Alibaba to pay $600 million to settle US drug sales probe

The US Department of Justice secured a $600 million settlement from Alibaba Group and its payment processor AUS Merchant Services on Tuesday, resolving allegations that the e-commerce giant's platforms facilitated the sale and import of illegal pharmaceuticals and controlled substances into the US.

"The resolution underscores IRS Criminal Investigation's commitment to following the money and ensuring that companies operating in the United States comply fully with federal law," said Jarod Koopman, chief of IRS Criminal Investigations, in a statement.

Between January 2016 and December 2024, Alibaba failed to stop roughly 80,000 product sales involving unlawful imports that violated the Federal Food, Drug, and Cosmetic Act, according to the DOJ. Law enforcement officers across the FDA, FDIC, and IRS-CI conducted more than 40 undercover purchases of pharmaceuticals and equipment illegal to import into the US. Alibaba employees had raised concerns that the company's compliance controls were inadequate, and in some instances, merchants used Alibaba's messaging service to direct buyers to third-party platforms to facilitate illegal sales.

The $600 million penalty — one of the largest DOJ settlements involving a Chinese tech company — signals heightened enforcement against e-commerce platforms that fail to police third-party merchants. Alibaba, which operates Alibaba.com and AliExpress.com, said it reached a "mutually satisfactory resolution" with the US government and will bring stricter compliance to product sales by third-party merchants. The non-prosecution agreement allows Alibaba to avoid criminal charges while implementing enhanced controls.

The settlement covers allegations that AUS Merchant Services, Alibaba's US-based payment processor, violated federal law by failing to prevent merchants from selling and importing illegal products through the company's platforms. The DOJ's action follows a multi-year investigation involving the FDA, FDIC, and IRS-CI, reflecting a coordinated interagency approach to cross-border e-commerce enforcement.

For Alibaba, the $600 million payout represents roughly 0.3 percent of the company's $30.7 billion in revenue for the fiscal year ended March 2025, according to company filings. The Hangzhou-based company has faced mounting regulatory scrutiny in both China and the US in recent years, including a $2.8 billion antitrust fine from Chinese regulators in 2021 and ongoing SEC investigations into its accounting practices.

The settlement also raises the compliance bar for other Chinese e-commerce operators with US operations, including PDD Holdings' Temu and ByteDance's TikTok Shop, which have rapidly expanded their US merchant networks. The DOJ's ability to trace payments through AUS Merchant Services and link them to illegal product sales demonstrates the reach of US law enforcement into foreign payment processing chains.

Alibaba's shares traded in Hong Kong fell as much as 2.3 percent following the announcement before paring losses to 1.1 percent, as investors weighed the financial impact against the removal of legal uncertainty. The stock has declined 8.5 percent year-to-date, underperforming the Hang Seng Index's 3.2 percent gain over the same period.

The non-prosecution agreement requires Alibaba to maintain enhanced compliance measures and submit to ongoing monitoring, though the DOJ did not specify a duration for the oversight period. Failure to comply could trigger prosecution on the underlying charges, which include conspiracy to violate the Food, Drug, and Cosmetic Act and the Trafficking in Contraband Cigarettes Act.

This article is for informational purposes only and does not constitute investment advice.