Two former business executives of a multi-level marketing subsidiary have been charged by the Department of Justice for bribing the Chinese government and then giving false sworn testimony to U.S. regulators in an attempted coverup, the Department of Justice announced on Nov. 14.
Chinese nationals Li Yanliang and Yang Hongwei, known as Jerry Li and Mary Yang respectively, both faced one count of conspiracy charges for violating the Foreign Corrupt Practices Act. The bill, established in 1977, prohibits U.S. firms and individuals from paying bribes to foreign officials in order to facilitate a business deal, regardless of the value offered.
Li was also charged with one count of perjury and one count of destruction of records in federal investigations.
Li is the former managing director and senior vice president of the China-based subsidiary of a publicly-traded international multi-level marketing firm, while Yang headed the external affairs department of the same company. The two reported to the company’s headquarters in Los Angeles, California.
From around 2007 to February 2017, Li and Yang, among other conspirators, paid bribes to Chinese government officials in order to obtain licenses to establish the company as a direct-selling enterprise in China, where multi-level marketing activities are illegal, according to the indictment (pdf).
By around 2016, sales from the company’s China subsidiary represented about 20 percent of the company’s global net revenue, which exceeded $4 billion, according to the court document.
The defendants and other co-conspirators paid bribes to officers and employees at China’s Ministry of Commerce; its Administration for Industry and Commerce (AIC), which is responsible for compliance oversight; and the China Economic Net, a state-controlled economic news portal.
The purposes of the scheme included obtaining the direct-selling license, “corruptly influencing” governmental investigations into the company’s compliance issues, and suppressing any negative media coverage about the company, the allegations said.
The China subsidiary reimbursed Yang’s department over $25 million for entertaining officials and giving gifts.
On one particular instance in January 2007, Li and Yang discussed having Yang “take care of” a particular Ministry of Commerce official for a pending license application for the China subsidiary, stating “the money works well on him.” They received the license around March of that year.
Around September 2012, Yang told Li that the external affairs department had spent approximately 20,000 yuan (around $2,849) on a senior AIC official, his daughter, and her classmates in Shanghai for their shopping trip and spa visit.
Yang received approximately $772,433 over the six-month period between July and December 2012 for 239 meals with 4,312 Chinese officials.
In April of the following year, Yang told Li that she successfully convinced an official at China Economic Net to withdraw certain articles that reflected negatively on their Chinese division, reportedly telling the official: “If you destroy us, where could you get the money?”
The official agreed to retract the article after he “ate what he should ate, drank what he should drank, and used what he should use,” Yang was quoted as saying in the indictment.
Yang and Li also agreed to help a senior AIC official’s son in his internship application to a Chinese firm by falsifying a review certifying he had done an internship at their company.
In order to obtain reimbursement for these activities, the defendants also created false invoices to bypass the internal accounting controls, which prohibited bribe payments and limited spending on government officials.
Li “routinely” created false records and certifications, denying any knowledge of fraudulent activities.
During the period around 2008 and February 2017, Li signed quarterly and annual certifications claiming that he was not aware of “any fraud, whether material or not material” among the management level or those involved in internal audits, according to the indictment. The company’s headquarters relied on these certifications in preparing for its public filings with the U.S. Securities and Exchange Commission (SEC).
Li also lied under oath while testifying for an SEC investigation in October 2016, disclaiming any involvement in the bribery scheme when confronted with audio recordings that suggested otherwise. Near Feb. 17, 2017—days after he was informed of an internal investigation about the China subsidiary’s potential misconduct—Li installed a “wiping application” on his company-issued laptop that could permanently erase files. Li subsequently deleted about 200 files from the laptop in an apparent effort to destroy evidence.
If convicted, Yang and Li could lose all properties they have purchased in the United States with the illicit proceeds, prosecutors said.