I’ve discussed Herbalife on this blog before in great detail. You can see the post here. Well, yet again, they’ve gotten themselves into hot water. News is out that they’ve agreed to pay penalties of over $123 million in order to resolve charges against them for bribery of Chinese officials, and trying to falsify their accounts in order to benefit their business in China.
This is obviously huge on the face of it, but does make you wonder whether there is far more of this type of behaviour going on behind closed doors at Herbalife HQ.
It was US Officials who charged Herbalife with the claim of making corrupt and illegal payments to Chinese government officials and media outlets for almost 10 years! These payments were mostly in order to obtain licenses, which would allow them to sell products and influence the media coverage of the company. In order to keep these payments hidden, Herbalife have been utilising false accounting records. In this case, it was mostly recording payments and expenses as “Travel & Entertainment Expenses” when clearly that wasn’t the case.
I suspect this may lead to further investigations or queries on the legitimacy of Herbalife as a business, as well as their ethics. It also calls into question the auditors who audited the company over those 10 years. This involves both PwC and KPMG over that period. KPMG were withdrawn as auditors in 2013 because the KPMG partner had leaked data.
The initial settlement includes admitting to the charges, and a fine of $55.7 million, but the total combined penalties relating to this is going to top over $123 million.
When asked by CNN, Herbalife did not respond to any requests for comment on this case, but it is clear that they know they’re guilty after clearly admitting wrongdoing during the conclusion of the case. They stated to US officials that they “admit, accept, and acknowledge that they are responsible….for the acts of their officers, directors, employees, and agents”.
Last year China contributed about 16% of Herbalife’s total net sales – which shows that this bribery involvement has had a material impact upon the business overall. It is entirely possible that without these payments, Herbalife wouldn’t have been anywhere near as successful in Asia as they currently are.
Brian Rabbitt, who acted as assistant attorneygeneral for the US Department of Justice’s criminal division stated that “By engaging in a decade-long scheme to falsify its books and records to conceal corrupt and other improper expenditures, Herbalife misrepresented the information available to investors.”
As we know, this definitely isn’t the first time that Herbalife have landed in trouble over the years. In 2016, the company had to pay the US Federal Trade Commission $200 million to settle a case for claims that consumers selling Herbalife products (distributors) were losing money. This ties in with my view that Herbalife is one of the key Pyramid Schemes active today. Further to this, in 2012, Bill Ackman accused Herbalife of being a Pyramid Scheme because of the Multi-Level Marketing (MLM) strategy that it applies. He famously shorted the stock for a value of $1 billion at the time.