Dietary supplement maker Herbalife said in a regulatory filing Thursday it has set aside a total of $123 million in accrued liability concerning an investigation into alleged violations of the books-and-records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) in China.

As first disclosed by the company in January 2017, Herbalife reiterated in its latest quarterly report that the Securities and Exchange Commission and the Department of Justice have been conducting investigations “mainly focused on the company’s China external affairs expenditures, its China business activities, adequacy of, and compliance with, the company’s internal controls in China, and accuracy of the company’s books and records relating to its China operations.”

Herbalife said it “conducted its own review and implemented remedial and improvement measures based upon this review, including but not limited to replacement of a number of employees and enhancements of company policies and procedures in China.”

In November 2019, two former Herbalife executives—“Jerry Li,” the former head and managing director of Herbalife’s China subsidiary, and “Mary Yang,” who formerly ran the external affairs department of Herbalife’s China subsidiary—were charged with FCPA violations for bribing Chinese government officials from around 2007 to 2017 to obtain and retain business and other benefits for the company and then trying to cover up the illicit payments.

Proposed settlement

As a result of discussions with SEC staff and the Justice Department, Herbalife said in Thursday’s report it “has reached an understanding in principle with respect to the material terms of settlement … relating to alleged activities that took place in 2006 through 2016.” Based on these understandings, Herbalife said it would enter into an administrative resolution with the SEC concerning alleged violations of the books-and-records and internal controls provisions of the FCPA.

Additionally, Herbalife said it would separately enter into a deferred prosecution agreement (DPA), under which the Justice Department would defer criminal prosecution for a period of three years resulting from a conspiracy by Herbalife to violate the books-and-records provisions of the FCPA. Among other things, the company said it would also undertake compliance self-reporting obligations for the three-year term of the respective agreements with these agencies.

If Herbalife remains in compliance with the DPA during its three-year term, the deferred charge against the company would be dismissed with prejudice. In addition, Herbalife said it would agree to pay the SEC and Justice Department aggregate penalties, disgorgement, and prejudgment interest of approximately $123 million. This would include $40 million previously accrued and disclosed by Herbalife in its annual report for fiscal year 2019.

“Final resolution of these matters is subject to negotiation of documentation satisfactory to all the parties,” Herbalife’s newest filing stated. It is also subject to final approvals by the company’s board of directors, the SEC, and the Justice Department. The DPA may also require court approval.

Herbalife said that while it believes, based on the foregoing terms, it’s nearing resolution of these matters, “there can be no assurance as to the timing or the ultimate terms of any final settlements, including the principle terms discussed above, or that final resolutions will be reached at all.”