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Lessons in Compliance: From FCPA Scofflaw to Remediation

Posted October 29, 2014

On Monday, the Securities and Exchange Commission (SEC) announced that Layne Christensen Co., a global water management, construction, and drilling company headquartered in Texas, has agreed to pay more than $5 million to settle charges of violating the Foreign Corrupt Practices Act (FCPA) by bribing government officials in Africa in exchange for favourable tax treatment, customs clearance and other improper benefits.
No Bribery
After Layne self-reported its misconduct in 2010, an SEC investigation determined that the company received approximately $3.9 million in unlawful benefits during a five-year period and in the process had violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934. Although the company neither admitted nor denied wrongdoing, it agreed to pay $3,893,472.42 in disgorgement plus $858,720 in prejudgment interest as well as a $375,000 penalty.

Though still a fairly significant amount, the settlement was actually less than half what the Layne had anticipated paying, as a result of a decision by the U.S. Department of Justice (DOJ) to close its investigation into the matter without bringing charges. Despite recognizing the existence of “pervasive criminal conduct,” according to the company’s legal team, the DOJ chose not to prosecute owing to Layne’s “self-disclosure, exemplary cooperation and significant remediation.”

In addition to self-reporting the misconduct, Layne cooperated fully with the SEC’s investigation by providing real-time reports of its investigative findings, producing English-language translations of documents, and making foreign witnesses available.  “Those measures were credited in determining the appropriate remedy,” said Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit.

As part of the settlement, the company is required to report to the SEC for a period of two years on the status of its remediation and implementation of measures to comply with the FCPA. To that end, the company has since hired a chief compliance officer and set up a compliance office, among other remedial efforts.

Ironically, the “improprieties” were first uncovered by Layne as it prepared for a risk assessment in connection with efforts it was making at the time to “implement a best-in-class FCPA compliance platform.”  The company’s board and audit committee subsequently authorized a wide-ranging internal investigation that involved a team of attorneys traveling to Africa and Australia, securing “dozens” of hard drives and mobile devices and reviewing “millions” of documents.  Just as important, early in the investigation, the company wisely elected to disclose the potential FCPA violations to the DOJ and SEC and also mentioned it in a securities filing.

So what lessons can be drawn from Layne’s case?  The company’s legal team clearly lays them out in the conclusion to an unusually detailed presentation about the case made earlier this month to the Association of Corporate Council:

  • Perform a compliance assessment to know where your risks are.
  • Engage the Board/Audit Committee.
  • Self-report quickly and investigate quickly and thoroughly.
  • Candor and know the playing field–the relative absence of hard guideposts (i.e., precedent).
  • Transparency, transparency, transparency.
  • Anticipate the agencies’ needs and help them.
  • Compliance program and internal controls are critical.
  • Put your best team in place and control costs.