Dive Brief:
- Herbalife Nutrition has agreed to pay more than $67 million to settle charges it violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA), the Securities and Exchange Commission announced.
- The company will also pay a criminal fine of more than $55 million to settle an action brought by the Department of Justice and the U.S. Attorney's Office for the Southern District of New York.
- "Herbalife's inadequate internal accounting controls allowed an environment of corruption to exist in its Chinese subsidiaries for more than a decade," senior associate director of the SEC's New York Regional Office Sanjay Wadhwa said.
Dive Insight:
According to the SEC, Herbalife's Chinese subsidiaries made payments and provided meals, gifts, and other benefits to government officials to obtain sales licenses, curtail investigations of Herbalife China, and remove negative coverage in state-owned media.
In addition, the company's managers asked employees to falsify expense documents to conceal the improper payments.
The company's executives received reports of high travel and entertainment spending in China and violations of Herbalife's internal FCPA policies, but failed to detect and prevent improper payments and benefits and the falsified expense reports. Executives inaccurately recorded improper payments and benefits in the company's books and records, and they failed to devise and maintain a sufficient system of internal accounting controls.
"A strong system of internal controls is vital for issuers, especially those with operations around the globe," Wadhwa said.
The company agreed to desist from committing violations of the books and records and internal accounting controls provisions of the FCPA, and agreed to pay disgorgement of more than $58.6 million and prejudgment interest of more than $8.6 million. It also agreed to report on the status of its remediation and compliance measures for a three-year period.
