What a corruption conviction could mean for company

MONTREAL As a scandal surrounding SNC-Lavalin Group Inc.’s lobbying efforts to avoid criminal charges continues to plague the federal government, it remains unclear exactly what a conviction would mean for the company.

The engineering and construction giant is facing criminal prosecution over alleged bribes to Libyan government officials while pursuing business in that country. Under the current rules, a conviction includes a 10-year ban on federal contracts.

CEO Neil Bruce, who assumed leadership in 2015, has repeatedly said the organization has turned over a new leaf, and that a prosecution at this date would only punish “innocent employees.”

Nearly one-third of SNCLavalin’s $9.3 billion in revenues in 2017 came from Canada, down from roughly 60 per cent of revenue in 2014. Analysts estimate that up to one-half of home-turf revenues stem from federal contracts.

AnalystYuriLynkofCanaccord Genuity said the reputational damage of a looming corruption case could hurt the company more than a decade-long ban on federal contract bidding. “It hurts their reputation,” he said. “Their competitors would always be reminding clients that you’re dealing with someone with outstanding charges against it in its own country.”

On Oct. 10, shares plunged more than 13 per cent after news broke that federal prosecutors had declined to negotiate the charges, making prosecution appear imminent.

In the ensuing political scandal, various Liberal officials have made remarks about the spectre of large job losses and the risk that SNC-Lavalin would pull up stakes from Montreal to settle overseas in London.

SNC employs about 10,000 people in the United Kingdom, more than the 8,500 or so stationed in Canada. However, the advantages of moving abroad are unclear. “What’s moving to London really going to do?” Lynk asked, noting SNC-Lavalin would face the same bidding restrictions in Canada should a 10-year ban come down.

The U.K. serves as a major base for engineering companies in the European Union, but that bridge may crumble with the country’s impending departure from the EU.

“One of our major concerns around the U.K. is the impact of Brexit...so it’s not as simple as, ‘Hey, let’s go from Montreal to Manchester and call it a day,”’ said analyst Chris Murray of Altacorp Capital.

Canada’s recent free trade deal with the EU allows European companies to bid on Canadian government contracts, potentially opening a door to SNC through subsidiaries, such as the Londonbased WS Atkins, that are not listed in the criminal case, analyst Derek Spronck of RBC Dominion Securities said in a research note.

Other experts say that even if the company shifts its focus further abroad, a criminal conviction in Canada could land it on blacklists in other countries.