Herbalife Nutrition Ltd (NYSE: HLF) agreed to pay a total of 123 million to settle the investigations into its alleged violations of the Foreign Corrupt Practices Act (FCPA).

Herbalife is a multi-level marketing (MLM) company developing and selling dietary supplements worldwide. The U.S. Department of Justice and the Securities and Exchange Commission (SEC) are investigating the company for allegedly engaging in corrupt practices in China.

Charges against Herbalife

The DOJ and the SEC alleged that Herbalife’s subsidiary in China bribed Chinese officials with cash, gifts, meals, and entertainment to obtain sales licenses, to end government investigation, and to remove negative coverage about it state-owned media.

Additionally, the U.S. regulator alleged that Herbalife China employees submitted and approved false expenses under the direction of their manager between 2012 and 2016. Those false financial expenses were incorporated into its parent company’s financial statements that were file in the United States.

Furthermore, the DOJ and the SEC alleged that Herbalife failed to detect and prevent its subsidiary from making improper payment to Chinese officials and falsifying its expense report. Its executives allegedly received reports regarding its Chinese subsidiary’s high spending on entertainment and travel as well as its violation of Herbalife’s internal FCPA policies.

Moreover, the regulators alleged that Herbalife inaccurately logged in its books and records the improper payments and benefits as well as the false expense report submitted by its Chinese subsidiary.

Finally, Herbalife allegedly failed to create and maintain a sufficient internal accounting control system.

In a statement, SEC New York Regional Office Senior Associate Director Sanjay Wadhwa said, “Herbalife’s inadequate internal accounting controls allowed an environment of corruption to exist in its Chinese subsidiaries for more than a decade.”

On the other hand, DO Criminal Division Acting Assistant Attorney General Brian Rabbit commented, “By engaging in a decade-long scheme to falsify its books and records to conceal corrupt and other improper payments to Chinese officials and state-owned entities, Herbalife misrepresented important information made available to investors.”

Details of the settlement between Herbalife, DOJ, and the SEC

According to the SEC Order, Herbalife submitted a settlement offer in anticipation of the Commission’s administrative proceeding against it.

Herbalife agreed to pay disgorgement of $58.66 million and prejudgment interest of $8.64 million. The company also agreed to engage in remedial and compliance measures for a period of three years and report the status of its remediation.

Separately, the company entered into a three-year deferred prosecution agreement (DPA) with the DOJ, in which it admitted accountability for criminal conduct related to certain findings of the SEC in its Order,

Herbalife agreed to a criminal fine of $55.73 million as part of its agreement with the Justice Department.  The company also agreed to cooperate in any ongoing or future investigations concerning its business, executives, employees, or agents.

Meanwhile, Acting U.S. Attorney Audrey Strauss of the Southern District of New York said “As admitted in the deferred prosecution agreement…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.”

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