On 27 October 2014, the Layne Christensen Company, a US corporation specialising in deep drilling for energy resources, entered into a $5 million settlement with the SEC to resolve charges under the FCPA. The SEC based its charges on a very broad, and possibly overreaching, interpretation of the “business nexus element” of the FCPA’s anti-bribery provisions.

The SEC accused Layne Christensen of bribing officials in several African countries in order to receive reduced tax liability and customs duties worth approximately $3.9 million. But a bribe under the FCPA must be paid “to assist the issuer in obtaining or retaining business.” The federal appellate court based in Louisiana, in United-States v. Kay, held in 2007 that bribes made to obtain a reduction in tax liability or customs duties do not automatically violate the FCPA. Rather, to satisfy the statute’s “business nexus element,” the government must offer proof that the increased profits were used to obtain or retain business. Both the SEC and the DOJ, however, continue to charge defendants with FCPA violations without alleging how the proceeds of reduced liabilities or duties are connected to obtaining or retaining business.

The SEC’s actions in Layne Christensen are an example of this trend. The 2012 FCPA Guide produced by the DOJ and the SEC even states that “bribe payments made to secure favourable tax treatment [or] to reduce or eliminate customs duties . . . satisfy the [FCPA’s] business [nexus] test.”

For more information on Layne Christensen, please see our client note at: