SEC fines Nu Skin US$765,688 to settle FCPA charges

Publication September 2016

On September 20, 2016, Nu Skin Enterprises, Inc. (Nu Skin) paid US$765,688 to settle allegations by the US Securities and Exchange Commission (SEC) that Nu Skin violated the accounting provisions of the US Foreign Corrupt Practices Act (FCPA) in connection with a charitable donation.1 Specifically, the conduct relates to payments made by Nu Skin’s Chinese subsidiary, Nu Skin (China) Daily Use And Health Products Co. Ltd. (Nu Skin China) to a charity tied to a high ranking official in the Chinese Communist party.2  Nu Skin China allegedly made the payment in an effort to end an investigation by the Chinese Administration for Industry and Commerce (AIC) into Nu Skin China’s marketing and sales practices.  The resolution underscores the importance of caution and diligence in making charitable donations in foreign countries.  


The AIC had been investigating whether Nu Skin China had been conducting business activities in a particular city without the necessary licenses.  In an effort to influence the AIC’s investigation, a Nu Skin China employee contacted the Communist party official, who was also the former boss of the head of the AIC branch investigating Nu Skin China, and requested the name of a charity to which Nu Skin China could donate.  The official suggested a charity that was created by an entity with which the official was previously associated.

After the discussion with the official, the AIC informed Nu Skin China that there was enough evidence to file charges that would result in a fine of RMB2.8 million (approximately US$431,088).  Nu Skin China offered to “donate some money instead of [paying] a fine” to avoid any charges.  Senior personnel at Nu Skin China also requested that the official personally intervene in the matter in exchange for a RMB1 million donation to the charity.  Soon after the charitable donation was made, the AIC notified Nu Skin China of its decision to neither charge nor fine the company.

The parent corporation identified the donation as a potential FCPA issue before it occurred and recommended that its Chinese subsidiary consult with U.S. counsel.  U.S. counsel recommended that the subsidiary include anti-corruption language in the donation agreement.  The parent corporation reviewed the draft of the anti-corruption provisions, but they were removed by the subsidiary just prior to execution.
The SEC alleged that Nu Skin violated the FCPA's accounting requirements because it recorded the payment as a charitable donation and failed to adequately investigate the circumstances of the charity and donation.

Key takeaways

This settlement highlights a number of key issues for companies subject to the FCPA:

  • Charitable donations are back in the crosshairs: This is the second time that the SEC has brought an enforcement action based entirely on a charitable donation.  Companies need to carefully scrutinize charitable donations in foreign countries to maintain compliance with the FCPA.  They should always determine why the donation is being made and who outside the company requested it. Donations requested by foreign government officials should not be approved unless the company can prove it has no matters before the foreign government that the official may influence.  The conclusions should be documented in advance of the donation.
  • Instilling a compliance culture: Multinational companies must not only embrace the “tone at the top” message that US regulators identify as a key element of a compliance program, but also ensure that the proper tone permeates further down in the organization.  This resolution demonstrates that the U.S. regulators are not excusing U.S. public companies when the parent corporation is asking the right questions.  The parent corporation took appropriate action by requiring Nu Skin China to consult with external U.S. counsel regarding the adequacy of the donation documentation.  But the subsidiary ignored that advice and removed the anti-corruption terms from the donation agreement, without the knowledge of parent personnel.  The regulators are holding U.S. companies responsible for the unauthorized actions of subsidiary employees.  U.S. companies must follow up to make sure its anti-corruption instructions were followed.
  • Geographic risk: China continues to be a hot spot for corruption and a focus for the US regulators – in 2016 alone, the SEC has brought over 10 actions based on misconduct in China.  As this case shows, even companies taking appropriate steps, such as engaging external counsel to assist on corruption-related matters, must take special care in the region.  In this regulatory environment, companies must consider whether to conduct anti-corruption audits and reviews of their Chinese operations.

1 SEC Charges Nu Skin Enterprises, Inc. with FCPA Violations, U.S. Securities and Exchange Comm'n (Sept. 20, 2016),

2 Nu Skin Enterprises, Inc., Exchange Act Release No. 78884, at *2 (Sept. 20, 2016).

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