stock price kept rising.

Herbalife shares were down 98 cents, or 2%, at $48.70 at midday.

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