This year, in 2019, two Chinese Herbalife executives were indicted on various charges. The SEC also filed a lawsuit against one of the executives who oversaw HerbaLife’s operations in China for more than a decade.
Herbalife faced both criminal and civil prosecution related to alleged FCPA violations. Since 2007, Yanliang Li (also known as Jerry Li, seen on the right) has served as Managing Director of Herbalife in China.
Hongwei Wang, aka Mary Yang, was the Head of External Affairs of Herbalife and one of his partners in crime. in 2019, the Department of Justice decided to defer prosecution in exchange for a $122 million fine for the company. In this case summary from the Department of Justice, in case you missed it:
“As part of the settlement of a government investigation into possible Foreign Corrupt Practices Act breaches, Herbalife Nutrition Ltd. (Herbalife), a publicly traded business based in the United States, has agreed to pay penalties totaling more than $122 million (FCPA).
The resolution stems from Herbalife’s attempt to obtain, keep, and expand its business in China through the use of illicit payments and incentives to government officials.
The SEC had separately indicted and sued Li and Wang, but I didn’t know that at the time. On October 22, 2019, indictments were filed under seal against Li and Wang. On November 14th, an indictment was revealed. The court’s schedule for criminal cases has not changed significantly since we last heard from them. Both Li and Wang were born and raised in China and are currently residing there.”
As far as I am aware, the US government is still searching for them. On November 14, 2019, the SEC officially initiated a civil action against Li.
To secure direct selling licenses and prevent government investigations into (Herbalife’s) China Subsidiary’s business activities, Li bribed local, provincial, and national government officials in China between 2006 and 2016.
Li oversaw a plan in which cash, gifts, travel, meals, and entertainment were used to bribe officials from 2006 to 2007, and again from December 2007 to 2016, while also falsifying expenditure records for those payments and (ii) getting beyond Herbalife’s internal accounting processes.
Li bribed officials in the Chinese government to secure permits and halt probes.
By the end of 2006, (Herbalife’s) China Subsidiary had applied to the Chinese government for its first direct selling license.
(Herbalife’s) China Subsidiary bribed officials at the China Ministry of Commerce, which issues direct selling licenses in China, and at regional branches of the China State Administration of Industry and Commerce in order to speed up the application process (another government agency that participated in the licensing process).
Those bribes were paid at Li and Wang’s direction.
In one taped conversation from January 10, 2007, Li inquired of Wang as to whether or not the China Subsidiary of Herbalife had “taken care of” a Ministry of Commerce official (“Official 1”).
Wang responded, “Of course we have,” when asked if they had paid the money to Official 1. As Li put it, money had a good effect on him.
To end government investigations into (Herbalife’s) China Subsidiary and to avoid or minimize fines levied against (Herbalife’s) China Subsidiary, (Herbalife’s) China Subsidiary allegedly authorized the payment of bribes to Chinese government officials. For instance, Li and Wang, for instance, discussed such payments to officials in Jilin Province on a March 15, 2007 phone call that was recorded and released. Li said to Wang, “I paid 35,000 yuan to the government in Jilin to create the connection,” which is almost $4,500. It seems to me that spending money beforehand is preferable to spending it later.
After all, this cost is negligible in comparison to what we would have to pay in penalties. Li and Wang spoke on the phone on December 5th, 2007 and it was recorded. They discussed payments that China Employee 2 made to officials in Zhejiang province to halt multiple government investigations into China Subsidiary.
As Li explained to Wang, he had instructed China Staff Member 2 “to address those tasks that needed to be done urgently.”
Li continued to bribe government officials in China after (Herbalife’s) China Subsidiary was granted its first direct selling license.
An example of this is a recorded phone contact between Li and a Shaanxi Province State Administration of Industry and Commerce official on September 8, 2009. (“Official 2”).
Official 2 informed Li that China Subsidiary could be subject to a fine if “some problem” were to arise in the Chinese capital.
Li was told by Official 2 that he did not “want to speak too much with you over the phone,” but that he was interested in becoming a “consultant” to China Subsidiary and that the money would go toward his “son’s house purchasing fund.”
After hearing that the license process for China Subsidiary in Shaanxi Province was nearly finished, Li complimented Official 2 and said, “You have surely helped us to get this done.”
The second official told Li that he would be traveling to Beijing to meet with top leaders because “it is a relationship for life,” not just to resolve the current dispute.
To prevent bad publicity for (Herbalife’s) China Subsidiary, Li bribed government officials at state-owned media outlets in China.
For instance, in January 2013, the China subsidiary of (Herbalife) was the subject of a negative story published by a state-owned media outlet (“Media Outlet 1”).
On a call recorded for the 22nd of April, 2013, Wang informed Li that she had spoken with the President of Media Outlet 1 (“Media Official 1”) and requested that he retract the critical piece.
“He has already taken what he should take, eaten what he should eat, drunk what he should drink, and utilized what he should use,” (Wang) said to Li.
Li retorted, “I guess he should get to work then.”
Wang reportedly informed Li that she had asked Media Official 1, “If you ruined us, where could you obtain money?” It was met with laughter from the first media official, who then consented to the removal of the critical pieces.
Li spoke to Wang, “You’ve done a fantastic job.”
Media Outlet 2, another state-owned publication, ran a series of critical stories about China Subsidiary in 2013.
After meeting with the Chief Editor of Media Outlet 2, China Employee 3 said in a recorded phone call with Li on August 28, 2013 that “they would cease after publishing two stories and we would start to explore collaboration.”
When the Chief Editor of Media Outlet 2 showed him the door, China Employee 3 said he “placed our ‘goodwill’ on the desk.” He acted as though he had not noticed it. Basically, there shouldn’t be any issues here.
Before attempting to negotiate “partnership,” Li suggested that China’s third employee ask Media Outlet 2 to publish good articles.
The company’s accounts originally reflected bribes to Chinese officials as “red envelope” payments. Wang informed Li of the issue, and the latter had the books altered to “conceal the payments.” Herbalife, meanwhile, claims the Chinese arm misled them.
The Internal Affairs (IA) team of Herbalife was informed that the unusually high EA costs were actually necessary for doing business in China.
In response to IA’s concerns, Li admitted that the China Subsidiary had certain compliance issues (such as the usage of bogus receipts), but falsely assured the American company that he would discipline and teach staff to increase compliance with China Subsidiary’s regulations.
In her testimony before the Commission staff, Li denied knowing that (Herbalife’s) China Subsidiary made any payments to Chinese government officials on October 20 and 21, 2016, in the presence of the (Herbalife) officer responsible for its FCPA compliance (and other Herbalife representatives).
On December 24, 2020, the SEC used the Hague Convention to serve documents on Li in China. Li did not respond to the SEC’s case until September 2021, at which point the SEC sought default judgment. The SEC was able to obtain a default judgment against Li on June 27. The judge granted a restraining order preventing Li from repeating the offense.
Additionally, he was hit with a civil penalty of $550,092. Li left Herbalife suddenly and vanished in 2017 as regulators began looking into the company.
At about that time, Wang probably left his job or was let go.