Herbalife Hit With $123 Million Fine For Bribing Chinese Officials

Avon and Nu Skin and Mary Kay— oh my!

In the world of multi-level marketing schemes, Herbalife ranks at the top of the pyramid. Get it? But this Friday, the nutritional shake and supplement company agreed to pay $123 million to settle bribery charges.

Third Time’s The Charm

This is the third time in four years that Herbalife has faced federal charges. In this case, Herbalife allegedly, “engaged in a scheme to falsify books and records and provide corrupt payments and benefits to Chinese government officials.” The company allegedly did this to develop its reach in China between 2007 to 2016.

Only a year ago, the company had to pay $20 million to the Securities and Exchange Commission, after misleading investors about its business model, which closely resembles a pyramid scheme. Executives reportedly told an employee to overlook expense account limits in China. This was likely related to the current bribery charges. The fallout from the controversy led to the resignation of CEO Rich Goudis. 

Before that, in 2016, Herbalife had also been forced to pay another hefty fine. The company settled Ponzi charges by paying the Federal Trade Commission $200 million.

One wonders if they have a budget line to cover these ongoing expenses.

A Parasitic Industry

The multi-level marketing (MLM) industry is notorious for benefiting those at the top, while all but guaranteeing loss for those at the bottom.

The model involves people singing up to sell a product. These are often beauty and lifestyle products. It is very difficult for people to turn a profit in this way, but they can make a far larger amount by recruiting other sellers. As such, the products are not the real commodity of the operation — new recruits are. Although these schemes can prove devastating for participants, they are difficult to legislate.

The Federal Trade Commission doesn’t have a very clear definition for a “pyramid scheme,” and the models are not inherently illegal. That’s why many of these companies simply rack up a number of cases, then pay out to federal departments every few years. The United Kingdom is similarly lenient on MLMs, while the European Union is quicker to crack down on anything that resembles a pyramid scheme. Still, it’s very difficult to prove illegal behavior unless executives are outright deceiving consumers. 

Continuing To Pay

On Friday, Herbalife entered into a deferred prosecution agreement. The deal states that if Herbalife is able to pay civil and criminal penalties in three and a half years, the DOJ will drop the charges. Herbalife must now pay $123 million in fines, bringing their total tab to $343 million. 

Although the company’s reported net profit was around $82 million last year, revenue was staggering, nearing $5 billion. All of this suggests that Herbalife considers the occasional federal fine a small price for big profit.

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Reprinted with permission from: https://werax.com/herbalife-hit-with-123-million-fine-for-bribing-chinese-officials/