Nature’s Sunshine: Paying for Imports, Then Paying for a Cover Story

In the Nature’s Sunshine FCPA case, the company agreed to a $600,000 civil penalty over allegations that its Brazilian subsidiary paid customs officials to import unregistered products and bought false paperwork to conceal the payments. For someone who knew the products, handled the cash or questioned the supporting documents, the alleged scheme had a revealing feature. The paperwork itself was something the subsidiary allegedly purchased to hide what it had done.

Nature’s Sunshine Products manufactured nutritional and personal care products. The Securities and Exchange Commission’s July 31, 2009 announcement described payments in 2000 and 2001 and a Foreign Corrupt Practices Act case against the company, its chief executive and its former chief financial officer. The company’s case reached the payments and their concealment, while the executive claims concerned responsibility for the books and accounting controls.

Brazilian Imports Became a Registration Problem

Changes in Brazilian regulations classified many of Nature’s Sunshine’s products as medicines, according to the commission. The agency alleged that the Brazilian subsidiary responded by paying customs officials to bring unregistered products into the country.

That is the point an employee handling registrations or shipments would recognize. A change in how the government classifies a product can put the regulatory file and the shipment on different tracks. Here, the commission’s allegation connected that registration problem to cash payments at the border, making the product’s status part of the explanation for the money.

The broader industry pressure is concrete. In the 2015 remarks FCPA, Disclosure, and Internal Controls Issues Arising in the Pharmaceutical Industry, the commission’s enforcement director identified customs clearance, licensing and inspections as points of contact with government officials. The remarks also described the pressure to clear perishable medicines quickly. For an insider, knowing which official decision held up the goods helps explain why a payment mattered to the business.

A later customs bribery case shows the same connection between the goods and the official decision. The Justice Department’s announcement described Scoular‘s admission under its deferred prosecution agreement: the company bribed officials through customs brokers to pass Mexican inspections despite dirt, soil and other impurities in agricultural shipments. Broker invoices described the payments as reinspection fees. A person who knew the condition of the cargo could explain what that invoice label concealed.

The False Paperwork Was Part of the Purchase

The commission’s account of the complaint puts the commercial problem, the cash and the concealment in one sentence:

We see an extra purchase with a very specific purpose in that allegation: a cover story for the first payment. The company allegedly spent money both to get the products in and to disguise how it got them in. Someone who saw the supporting documents being bought would know something the finished ledger was designed to leave out.

The alleged concealment also reached the company’s public reporting. The commission alleged that Nature’s Sunshine failed to disclose the payments to Brazilian customs agents in its filings with the commission. That takes the story from a subsidiary’s cash payments to what the company told the people reading its financial reports.

Manufactured paperwork appears elsewhere in the SEC’s cases. The commission’s settled administrative order concerning Indian operations states that personnel in Anheuser-Busch InBev‘s Indian operation completed and backdated a promoter’s due diligence forms after work had begun. The order described how they also improved the answers on paper:

The connection is the creation of a reassuring file after the underlying business decision. In Nature’s Sunshine, the commission alleged purchased false documentation. In the beer case, its order described backdated forms and edited responses. An employee who knows how a document came into existence can explain more than someone who sees only its final version.

The Company and Its Executives Faced Different Claims

The commission’s corporate allegations covered foreign bribery, securities fraud, reporting failures, false books and inadequate accounting controls. Its claims against the chief executive and former chief financial officer concerned their responsibility, as senior officers, for the books and the accounting controls.

The distinction matters to an insider trying to describe who did what. The subsidiary’s alleged payments explain how the products entered Brazil. The executive claims focused on responsibility for the accounting and control failures connected to those payments. In a case involving bought documents, the person reviewing the file may need to understand both the expenditure and the explanation created for it. Payment authority, supporting records and management review are different pieces of that account.

We see the absurdity: a company accused of buying a cover story could settle without admitting what happened. Its chief executive and former chief financial officer each agreed to a separate $25,000 civil penalty, alongside the company’s larger obligation.

What the Payment File Can Tell an Insider

The useful evidence connects the product’s regulatory status, the customs decision, the money and the document used to explain it. We work with insiders to understand how those pieces fit together, including what the people approving or recording a payment knew. The strongest account often draws on knowledge held in different parts of the business.

A registration or logistics employee may know which products faced a problem and what government correspondence said about them. An accounting employee may know who requested cash, how it was authorized and which supporting document reached the ledger. A manager or auditor may know whether someone questioned the explanation and what happened to that question. Those roles connect the commercial problem to the payment and then to the company’s response.

This is why we want to hear from the person who recognizes the discrepancy. A completed file can look orderly even when someone inside knows the documents were bought, backdated or rewritten. Your knowledge of the transaction can give meaning to the payment and accounting records that an outside reader would otherwise take at face value.

Research also gives reason to take that insider knowledge seriously. The March 2019 working paper Do Corporate Whistleblower Laws Deter Accounting Fraud?, hosted by MIT Sloan, studied companies exposed to state whistleblower laws through state pension-fund ownership. Using financial-statement measures of fraud risk, it found lower estimated accounting-fraud risk after exposure to those laws.

Whistleblower Rewards Depend on the Case

SEC whistleblower awards can total 10% to 30% of qualifying sanctions collected by the government. In a separate case involving fraud against the government, a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We assess the conduct you know and the applicable whistleblower program with you, so the case and the potential reward follow the facts.

You Know Why the Paperwork Changed

If you know why an import payment needed a false document, speak to one of our Whistleblower Experts about why the paperwork was bought. We connect your knowledge of the goods, payments and approvals to build your strongest FCPA whistleblower case, bring in FCPA whistleblower lawyers who understand subsidiary accounting, and stay beside you as the matter develops.