Herbalife has agreed to settle charges with the US Securities and Exchange Commission (SEC) and has been issued with a criminal fine in relation to violations of the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA). The SEC alleged that Herbalife's Chinese subsidiaries offered payments, meals, gifts and other benefits to Chinese officials in connection with obtaining sales licenses and avoiding government investigations and other negative coverage in state-owned media. Employees of Herbalife China were allegedly asked to falsify expense documents to conceal the improper payments. The high expenses allegedly violated Herbalife's internal FCPA policies but the violations were not detected by Herbalife's executives who subsequently failed to detect and prevent the falsified expense reports and improper payments and benefits. The SEC order found that Herbalife had failed to devise and maintain a sufficient system of internal accounting controls.
Herbalife received a criminal fine of $55 million and agreed to pay disgorgement of more than $58.6 million and prejudgment interest of more than $8.6 million as part of the SEC settlement. Under the terms of the SEC settlement, Herbalife agreed to report on the status of its remediation and compliance measures for a three year period.