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Manufacturing
Provo, Utah, United States
Nationality of Foreign Officials: China
Summary of Allegations:
In 2013, sales representative of Nu Skin (China) Daily Use & Health Products Co. Ltd. (“Nu Skin China”), a wholly-owned subsidiary of Nu Skin Enterprises, Inc. ("Nu Skin"), allegedly held an unauthorized promotional meeting that violated local Chinese laws and regulations applicable to direct selling.
As a result, local authorities, Administration of Industry and Commerce ("AIC"), allegedly discovered the alleged violation and initiated an investigation of Nu Skin China. Following the initial investigation, the AIC allegedly informed Nu Skin China that enough information had been gathered to support that Nu Skin China had violated local direct selling laws through unauthorized sales activities.
In an alleged attempt to influence the ongoing investigation, a Nu Skin China personnel allegedly arranged a scheme to provide certain benefits, in forms of charitable donation and college recommendation letters, to a high-ranking Chinese Communist party official in exchange for a favorable outcome. The party official was a personal acquaintance of the Nu Skin China personnel and also former supervisor to the provincial head of the AIC.
Shortly after, the AIC allegedly informed Nu Skin China of its intention to charge the company and its sales staff with violations of local direct selling laws and impose a fine against the company in the amount of 2.8 Million RMB (approximately USD 431,088).
In response, Nu Skin China allegedly expressed the company's desire to reach an outcome in which the company was not charged and instead would make a charitable contribution in lieu of a fine to the AIC and also allegedly made separate request to the party official to intervene in the IAC matter in exchange for one million RMB donation to the charity previously identified by the official for this purpose. At the time, however, the charity had neither yet been established nor had operations in the province. Furthermore, Nu Skin China allegedly requested Nu Skin to expedite previous request by the party official to facilitate obtaining college recommendations letters to US universities from an influential US person for the party officials' child. Although the request had been made before the AIC investigation, it was allegedly elevated to "top priority" following the investigation. The agreement from an influential US person to write the college recommendation letters was later confirmed as secured.
Nu Skin China allegedly received notice of the AIC's final decision to neither charge nor fine the company few days after the donation ceremony took place. The ceremony was allegedly attended by a top AIC official, the party official and representatives of Nu Skin China.
Prior to the donation ceremony, Nu Skin China allegedly did alert Nu Skin of the proposed donation. However, Nu Skin China allegedly failed to disclose the relationship between the AIC investigation and both the donation and the request for recommendation letters. Regardless, Nu Skin did allegedly identify the donation as a potential violation of the U.S. Foreign Corrupt Practices Act ("FCPA") and thus allegedly advised Nu Skin China to consult with a US legal counsel in China to ensure its compliance with the FCPA. The outside counsel allegedly recommended Nu Skin China to include an anti-corruption language in the written donation agreement with the charity. Nu Skin China allegedly did include the anti-corruption language in the draft agreement, but omitted it in the final agreement. Nu Skin was allegedly not aware of such omission.
Nu Skin China allegedly inaccurately and/or unfairly recorded the payment as charitable donation rather than an improper payment to obtain public official's influence in its books and records.
Approximate Alleged Payments to Foreign Officials: One Million RMB (approximately USD 154,000) in charitable contribution and college recommendation letters to US universities by influential US person for public official's family
Business Advantage Allegedly Obtained: obtain the influence of a high-ranking Chinese Communist party official to impact an on-going provincial agency investigation
Agencies: United States: Securities and Exchange Commission
Results: Cease-and-Desist Order, Civil Penalty, Disgorgement
Year Resolved: 2016
Compliance Monitor:
Ongoing: No
Details:
In April 2015, the U.S. Securities and Exchange Commission ("SEC") informed the company that it was initiating a non-public, formal investigation into certain aspects of Nu Skin's operations in China and requested that the company voluntarily provide the SEC with certain information. In particular, the SEC's information requests were focused on a charitable donation Nu Skin made in China in 2013 and related issues. Nu Skin plans to cooperate with the investigation.
On 20 September 2016, Nu Skin, without admitting or denying the SEC's findings, entered into cease-and-desist order to settle the charges that the company violated the internal controls and books and records provisions of the U.S. Foreign Corrupt Practices Act ("FCPA") related to 2013 charitable contribution in China. As part of the settlement, Nu Skin agreed to pay disgorgement of USD 431,088, prejudgment interest of USD 34,600, and a civil money penalty in the amount of USD 300,000 to the SEC.
The SEC noted that given the well-known corruption risks in China, Nu Skin failed to devise and maintain a reasonable system of internal accounting controls, including adequate due diligence, to prevent illegal charitable contributions by Nu Skin China in violation of Nu Skin's anti-corruption policy and the FCPA. The SEC, however, also noted that it considered Nu Skin's prompt remedial acts and cooperation with the SEC's investigation in coming to the resolution.
Discovery Method: Unspecified
Details:
Country: China