Last week the SEC settled charges against Layne Christensen for various violations of the FCPA. While a relatively unremarkable case at first glance, the SEC's charges against Layne Christensen reflect a troubling approach by enforcement agencies to disregard the "business nexus element" of the FCPA's anti-bribery provisions. These recent practices appear to contradict the Fifth Circuit's opinion in United States v. Kay and create greater uncertainty as to the scope of the statute.
SEC Settlement with Layne Christenson Raises New Questions on the Government's Understanding of the Business Nexus Element of the FCPA
On October 27, 2014, the Securities Exchange Commission settled charges against Layne Christensen Company, the Texas based global water management, construction, and drilling company, for violations of the US Foreign Corrupt Practices Act. In particular, the SEC accused Layne Christensen of bribing officials in several African countries in exchange for the reduction of tax liability and customs duties resulting in "benefits of approximately $3.9 million." In settling the SEC's charges, Layne Christensen agreed to pay over $5 million in sanctions.
Although a seemingly unremarkable case in a field known for blockbuster settlements, Layne Christensen illustrates a troubling practice by the SEC and US Department of Justice to disregard the "business nexus element" of the FCPA. Specifically, the FCPA states that to violate the anti-bribery provisions of the law, the defendant must pay a bribe "to assist the issuer in obtaining or retaining business . . . ." While it is often the case that bribes are paid on a quid pro quo basis in exchange for the award of valuable contracts, there are additional scenarios, like that seen in Layne Christensen, where the bribes merely assisted the defendant to improve its profit margins. In United States v. Kay, the Fifth Circuit held that bribes made in exchange for a reduction in tax liability or customs duties did not per se violate the statute without proof that the increased profits were used to obtain or retain some form of business.
Layne Christensen is further evidence that the DOJ's and SEC's current approach to the "business nexus element" of the FCPA flies in the face of Kay. By charging companies (often under extreme pressure to settle the case against them) with facts that do not show how the bribes were used to assist in obtaining or retaining business, the DOJ and SEC have created significant uncertainty as to the scope of the FCPA.
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