Question

In: Accounting

NEW YORK -- Herbalife, a Los Angeles-based health and nutrition company, bribed Chinese government officials for...

NEW YORK -- Herbalife, a Los Angeles-based health and nutrition company, bribed Chinese government officials for a decade to grow its overseas business and falsified accounting records to cover up the payments, U.S. prosecutors said Friday in announcing corruption charges against the publicly traded company.

Herbalife agreed to pay combined penalties of more than $123 million to resolve the charges, federal prosecutors said.

The company admitted to the conspiracy as part of a deferred prosecution agreement it reached with the U.S. Justice Department and the U.S. Attorney's Office in Manhattan.

The charges were brought under the Foreign Corrupt Practices Act, which prohibits bribery of foreign government officials or company executives to secure or retain business.

Herbalife did not immediately respond to a message seeking comment.

Company officials began paying off Chinese government officials in 2007 in a bid to obtain licenses from national and local authorities the company needed to sell health and nutrition products.

They also bribed a state-owned media outlet “for the purpose of removing negative media reports about Herbalife China,” prosecutors said.

Herbalife falsely recorded the improper payments as “travel and entertainment expenses,” prosecutors said.

Herbalife has long been embroiled in litigation and regulatory actions over its business practices, which have been compared by some to a pyramid scheme.

Prosecutors said the company also agreed to pay more than $67 million in disgorgement — repayment of ill-gotten gains — and prejudgment interest to the Securities and Exchange Commission.

Question - What are your thoughts about this company? Violations of the Foreign Corrupt Practices Act are alleged. Do you think such regulations/laws are outdated?

Solutions

Expert Solution

As per the Provisions of Foreign Corrupt Practices Act, Applies to 2 Broad Categories of Persons that are those with formal ties to the United States and those who take action in furtherance of violation while in the United States. These Provisions Must be obey by Domestic Concerns and Issuers Even they are acting outside the Country.

Two Main Provisions an anti Bribery Provision which makes it unlawful for a US Company, or Citizen and certain foreign issuers of Securities, to make a corrupt payment to foreign official for the purpose of obtaining or retaining business.

Criminal Penalities for violations of the anti- bribery provisions of The Act includes fines upto $2,000,000 for Corporations and other Business entities and upto $ 100,000 for officers, Directors, Stockholders, Employees and Agents of such Entities. Individuals held Criminally liable can be subject to imprisonment for upto 5 Years.

As Per Given case, US Company Give Bribe To Chinese Comapny to Grow their Business Overseas . and Show the Falsified Records in the Financial Statements. and Also Business Involved in the Pyramid Scheme that Recruits members through a promise of Payments or Services for Enrolling Others into The Scheme rather than supplying investments or Sale of Products.

By Analysing Above Prvisions US Company will be liable to Criminal Liablilty which Fine can be upto $ 2,000,000.an if their officals also involve then they will be Liable for Penalty.


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