Alibaba (BABA) Stock: $600 Million DOJ Settlement Over Illegal Drug Sales

TLDR

• Alibaba and its US payment processor AUS Merchant Services agreed to pay $600 million to resolve DOJ allegations
• The companies failed to prevent ~80,000 illegal drug and chemical sales between 2016 and 2024, worth over $200 million in merchandise value
• Alibaba will forfeit $200 million and pay a $125 million criminal penalty; AUS pays $85 million in penalties and forfeits $190 million
• Both companies entered non-prosecution agreements and admitted responsibility
• Undercover law enforcement made 40+ purchases of illegal pharmaceuticals and counterfeiting equipment during the investigation

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Alibaba stock rose 1.78% on Wednesday as the company announced a $600 million settlement with the US Department of Justice over illegal drug sales on its platform.

Alibaba Group Holding Limited, BABA

The deal covers Alibaba and its US-based payment processor, AUS Merchant Services.

Both companies entered non-prosecution agreements, meaning no criminal charges will be filed. In exchange, they admitted responsibility and agreed to strengthen their compliance programs.

The DOJ said Alibaba failed to stop merchants from completing roughly 80,000 sales of illegal pharmaceuticals, chemical precursors, and pill press equipment between 2016 and 2024.

Those transactions had a combined gross merchandise value of more than $200 million.

As part of its agreement, Alibaba will forfeit $200 million and pay a separate criminal penalty of $125 million.

AUS Merchant Services will pay $85 million in penalties and forfeit $190 million, bringing the combined total to $600 million.

During the investigation, undercover law enforcement officers made more than 40 purchases of illegal pharmaceuticals and counterfeiting equipment directly through Alibaba’s platform.

The DOJ noted that some Alibaba employees had flagged concerns internally about whether the company’s compliance measures were strong enough to stop illegal sales. Those concerns were not acted on effectively.

Alibaba also offered a private messaging service that some merchants used to arrange sales of prohibited products outside of normal monitoring systems.

Payment Processor Also Fell Short

AUS Merchant Services admitted its anti-money laundering program and transaction monitoring failed to catch illegal activity.

Even after merchants were flagged for selling prohibited goods, AUS did not restrict their accounts and instead referred them back to Alibaba. At least one merchant continued selling illegal items after being reported.

Terms of the Deal

“Alibaba and AUS have documented steps taken to improve their screening and compliance and provided a commitment to ongoing cooperation with US law enforcement in the future,” said Assistant Attorney General Tysen Duva.

Both companies have agreed to ongoing cooperation with DOJ and to upgrade their compliance infrastructure going forward.

Alibaba called the outcome a “mutually satisfactory resolution” and said the settlement reflects its “full cooperation” throughout the regulatory process.

Assistant AG Brett Shumate added: “Today’s resolution reflects the Department of Justice’s commitment to ensuring that companies operating e-commerce and digital payment platforms keep illegal, unapproved, misbranded, and dangerous foreign pharmaceuticals off their marketplaces.”

The violations covered under the settlement relate to the US Federal Food, Drug, and Cosmetic Act.