Millions of Americans make an attempt at dieting multiple times per year according to an ABC News report. And, in order to facilitate these efforts, dietary aids and supplements play a significant role. Annual returns from the sale of these items are estimated to be in the billion-dollar range—that’s billion with a “b”—thus making the health and fitness industry one of the most profitable. Companies like Herbalife that produce a number of health and personal care products have tackled the market on many fronts, most notably selling products to consumers and getting consumers to sell for them.
Through the Herbalife Compensation Plan, people can earn an extra income while simultaneously reaching their health care goals. Sounds great, right? Well, when situations seem too good to be true they often can be and can at times be linked to fraud.
Federal Trade Commission Charges
In 2016, Herbalife settled a complaint in the whopping amount of $200 million based on Federal Trade Commission (FTC) charges. The FTC helps to protect consumers from fraud and deceitful business dealings. It was argued that the rewards system at the center of the Herbalife Compensation Plan heavily favored a recruitment success rate rather than a retail success rate, glaringly similar to a pyramid scheme. Folks were rewarded more for bringing others on board the plan as opposed to how much products they sold, which caused financial distress to many consumers, especially since Herbalife asserted that participants (titled “sales leaders”) could be in a position to leave their regular-paying jobs and have the chance to carve out a long-term career with the prospect of getting rich. But the reality for scores of sales leaders was much closer to that of a struggling start-up—some received measly payments and some lost money. Herbalife has stated that the settlement was paid not as an admission of wrongdoing but to effectively allow all parties involved to move on. They have since been required to restructure their rewards program.
Foreign Corrupt Practices Act Investigation
Then, in 2017 came news that U.S. Securities and Exchange Commission (SEC) and the U.S. Justice Department are investigating Herbalife’s international affairs, particularly with regard to allegations of bribing foreign officials in China. If proven factual, it would be a violation of the Foreign Corrupt Practices Act (FCPA). The Act makes it illegal to pay foreign corporations or officials for the purpose of acquiring or keeping business.
One major area of focus surrounds a person who owns a large share of the Los-Angeles-based company, a person who has aligned himself with certain top-ranking government officers who have voiced disapproval of the FCPA in the past. It is not yet known what the outcome of the probe will be but what is apparent is that foreign corruption fraud seriously undermines the integrity of fair business practices and takes away from the competitive and honest nature of trade and commerce on a global level.
The world is becoming more connected and commercialism might be one of the strongest strings tying everything together. However, overseas operations do not have to mean out-of-sight operations. Companies have an obligation to adhere to an impartial and transparent economic system regardless of where they register on the map because one slight tug of that string from one side of the world can have damaging and disparaging effects on the other side.