March 24, 2014 12:54 pm

Nu Skin fined more than $500,000 over China sales practices

Direct sales companies are facing tougher oversight of their operations in China after Beijing fined Nu Skin Enterprises, the US direct sale skincare and dietary supplement company, for illegal product sales.

China’s State Administration for Industry and Commerce (SAIC) said in a statement on Monday that it was fining Nu Skin more than $500,000. Nu Skin said the fine related to “the sale of certain products by individual direct sellers that, while permitted for sale in Nu Skin China’s retail stores, were not registered for the direct-selling channel”.

The company also said six employees had been fined a total of more than $200,000 for unauthorised promotional activities.

The fines appeared to conclude an investigation launched in January after a series of articles in the official People’s Daily newspaper claiming that Nu Skin operated a “suspected illegal pyramid scheme” and “brainwashed” staff. The company denied the allegations.

Nu Skin said that “the company is already taking steps to correct the issues raised in the SAIC reviews and is not aware of any other material enforcement investigations currently pending in China”.

“We remain committed to working co-operatively with the Chinese government to ensure the healthy, long-term growth of our business,” Dan Chard, president of global sales and operations, said in the statement.

The Beijing watchdog warned that it planned to “increase the level of regulation of the direct sales market” and “sternly investigate and punish any behaviour that violates the law or regulations in the direct sales sector”.

[Herbalife] welcomed the inquiry given the tremendous amount of misinformation in the marketplace and will co-operate fully with the FTC

- Herbalife

Amway, the market leader by sales in China, welcomed the move, saying “the SAIC notice today is actually good news for us. We have a strict policy on our direct-sales management and an internal penalty system to ensure that our sales staff behave properly. We actually hope the government will enhance the regulation of direct sales since that will help our customers distinguish proper direct sales from pyramid sales”.

Herbalife, the US-based nutrition and weight loss company, is also active in China. Earlier this month the US Federal Trade Commission opened a formal investigation into the company.

Herbalife said it welcomed the inquiry “given the tremendous amount of misinformation in the marketplace and will co-operate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations”.

In China, a government investigation preceded by a high-profile attack in state media fits a pattern that has become familiar to global companies including Apple, GlaxoSmithKline, Volkswagen, Samsung, KFC and Walmart over the past year.

Additional reporting by Zhang Yan

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