Self-reporting, Extensive Cooperation Yields Reduced Fine In SEC FCPA Action
Layne Christensen, a global water management, construction and drilling company resolved FCPA bribery and books and records and internal controls charges with the SEC. In the Matter of Layne Christensen Company, Adm. Proc. File No. 3-16216 (October 27, 2014). There was no parallel case announcement by the DOJ.
From 2005 through 2010 Layne Christensen, through subsidiaries in Africa and Australia, is alleged to have paid over $1 million in improper payments to foreign officials in the Republic of Mali, the Republic of Guinea, Burkina Faso, the United Republic of Tanzania and the Democratic Republic of the Congo. The payments were made to secure favorable tax treatment, customs clearance for drilling equipment, work permits for expatriates, relief from inspection by immigration and labor officials and to avoid penalties for delinquent payment of taxes and customs duties and the failure to register immigrant workers.
Between 2005 and 2009 Layne Christensen paid about $768,000 in bribes to foreign officials in Mali, Guinea and the Democratic Republic of the Congo through subsidiaries to reduce tax liability and penalties, saving about $3.2 million. These included:
- In the Republic of Mali improper payments by a firm subsidiary in 2005 and 2007 to obtain a reduction in taxes. The payments were funded in part through a wire from the parent corporation. The payments were improperly booked. The president of the subsidiary who was aware of the tax reductions never questioned how they were achieved.
- In 2006 and 2008 improper payments were made through two local lawyers by a subsidiary to secure favorable tax treatment. In part the payments were recorded as legal expenses, although no such services were provided. The tax manager of the subsidiary involved noted that portions of the fees could have been used to fund illegal payments to tax officials. The payments were funded in part through U.S. wire transfers.
- In 2009 another subsidiary made an improper payment to tax officials in the Democratic Republic of Congo through an agent. The purpose was to reduce liability for unpaid taxes and penalties. The president of the same subsidiary involved in other payments approved them without question.
The company made additional improper payments, this time in 2007 and 2009 to customs officials to avoid paying customs duties and obtain clearance for the import and export of its equipment. The payments were made in Burkina Faso and the Democratic Republic of the Congo through subsidiaries.
The Order alleges violations of Exchange Act Section 30A, 13(b)(2)(A) and13(b)(2)(B).
Once Layne Christensen learned of possible violations, senior management and the audit committee quickly initiated an internal investigation that was conducted by an outside law firm and forensic accounting experts. The company self-reported and publically disclosed its potential FCPA violations. During the investigation Layne Christensen terminated four employees, including the president and CFO of the primary subsidiary involved. The firm also conducted a comprehensive risk assessment of its worldwide operations and implemented measures to address its most significant corruption risks. Affirmative steps were taken to strengthen its internal compliance policies, procedures and controls. A standalone anti-bribery policy and related procedures was adopted along with improved accounting policies. Due diligence of third parties was also conducted. A chief compliance officer and three full time assistants were retained. During the SEC investigation the firm demonstrated a high level of cooperation.
The proceeding was resolved with the company consenting to the entry of a cease and desist order based on the Sections cited in the Order. In addition, the firm agreed to pay disgorgement of $3,893,472.42, prejudgment interest and a penalty of $375,000. The amount of the penalty reflects the cooperation of the company.