Herbalife facing investigation over anti-corruption compliance in China

By Millette Burgos contact

- Last updated on GMT

Herbalife increased its China reach last year
Herbalife increased its China reach last year
Herbalife has confirmed that it is facing a probe from the US Securities and Exchange Commission (SEC) regarding anti-corruption compliance in China. 

Reports added that the US company, which operates in 93 countries including key Asian markets, is also conducting its own review into the matter and has informed the SEC about the internal investigation.

Herbalife disclosed the updates in an application for US$1.32bn in debt financing with Credit Suisse.

"The company is cooperating with the SEC's investigation and cannot predict the eventual scope, duration or outcome of the matter at this time," Herbalife said.

Herbalife China

Last year, the company got the green light from China to proceed with its direct selling operations in three additional provinces, namely the Gansu, Ningxia and Inner Mongolia provinces.

Yet while Chinese regulators allowed Herbalife to flourish, questions from the US continues to be raised regarding Herbalife’s business practices in China.

For example, China has strict regulations when it comes to direct selling. Only direct-selling companies may recruit sellers, and it cannot charge any fees or require product purchases in order to join the scheme. In addition, compensation must be based only upon direct sales to consumers by the sales promoter.

Last year, Herbalife reached a US$200 million settlement with the US Federal Trade Commission (FTC) for what the FTC termed as “unfair and deceptive practices”.

The company agreed to make significant changes to the way it interacts with its distributors in addition to paying the $200 million to compensate distributors whom FTC claimed it defrauded

With disclosure of Herbalife’s latest woes, company shares dropped more than 3 per cent last week.

Separately, the company said it projects reduced sales for the fourth quarter and a lower initial forecast for fiscal 2017.

 

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