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Would You Buy a Used Car from SNC-Lavalin?

Two hundred and eighty million dollars is a slap on the wrist.

It doesn’t take an expert in corporate finance, engineering, or law to understand this. All it requires is a broad perspective and common sense.

On December 18, 2019, SNC-Lavalin, the engineering firm at the heart of 2019’s biggest Canadian political scandal, pleaded guilty to one charge of “fraud over $5,000” and was fined 280 million dollars. This settled a prosecution that had been in process for several years.

$280 million seems like a lot of money, but it is far lighter than the penalties that could have been imposed. For instance, SNC-Lavalin could have been barred from bidding on contracts involving the Canadian government for ten years. This would have been huge because a large part of SNC-Lavalin’s business is major public works projects funded by governments. And since most provincial and municipal government projects now receive federal government funding, the company would have been precluded from bidding on many of those projects as well. Consider also that schools, universities, hospitals, bridges, highways, transit projects, and much more are all paid for by governments.

Compared to the loss of such contracts, $280 million is small change. SNC-Lavalin had over $10 billion in revenue in 2018. For such a company, $280 million spread over five years is just a cost of doing business.

Consider also that the charge to which SNC-Lavalin pleaded guilty concerned bribes of $113 million to obtain contracts in the relatively small county of Libya. The company is accused of defrauding Libyan organizations of about $130 million. And this was not an isolated case. The company had already been banned from bidding on many other overseas contracts due to other cases of bribery. In Canada, the company reportedly paid $22.4 million in bribes to obtain a contract worth more than $1.3 billion to build a new complex for McGill University Health Centre (MUHC). MUHC manager Yanaï Elbaz pleaded guilty to four charges on November 26, 2018 and was sentenced to 39 months in prison, MUHC CEO Arthur Porter died in a Panama prison while fighting extradition, and Porter’s wife Mattock Porter was sentenced to 33 months in prison for laundering the bribe money. There were also hints in those cases about possible other bribes involving contracts in Algeria and Alberta. The company has also been investigated for corruption involving the Kerala hydroelectric dam in India, the Jacques-Cartier Bridge repair in Quebec, and the Padma River Bridge in Bangladesh. SNC-Lavalin was also caught making illegal contributions to political parties, particularly the Liberal Party. This might be one reason why the Trudeau government tried so hard to help the company avoid prosecution. It is telling that the company’s stock shot up 14 per cent the day after the Trudeau government was re-elected last October.

That the company got off lightly is indicated by the fact that the company’s stock jumped 20 per cent on news of the settlement. It is also evident in the company’s statement that it “does not anticipate that the (guilty) plea will have any long-term material adverse impact on the company’s overall business.” Even the CBC, often favourably disposed to the Liberal government, reported that SNC-Lavalin got “most of what it wanted” from the plea deal.

This raises the question of why the prosecution agreed to a plea deal. It is not that there was uncertainty over whether the company would be convicted in court. There was no shortage of evidence, and cases against SNC-Lavalin leaders had already resulted in convictions. On December 15, 2019, Sami Bebawi, who carried out the bribery scheme, was found guilty of all five charges he faced.

Did the Prime Minister’s Office put pressure on the prosecution to settle the matter, as it earlier tried to pressure Attorney-General Judy Wilson-Raybould? Crown prosecutor Richard Roy said, “This decision was made independently” and current Attorney General David Lametti was not involved. Of course, previously the prime minister had categorically denied that he and his staff had pressured Wilson-Raybould—until irrefutable evidence surfaced that they had pressured her. The truth is that we will likely never know. If the Prime Minister’s Office has learned anything from that earlier attempt, it is likely that it learned it needs to do a better job of covering its tracks.

There is no hard evidence either way. However, it is surely suspicious that the plea agreement was reached, not at the beginning or end of the trial, but in the middle of it. It was also in the middle of the Christmas rush, when Parliament was no longer in session and the deal would receive little attention. By the time critics had time to notice and analyze the deal, it would be “old news,” too late to protest. The timing seems more politically advantageous than judicially mandated.

After the settlement, Prime Minister Justin Trudeau expressed satisfaction that jobs would not be lost at SNC-Lavalin.

But what would have happened if SNC-Lavalin had lost the opportunity to bid on government contracts? Does that mean that bridges and hospitals and schools would not be built? No. It only means that the contracts would have gone to other, less corrupt engineering firms.

Consider why SNC-Lavalin might have resorted to bribery to obtain contracts. If the company was convinced that bribes were necessary, it suggests that the company was afraid its costs would be deemed too high or the quality of its work too low. Otherwise, it would have been confident it could win the contracts based on merit.

The court case and the relatively light punishment do not necessarily mean that the case is “settled.” It may be settled legally, but a verdict has not yet been fully rendered in the court of public opinion. A company’s success depends on goodwill, on trust. In this case, since it has been established that SNC-Lavalin broke the law to get contracts and it seems clear that it attempted to pervert the judicial system to avoid prosecution, there will inevitably be lingering questions about what else it will do. Can such a company be trusted to comply with environmental protection standards, employee relations standards, and human rights standards? If it will pay bribes in order to make more money, can it be trusted not to cut corners on construction standards and engineering safety to increase its profits? Next time you drive over a bridge designed by SNC-Lavalin, consider whether you are willing to bet your life on a company that has been convicted of fraud. Next time a government awards a contract to SNC-Lavalin, how will you be sure that that award did not come about as a result of a bribe paid to some government official? How far would you trust a politician who trusts a corrupt company? The settlement of the court case does not necessarily restore public trust in the company.

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