Former Herbalife execs charged with FCPA violations

According to an indictment filed in U.S. District Court for the Southern District of New York, “Jerry Li” (whose Chinese name is Yanliang Li), a Chinese citizen and the former head and managing director of Herbalife’s China subsidiary, and “Mary Yang” (Hongwei Yang), who formerly ran the external affairs department of Herbalife’s China subsidiary, participated in a scheme from around 2007 to 2017 to pay bribes to Chinese government officials—including employees of MOFCOM, AIC, and China Economic Net—to obtain and retain business and other benefits for the company.

The indictment further charges Li and Yang obtained reimbursement from Herbalife relating to the illicit payments by submitting “false and fraudulent expense claims” that were intended to circumvent Herbalife’s internal-accounting controls.

Specifically, Herbalife’s internal-accounting controls regarding gifts and entertainment of government officials prohibited the payment of bribes; established limits on the value, frequency, and nature of expenditures on government officials; and required employees of the China subsidiary’s external affairs department to provide receipts and other specific information, including the name of the government officials involved to obtain approval and reimbursement of their expenses.

According to the indictment, in a six-month period around July 2012 to December 2012, Yang “received approximately $772,433 in reimbursement for purportedly entertaining 4,312 government officials at 239 meals, or more than one meal per day.” Between 2007 and 2016, Herbalife’s China external affairs department reimbursed its employees “more than $25 million for entertaining and gift giving to Chinese government officials,” the indictment said.

On Thursday, the Securities and Exchange Commission filed a separate complaint against Li, alleging he bribed Chinese government officials “through payments of cash, gifts, travel, meals and entertainment and … falsified company expense reports to conceal the bribes.”

In September, Herbalife reached a $20 million settlement with the SEC for making false and misleading statements about its China business model in regulatory filings over a six-year period.

In a regulatory filing in February, Herbalife acknowledged its marketing plan in China was under investigation by the SEC. At the same time, the company said the SEC and DOJ’s investigation into potential violations of the FCPA with regard to its dealings in China was “proceeding.”