MANHATTAN (CN) — Previously dogged by allegations of running a pyramid scheme, Herbalife reached a settlement Friday of more than $123 million to defer U.S. prosecution over allegations that its executives conspired to disguise bribes in China.
“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,” Acting U.S. Attorney Audrey Strauss said in a statement. “Moreover, in an effort to conceal this widespread corruption scheme, Herbalife maintained false accounting records to mischaracterize these improper payments as permissible business expenses.”
Herbalife’s general counsel Henry Wang pleaded not guilty on behalf of the company during a Manhattan arraignment this morning before U.S. District Judge Gregory Woods, who adjourned proceedings for three years to give the supplements-marketing company a chance to clean up its act.
Accused of violating a provision of the Foreign Corrupt Practices Act, Herbalife’s alleged scheme ran nearly a decade between 2007 and 2016.
Two executives from the company’s Chinese subsidiary Herbalife China, director of sales Yangliang Li and his subordinate Hongwei Yang, are implicated but not charged.
The criminal information also shields the names of two Herbalife China executives.
Prosecutors claim that the scheme began after Chinese government officials shut down Herbalife China in December 2006, and the company allegedly sought to bribe their way to a lower fine.
“A few days later, during a telephone call in or about December 2006, two sales managers at Herbalife China discussed paying provincial officials in order to lower the fine amount associated with the closing of the store,” the 16-page criminal information states. “One of them said to the other: ‘I told Mary [Yang] that we should start negotiation at 80 and then lower it down to 70. I told the district bureau director that I would give 3 yuan for every 10 yuan lowered.’”
According to the information, Li and Yang discussed giving “red envelopes” that month and boasted early the next year about how successful the plan went.
“The money works well on him!” prosecutors quote Li saying.
Prosecutors claim that template for doing business went on for nearly a decade.
“In another example, between in or about September 2015 and in or about October 2016, Li, Yang, and others approved reimbursement of 920,000 yuan for the purported purchase of gifts from a particular vendor,” the information states. “These gifts, which were purportedly for Chinese government officials and media personnel, were fruits and vegetables from a farm near the city where Li and Yang were from. Li, and in some instances Yang, approved reimbursement to Yang and other [external affairs] employees for receipts showing more than 30 tons of purported produce purchases — without any documentation indicating that any produce was actually shipped.”
Between 2007 and 2016, Herbalife China employees reimbursed external affairs employees more than $25 million for purportedly entertaining and giving gifts to Chinese government and state-run media officials, prosecutors say.
The company’s admissions are contained in a 47-page deferred prosecution agreement released Friday but dated Aug. 24, this past Monday. Representatives for Herbalife did not respond to requests for comment.