Nu Skin Enterprises: A Donation Instead of a Fine

The Nu Skin Enterprises FCPA case ended in a $765,688 Securities and Exchange Commission settlement over allegations that a charitable donation bought influence over a Chinese regulatory investigation and the company’s records hid that purpose. The revealing trail ran through internal emails, a donation agreement and the form authorizing the payment. For an employee who knew why the charity was chosen, those documents told a different story from the donation label.

Nu Skin manufactured and marketed cosmetic and nutritional products through direct selling and multilevel marketing. The Provo, Utah company owned the Shanghai-based subsidiary whose payment became the subject of this Foreign Corrupt Practices Act settlement. The commission’s September 20, 2016 administrative order addressed the parent’s books and records and its controls over the Chinese operation.

Direct Selling Put the License at Stake

The investigation threatened Nu Skin China’s ability to expand its business, according to the commission. Its order alleged that in 2013, sales representatives held an unauthorized promotional meeting in a city where the subsidiary had neither a direct selling license nor a physical store. The provincial Administration of Industry and Commerce discovered the meeting and investigated, the order said.

The order explains why the location mattered. China’s direct selling rules at the time prohibited the multilevel commission structure Nu Skin used in the United States. Nu Skin China processed sales primarily through retail stores, even when representatives promoted products at offsite meetings. Representatives received performance-based salaries, rather than direct commissions on the sales of other representatives they recruited.

The company also needed national, provincial and city licenses to operate in a particular area. Its business reputation could affect those licenses. According to the order, local personnel feared that an enforcement action would interfere with long-term development and their ability to obtain a provincial license. The regulator was deciding more than the cost of an unauthorized meeting: its decision could affect where Nu Skin sold next.

A Charity Chosen During an Investigation

The commission alleged that Nu Skin China personnel started a charity project to influence the investigation. In its account, an employee approached a high-ranking Chinese Communist Party official he knew and asked him to suggest a charity. The official was associated with the organization responsible for establishing that charity in the province, where it did not yet have a branch or operations.

The order also described the official’s connection to the regulator: the provincial agency head had previously reported to him. A week after the approach, the regulator told Nu Skin China it intended to charge the company and sales staff with direct selling violations and impose a 2.8 million RMB fine. The order cites an internal email recording the company’s preferred alternative:

According to the order, senior personnel decided to seek the official’s personal intervention in exchange for a donation of one million RMB, approximately $154,000, to his suggested charity. The company was allegedly asking to replace an enforcement bill with a smaller payment to an institution connected to someone who could influence the result. We find the candor in that email striking: the business objective was right there, before the payment became a charitable expense.

The order described a public celebration of the donation while the investigation was still open. After the regulator repeated its intention to bring charges, Nu Skin China pushed for a signing ceremony within days. The official, a senior agency official and company representatives attended, and the official praised Nu Skin in a speech.

The order says an employee suggested seeking the official’s help again the following day so the company would not be named or fined. It quotes internal emails calling that intervention “crucial for us” to settle the investigation peacefully. Two days later, according to the order, Nu Skin China learned that the agency would neither charge nor fine the company.

Recommendation Letters Became Urgent

The commission also connected the investigation to a favor for the official’s child. Its order said that before the investigation, the official had asked Nu Skin China to help obtain recommendation letters to American universities from an influential U.S. person. That request had not produced results when local personnel decided to seek the official’s intervention.

According to the order, the request then became a “top priority” in internal emails. The agency said Nu Skin China asked its American parent to expedite the letters, and the parent reported securing someone’s agreement to write them. The timing gives the employee who handled an apparently routine favor a place in the larger account: the request gained urgency when the company wanted help with its own regulatory problem.

The Safeguard Disappeared Before Signing

The commission said the American parent recognized that a large Chinese donation could create risks under the Foreign Corrupt Practices Act and directed its subsidiary to seek outside legal review. But local personnel allegedly withheld the connection between the investigation and both the donation and the recommendation letters. The people reviewing the proposed payment were missing the business reason for it.

According to the order, the outside review recommended anti-corruption language in the donation agreement, including language about the illegality of influencing government officials. The draft included that safeguard, but the signed version omitted it. The parent did not know it had been removed, the commission said.

For an employee who worked on the agreement, the difference between the draft and the signed copy matters as much as the approval itself. The commission described a review that identified a risk and produced a safeguard, followed by a transaction that went ahead without that safeguard. A policy in the file could not do the work of checking the agreement the subsidiary actually signed.

The Payment Form Hid the Purpose

The commission’s books-and-records allegation focused on the expenditure authorization form. It described the payment as a donation, which the agency said inaccurately or unfairly represented a payment intended to influence the official’s intervention. The money’s destination and the business purpose behind it belonged in the same account.

The internal-controls allegation concerned how the company allowed that payment to proceed and be recorded. The agency said Nu Skin had failed to ensure adequate charity diligence to identify links to government or political party officials and prevent payments intended to influence them improperly. The order also tied the controls failure to keeping track of assets and ensuring that access to them followed management’s authorization.

The form, the agreement and the emails therefore answer different questions. The form shows what finance was told; the agreement shows which safeguards survived signing; the emails show the result local personnel wanted. An insider may know the connection among them even when each document sits in a different department.

A Donation With a Business Result Attached

Fresenius Medical Care supplies a close comparison. Its SEC order alleged payments to a charity executive in Saudi Arabia whose organization could influence Ministry of Health contract awards. The order quoted a manager’s email reporting the executive’s message about those who:

That passage makes the proposed exchange explicit. The allegations against Fresenius concerned government purchasing, while those against Nu Skin concerned a pending investigation. In each, the agency connected charitable support to a particular official decision the business wanted.

The 2022 Journal of Forensic and Investigative Accounting study Fresenius Medical Care: A Case Study on the FCPA examined how employees bypassed controls despite flagged transactions and existing policies. Its conclusion puts the problem plainly:

For someone inside a donation program, that is a useful distinction between having controls and following them. We look at the information the reviewer received, the agreement actually signed and the decision the payment was intended to influence.

What Nu Skin Agreed to Pay

The commission’s order required Nu Skin to give up $431,088, matching its approximate dollar value for the threatened Chinese fine. It also imposed a $300,000 civil penalty, more than the donation itself. We see an expensive way to make an investigation go away.

What an Insider Can Connect

An employee who knew about the regulatory investigation could explain why a donation suddenly became urgent. Someone in finance could recognize the payment authorization, while someone handling the agreement could know why the anti-corruption language disappeared. In the commission’s account, the evidence connected the official’s relationships, the requested intervention, the ceremony and the company’s description of the payment.

Our whistleblower experts assess those connections with you, including the SEC whistleblower award questions raised by your own information. For a separate claim involving fraud against the U.S. government, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Why the Donation Was Urgent

If you saw a donation tied to an investigation or a favor accelerated for an official’s family, speak to one of our whistleblower experts about why the payment was made. We stay with you from the first call to build your strongest FCPA whistleblower case and bring in FCPA whistleblower lawyers who understand charitable payments, overseas subsidiaries and accounting controls.