Kansas, Africa, Foreign Corrupt Practices Act. It’s likely you probably never saw these words in the same sentence.
That is until earlier this month when Kansas based Layne Christensen (here), “a world leader in non-oil field contract drilling and manufacturing” disclosed in its December 8th 10-Q filing (here) as follows.
“In connection with the Company updating its Foreign Corrupt Practices Act (“FCPA”) policy, questions were raised internally in late September 2010 about, among other things, the legality of certain payments by the Company to customs clearing agents in connection with importing equipment into the Democratic Republic of Congo (“DRC”) and other countries in Africa. The Audit Committee of the Board of Directors has engaged outside counsel to conduct an internal investigation to review these and other payments with assistance from an outside accounting firm. Although the internal investigation is ongoing, based on the results to date, the Company currently believes the amount of such questionable payments is not material with respect to the Company’s results of operations or its financial statements.”
Elsewhere, the filing states as follows.
“The Company has contacted the Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) to inform them of this matter and intends to cooperate fully with these governmental authorities. At this stage of the internal investigation, the Company is unable to predict whether the SEC and DOJ will open separate investigations of this matter, or any potential remedies or actions these agencies may pursue. Although the Company has had a long-standing published policy requiring compliance with the FCPA and broadly prohibiting any improper payments by the Company to foreign or U.S. officials, the Company has adopted additional policies and procedures to enhance compliance with the FCPA and related books and records requirements. Further measures may be required once the investigation is concluded. Although the internal investigation is ongoing and no conclusions have yet been reached, based on the results to date, the Company currently believes the amount of such questionable payments is not material with respect to the Company’s results of operations or its financial statements. The Company has concluded that it is premature for it to make any financial reserve for any potential liabilities that may result from these activities given the status of the internal investigation. Additional potential FCPA violations or violations of other laws or regulations may be uncovered through the investigation.”
Among other things, the filing notes that “if it is determined that a violation of the FCPA has occurred, such violation may give rise to an event of default under the agreements governing our debt instruments.”
According to its website (here), Layne Christensen has offices in Tanzania, Congo, Zambia and Mali. According to Layne Christensen’s 2010 annual report (here) the company’s mineral exploration division ” relies heavily on mining activity in Africa where 29% of total division revenues were generated for fiscal 2010.”
As I noted in this 2007 article, mining companies are increasingly doing business in countries where corruption and bribery are endemic thereby increasing FCPA risk exposure. Indeed, as stated in Layne Christensen’s annual report, “as mineral resources in developed countries are exhausted and new discoveries begin to slow, mining companies have focused attention on underdeveloped nations as an important source of future production.”