On September 21, 2016, the SEC reached a $766,000 settlement with Nu Skin Enterprises, Inc. over charges that it violated the internal controls and books and records provisions of the FCPA. The SEC alleged that Nu Skin’s China subsidiary made a $150,000 payment to a charity chosen by a Chinese Communist party official in order to obtain that official’s assistance in terminating an on-going provisional agency investigation into Nu Skin’s compliance with local rules for direct selling.
The settlement reveals important lessons for U.S. companies regarding oversight of charitable contributions made by their foreign-based subsidiaries. According to the Order, Nu Skin’s China subsidiary had informed its U.S. counterpart of the donation but omitted the relationship between the donation, foreign official, and provisional agency investigation. While the U.S. company flagged the FCPA risks a large donation in China may raise, and advised its China subsidiary to consult with outside U.S. legal counsel to assure compliance, the counsel’s advice was ultimately ignored by the subsidiary. The SEC concluded that Nu Skin failed to maintain necessary internal controls, specifically with respect to due diligence conducted by its China subsidiary regarding charitable contributions and accounting for such donations.
Notably, this is the second time that the government has charged a company with violating the FCPA based only on a charitable donation to purportedly buy the influence of a foreign official. The settlement illustrates the SEC’s increasing focus on charitable donations in high risk markets.