Audrey Strauss, the Acting United States Attorney for the Southern District of New York (“SDNY”), and Acting Assistant Attorney General Brian C. Rabbitt of the Criminal Division of the United States Department of Justice (“DOJ”) announced today the filing of criminal charges against HERBALIFE NUTRITION, LTD. (“HERBALIFE”), a multinational corporation headquartered in Los Angeles, for conspiring to violate the books and records provisions of the Foreign Corrupt Practices Act (“FCPA”). The charges arise out of a decade-long scheme by HERBALIFE to falsify books and records and provide corrupt payments and benefits to Chinese government officials for the purpose of obtaining, retaining, and increasing HERBALIFE’s business in China. In connection with the filed charges, SDNY and DOJ entered into a deferred prosecution agreement (“DPA”) with HERBALIFE. Pursuant to the DPA, HERBALIFE admitted to participating in the charged conspiracy and will pay a criminal fine of $55,743,093.
Acting U.S. Attorney Audrey Strauss said: “As admitted in the deferred prosecution agreement entered into today, Herbalife approved the extensive and systematic corrupt payments to Chinese government officials over a 10-year period to promote and expand Herbalife’s business in China. Moreover, in an effort to conceal this widespread corruption scheme, Herbalife maintained false accounting records to mischaracterize these improper payments as permissible business expenses. In addition to admitting its criminal conduct, Herbalife has agreed to pay combined penalties of more than $123 million. This case signifies this Office’s commitment to ensuring that companies operating in the U.S. do not gain an unfair advantage through corruption and illegal bribes of foreign officials.”
Acting Assistant Attorney General Brian C. Rabbitt said: “By engaging in a decade-long scheme to falsify its books and records to conceal corrupt and other improper expenditures, Herbalife misrepresented the information available to investors. Today’s resolution reflects the department’s ongoing commitment to combating corruption and ensuring that investors can trust the accuracy of the financial statements of publicly traded companies.”
According to the allegations contained in the criminal Information, which was filed today in Manhattan federal court, the statement of facts set forth in the DPA, and other publicly available information:
HERBALIFE conducts business operations in China through a group of wholly owned subsidiaries based in China (collectively, “Herbalife China”). By 2016, Herbalife China was responsible for approximately $860 million, or approximately 20 percent, of HERBALIFE’s worldwide annual net sales, which exceeded $4 billion. In China, to engage in direct selling – selling a company’s products through independent sales representatives – Chinese law required a company to obtain a direct selling license from national authorities as well as local authorities for each province in which a company intended to engage in direct selling. From March 2007 through 2016, Herbalife China obtained licenses to engage in direct sales in 28 provinces.
Yanliang Li, a/k/a “Jerry Li,” was the director of sales and/or sales vice president at Herbalife China from in or about 2004 through in or about December 2007, and then the managing director of Herbalife China from in or about December 2007 through in or about April 2017. From in or about December 2012 through in or about February 2017, Li also held the title of senior vice president at HERBALIFE. Hongwei Yang, a/k/a “Mary Yang,” was a high-level executive at Herbalife China and the head of external affairs from in or about 2006 through in or about April 2017.
Beginning in or about at least 2007 through in or about 2016, HERBALIFE, through Li, Yang, and others, engaged in a scheme to falsify books and records and provide corrupt payments and benefits to Chinese government officials, including officials of Chinese government agencies and a state-owned media outlet, for the purpose of obtaining, retaining, and increasing HERBALIFE’s business in China by, among other things, (1) obtaining and retaining certain of Herbalife China’s direct selling licenses; (2) improperly influencing certain Chinese governmental investigations into Herbalife China’s compliance with Chinese laws applicable to its business; and (3) improperly influencing certain Chinese state-owned and state-controlled media for the purpose of removing negative media reports about Herbalife China.
During the course of the scheme, in order to conceal these improper payments and benefits, HERBALIFE, through Li, Yang, and others, knowingly and willfully conspired and agreed with others to maintain false accounting records that did not accurately and fairly reflect the transactions and dispositions of HERBALIFE’s assets, by, among other things, falsely recording certain improper payments and benefits as “travel and entertainment expenses” and maintaining false Sarbanes Oxley sub-certification letters in HERBALIFE’s books, records, and accounts.
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In a related matter with the Securities and Exchange Commission (“SEC”), HERBALIFE agreed to pay to the SEC disgorgement and prejudgment interest totaling approximately $67,313,497.
In November 2019, the Government unsealed related criminal charges against Li and Yang, both of whom remain at large. See United States v. Li and Yang, 19 Cr. 760 (VSB).
Ms. Strauss praised the outstanding work of the Federal Bureau of Investigation and the U.S. Department Justice’s Office of International Affairs of the Department’s Criminal Division, and also thanked the SEC for its assistance and cooperation in this investigation.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the FCPA Unit of the Fraud Section of DOJ’s Criminal Division. Assistant United States Attorneys Joshua A. Naftalis and Scott A. Hartman, and Trial Attorney Jason Manning of the FCPA Unit, are in charge of the prosecution.