BILLIONS ON THE LINE FOR SNC-LAVALIN
CONVICTION ON CORRUPTION CHARGE COULD BAR FIRM FROM FEDERAL CONTRACTS FOR 10 YEARS
Alooming criminal trial could sideline SNC Lavalin Group Inc. on billions worth of federal contracts, removing a key player in Prime Minister Justin Trudeau’s infrastructure ambitions and possibly risking a number of Quebecbased jobs, analysts say.
SNC has a long history of building major infrastructure projects in Canada, including the $6.3-billion REM rail line in Montreal currently under construction. That rail project remains the sole investment made thus far by the Canada Infrastructure Bank, a body introduced by the Trudeau government in 2016 that aims to funnel $35 billion into various infrastructure projects over a 10-year period. SNC is also on the short list to build the $3.6-billion expansion of Ottawa’s light rail system.
But financial analysts and legal experts say that a bribery and fraud conviction against the company would bar it from bidding on any federal contracts for 10 years, and would even allow federal authorities to cancel the company’s current infrastructure contracts, if deemed necessary.
The Montreal-based company faces charges under the Corruption of Foreign Public Officials Act (CFPOA) that it funnelled $48 million in payments to Libyan government officials, including former dictator Moammar Gadhafi’s son, Saadi, to secure government contracts. The case has been in preliminary hearings since October, and no trial date is currently scheduled.
The depth of SNC’s footprint in Canada points to the shared goals between the company and Ottawa, as the government gradually rolls out its $186.7-billion infrastructure program aimed at improving Canada’s roads, bridges, clean-power facilities and telecoms lines.
Frederic Bastien, an analyst at Raymond James, said SNC currently has roughly $8.6-billion worth of planned infrastructure projects — a large chunk of which is based in Canada. That makes up over half of the company’s total global backlog of $15 billion.
“If they’re found guilty, they’re barred from bidding on federal contract jobs. It’s very critical to the business that that doesn’t happen,” Bastien said.
“The bulk of the work that they do in Canada is for the government.”
SNC also employs thousands of workers in Montreal, home of Trudeau’s Papineau riding. Quebec is expected to be highly soughtafter turf in the coming federal election.
The chance SNC could be barred from federal contracts has been a shock to the financial community, which widely expected the company to have its prosecution deferred. “To call this unprecedented would be an understatement,” said Maxim Sytchev, an analyst at National Bank Financial.
SNC has been looking to avoid criminal trial on bribery and fraud charges ever since the RCMP levelled allegations against the firm in 2015.
The company’s request to negotiate a deferred prosecution agreement, or DPA, has come into focus following a report by the Globe and Mail on Thursday that suggested the Prime Minister’s Office had urged former attorney-general Jody Wilson-Raybould to issue such a deferral to the company. In October 2018, the federal director of public prosecution effectively denied the company a deferred prosecution. Wilson-Raybould was shuffled into the Veterans Affairs file in January.
DPAs effectively allow corporations to pay a fine in lieu of criminal charges, in turn allowing them to continue business operations as usual under the condition that they put corporate compliance measures in place.
SNC, led by CEO Neil Bruce, has said Ottawa should allow the company to make its case for a DPA. The firm has replaced its top management and board of directors, and has put in place reporting standards aimed at eliminating corruption, Bruce has said.
The political upheaval in Ottawa on Thursday comes amid a corporate shakeup by Bruce, who has pivoted the company toward infrastructure projects in recent years, and away from oil and gas.
In a 2018 interview with Financial Post, Bruce said infrastructure and nuclear energy were the two major cash engines for the company moving forward. He said that the Liberals’ infrastructure spending plans had brought a number of new projects forward, providing some cushion to engineering, procurement and construction firms like SNC.
“Companies are not looking at individual contracts as a ‘must-win’ because there are a number of projects being kicked off,” he said in a May 2018 interview.
The company has teamed up with Aecon Group Inc. on refurbishment contracts for two nuclear facilities in Ontario, worth a combined $3.2 billion. It also has a longterm maintenance contract for a sizeable part of Vancouver’s SkyTrain system.
The prosecution of the company for alleged bribery in Libya dating back to at least 2012 has already cast a shadow over the company’s ability to secure public contracts.
In announcing the charges in February 2015, the company sought to distance itself, calling it “reprehensible deeds by former employees who left the company long ago.”
At the time, it told shareholders the charges would not formally change its ability to bid on public projects.
Chris Burkett, a former Crown prosecutor who is now a corporate defence lawyer at Baker McKenzie, speaking generally about the law, said a conviction under federal bribery laws would effectively lead to a 10-year ban from bidding on federal contracts. The federal government could also terminate any existing contracts, and provincial governments and foreign governments could follow suit, Burkett said.
Two other companies have been charged under the CFPOA in the past decade, and both paid $10-million penalties. By contrast, in the U.S., corporate defendants charged under anti-bribery laws have paid penalties that stretch into the hundreds of millions of dollars.
Burkett, who has written about deferred prosecution agreements, said there’s been a lot of criticism of them because convictions at trial can carry such severe consequences.
“Some people view deferred prosecution agreements as a way for government lawyers to pressure companies into settlements,” said Burkett. “But on the flip side, other people say corporations view it as a ‘get out of jail free card.’ ”