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From Securities Regulation Daily, October 27, 2014

Texas company agrees to pay $5.1 million to settle FCPA charges

By Amanda Maine, J.D.

The SEC settled administrative proceedings against a construction and drilling company, alleging that payments made to officials in Africa violated the Foreign Corrupt Practices Act (FCPA), as well as the Exchange Act’s internal controls and books and records provisions. The company self-reported the alleged violations to the SEC and cooperated with the SEC’s investigation, which was a factor in the SEC’s decision to accept the offer of settlement with a reduced monetary penalty (In re Layne Christensen Co., October 27, 2014).

Background. Layne Christensen Company is a global water management, construction, and drilling company headquartered in Texas with offices in North America, Africa, Australia, Europe and South America. The SEC alleges that beginning in 2005 and lasting through 2010, Layne Christensen, through its wholly-owned subsidiaries, paid over $1 million in bribes to officials in several different African countries to obtain favorable tax treatment, custom clearance for drilling equipment, work permits for expatriates, and relief from labor and immigration inspections.

According to the SEC, Layne Christensen, through its subsidiaries, paid nearly $800,000 to officials in Mali, Guinea, and the Democratic Republic of the Congo (DRC), resulting in reduced tax liability of $3.2 million. The company also bribed officials in the DRC and Burkina Faso to avoid paying customs duties and to obtain clearance for the import and export of its equipment in those countries. In addition, Layne Christensen made several small payments to government officials that were characterized as “intervention,” “honoraries,” “commissions,” or “service fees.”

The SEC also alleged that the company paid off police, border patrol, immigration officials, and labor inspectors to secure border entry and work permits and to avoid noncompliance with local immigration and labor violations. The payments to government officials were falsely recorded as legal expenses, consultant fees, agent commissions, and other legitimate expenses. According to the SEC, Layne Christensen received $3.9 million in unlawful benefits as a result of the bribes.

Cooperation with the SEC. Upon discovery of the illicit payments, Layne Christensen responded quickly by initiating an independent investigation into the matter, self-reporting its preliminary findings to the SEC, and publicly disclosing possible FCPA violations. The company also took steps to strengthen its internal controls, including issuing an anti-bribery policy, improving accounting policies, revamping anti-corruption training, conducting extensive due diligence of third parties, and hiring dedicated compliance personnel.

Charges and settlement. The SEC instituted administrative proceedings against the company, charging it with violating the FCPA and the books and records and internal controls provisions of the Exchange Act. To settle the charges, Layne Christensen agreed, without admitting or denying the SEC’s allegations, to pay over $4.7 million in disgorgement and prejudgment interest, as well as a civil penalty of $375,000. The amount of the penalty reflects the company’s self-reporting, remediation and cooperation with the SEC. Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA, said that “Layne self-reported its violations, cooperated fully with our investigation, and revamped its FCPA compliance program. Those measures were credited in determining the appropriate remedy.” The settlement also requires Layne Christensen to report on its ongoing remediation procedures to comply with the FCPA.

The SEC’s order is Release No. 34-73437.

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