- Stevia producer PureCircle was fined $575,000 by U.S. Customs and Border Protection for importing stevia into the U.S. that was made through forced prison labor, the agency said.
- The fine comes from a 2016 investigation into information from a nongovernmental organization that found at least 20 shipments of stevia were imported from the company's Inner Mongolia Hengzheng Group Baoanzhao Agricultural and Trade LLC.
- PureCircle said in a statement that it "strongly refuted" the claims of forced labor. Instead of contesting the penalty in court, the stevia producer — which was recently purchased by Ingredion — chose to settle the matter for what it said was less than 7% of what the U.S. government was asking. PureCircle added in the statement that the settlement is not an admission of liability.
While PureCircle made its name by running a sweet stevia business, the company has had several well-publicized stumbles.
These include a $79.7 million loss in the fiscal year ended July 2019. An investigation into some financial inconsistencies at PureCircle resulted in resignations of the company's CEO, CFO and many board members. It also led to a series of write downs. This likely paved the way for the Ingredion transaction where the Illinois company bought a 75% stake in PureCircle. The transaction closed in July.
PureCircle's labor issue isn't new, and it has been a point of contention with the U.S. government for the last four years. In 2016, U.S. Customs and Border Protection issued a withhold release order against the company, basically putting a stop to imports because of questions about product origin. According to the statement from Customs and Border Protection announcing the fine against PureCircle, this order is still in place.
In 2017, however, PureCircle released its own statement saying the order had been cleared and all imports to the U.S. were going forward. On its website, PureCircle has posted its labor policy, which prohibits any forced labor, including that coming from prisons.
While the new $575,000 fine is proof the charges of forced labor are serious, this issue may no longer be a pressing one. Compared to four years ago, PureCircle is a different company today. It has new leadership and ownership, which likely brings a reformed way of doing things.
The real question may be how these difficulties will impact Ingredion, which has tied itself to both PureCircle's sizeable expertise in stevia, as well as its business practices and past.
According to its most recent earnings report posted earlier in August, Ingredion paid $222 million for the PureCircle stake. In both the report and in remarks from Ingredion President and CEO Jim Zallie, the vast capabilities of the acquisition are praised, as well as the long-term potential for profits and leadership in the stevia business.
"PureCircle, given the distressed conditions under which it is recently operating, we will be laser-focused on its turnaround for the next 12 months and anticipate mid-single digit operating losses in the near-term as the team works to drive the integration," Zallie said, according to a transcript of the earnings call.
It's not clear if Ingredion knew this settlement loomed in the future when it put together its quarterly report. It isn't mentioned in the 10-Q form it filed with the U.S. Securities and Exchange Commission as part of its earnings.
Ingredion isn't the only player in the space that has had to clean up international messes left behind when it acquired another company. International Flavors and Fragrances is currently facing a class action lawsuit from shareholders who say the company was not forthcoming about an investigation into corrupt payments made by Frutarom — which IFF acquired for $7.1 billion in 2018.
For Ingredion, PureCircle may be worth the trouble. The stevia company gives Ingredion an entrance into one major business segment where it was lacking expertise and leadership. But the forced labor fine has had consequences for the company in the short term. After the disclosure of the CBP fine on Friday, Ingredion's stock price fell 4.6% and has not yet been able to recover.