Shanghai Regulators Fine OSI and Unit More Than $3.6 Million for Meat Scandal

ENLARGE

A Shanghai Husi Food facility in China. OSI Group and its subsidiary, Shanghai Husi, were fined and put on a ‘black list’ of food-safety violators in China. Photo: Zuma Press

BEIJING—Regulators in Shanghai hit U.S. meat supplier OSI Group LLC and a local subsidiary with more than 24 million yuan ($3.6 million) in fines on Sunday, after the failure of the company’s bid to dismiss allegations that it sold expired meat to fast-food chains.

The fines were announced in a statement posted on Monday on the website of the Shanghai Municipal Food and Drug Administration, which said that both OSI and its subsidiary, Shanghai Husi Food Co., would be put on a “black list” of food-safety violators.

Blacklisted companies face being banned from the food industry for between two and five years, according to local regulations.

The fines stem from a 2014 scandal in which Chinese units of OSI were accused by a local television station of selling out-of-date meat to a number of fast-food outlets, including McDonald’s Corp. MCD -0.62 % and KFC parent Yum Brands Inc. YUM 0.12 % A Shanghai court ruled the company guilty, fined its subsidiaries 2.4 million yuan and sentenced 10 people to prison.

In an unusual move for a foreign company in China, closely held OSI challenged the decision, but lost the appeal in July.

OSI didn’t respond to a request for comment.

Monday’s statement said Shanghai Husi would be fined an added 17 million yuan and have its business licenses revoked in China. OSI China would be fined 7.3 million yuan and had been served with a warning, it said.

Food-safety regulators would “rigorously investigate criminal violations of food safety,” the statement said, adding that both OSI and Shanghai Husi had accepted the punishment and promised to pay the fines in a timely manner.

McDonald’s China severed ties with Husi shortly after the scandal broke in 2014 and hasn’t renewed them, according to Regina Hui, a McDonald’s spokeswoman.

At Yum Brands, a spokeswoman said: “OSI was a very small supplier to us in China and we immediately severed relations with OSI in July 2014 upon learning of their actions.”

At the time of its appeal in February, OSI said it was the victim of a smear campaign and said the original verdict against it was “inconsistent with the facts and evidence” presented before the court.

The U.S. company had 11 factories in China in February, nine of which were operating. Operations at Shanghai Husi were suspended in 2014, shortly after the scandal broke.

The Aurora, Ill., food-processing company was McDonald’s largest meat supplier in China before the allegations aired. Both McDonald’s and Yum cut ties with the company, leading to a monthslong hamburger shortage for McDonald’s that hurt sales.

—Kersten Zhang in Beijing and Julie Jargon in Chicago contributed to this article.

Write to Josh Chin at [email protected]