Drilling firm Layne Christensen Co. agreed to pay almost $5.1 million to resolve allegations that it violated the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign officials in several African countries, the Securities and Exchange Commission (SEC) announced on October 27.
The settlement was less than half of what the firm initially expected to pay, as a result of the U.S. Department of Justice’s decision to close its part of its investigation without bringing charges.
The company’s investigation of these matters prompted the firm to disclose the potential issues to the DOJ and SEC, and the company mentioned its findings in a securities filing.
Specifically, the firm’s audit committee engaged outside counsel to conduct an internal investigation to review these payments with assistance from outside accounting firms.
“From the very beginning, we have maintained a position of full disclosure and complete cooperation with the authorities and have worked diligently to implement remedial measures to enhance our internal controls and compliance efforts,” said Layne’s CEO, David Brown, in a prepared statement.
Brown added that Layne’s “voluntary disclosure, cooperation, and remediation efforts have been recognized and appreciated by the staff of the [DOJ], and that the resolution of the investigation reflects these matters.”
The company announced that it remains “actively engaged in settlement discussions” with the Securities and Exchange Commission as it seeks to resolve a parallel investigation. “We hope to settle the SEC investigation in the near future,” Brown said. The SEC didn’t file a civil complaint against Layne or go to court. Instead it settled the case through an internal,administrative order. Gunmaker Smith & Wesson resolved its FCPA enforcement action in like fashion in June of this year.
The SEC’s order noted that Layne paid foreign officials in three African nations to reduce its tax liability (saving over $3.2 million thereby), avoid paying customs duties and obtain border entry for its equipment and employees.
The SEC Order also makes an interesting reference to payments as small as $4 being made to foreign agents for these perks. The Order says that:
“Layne Christensen made more than $10,000 in small payments to foreign officials through various customs and clearing agents that it used in Tanzania, Burkina Faso, Mali, Mauritania, and the DRC. These payments ranged from $4 to $1,700 and were characterized in invoices submitted by the agents as, among other things, “intervention,” “honoraires,” “commissions,” and “service fees.”
Best Practices
Companies would be wise to consider these lessons from the Layne Christensen case:
1. Ask the difficult questions, particularly if you see something suspicious or problematic, or, simply, when you do not understand. You should never hesitate to ask more questions, and, always, insist on answers when questions arise. It also goes without saying that you should never ignore red flags, and report them immediately up the supervisory chain.
2. Begin internal investigations promptly. Upon spotting those red flags, begin internal investigations into suspected violations committed by employees and hired vendors. Report your investigation to the SEC as soon as possible.
3. Remember that improper, individual payments of a low dollar amount can add up – and any amount the SEC does not find inconsequential could be used as the basis for an investigation and enforcement action.
4. Give a kick to your FCPA compliance program’s tires. Layne revamped its FCPA compliance program after its discovered the violations; catching them beforehand is obviously best practice.
Still, Layne made strides to improve its program by enhancing its accounting policies relating to cash disbursements, revamping its anti-corruption training, and conducting more extensive due diligence of its business partners and vendors. In addition, it has hired a chief compliance officer and three full-time compliance personnel and retained a consulting firm specifically to conduct an assessment of its anti-corruption program.
Julie DiMauro is a regulatory intelligence and e-learning expert in the Governance, Risk and Compliance division of Thomson Reuters in New York and a contributing writer for FCPA Blog.
Follow Julie on Twitter @Julie_DiMauro.