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A Bombardier advertising board at the SBB CFF Swiss railway train station in Bern, Switzerland, on Oct. 24, 2019.DENIS BALIBOUSE/Reuters

Norway’s sovereign wealth fund, the world’s largest with US$1.3-trillion in assets, has put Bombardier Inc. BBD-B-T on a watch list as it weighs whether to pull its investment in the Canadian multinational over ethical concerns.

Bombardier will be put under observation for two years because of an “unacceptable risk that the company contributes to, or is responsible for, gross corruption,” said Norges Bank, the country’s central bank. India’s Adani Ports and South Korea’s Hyundai Glovis were put on similar watch by the fund.

The bank manages the wealth fund but follows an ethical mandate set by the Norwegian parliament, based on advice from a special ethics council named by the Finance Ministry. That mandate means it won’t invest in certain companies in industries such as weapons manufacturing and tobacco production.

“The council’s investigations have revealed that Bombardier or its subsidiaries can be linked to allegations or suspicions of corruption in six countries over a period spanning more than 10 years,” it said in documentation provided by Norges Bank. All the cases relate to bribes or suspicious transactions amounting to more than US$100-million, done through agents, intermediaries or partners, with the object of winning contracts for Bombardier’s subsidiaries, the council said in its recommendation.

The council expressed doubts about how well Bombardier is setting a “tone from the top” on ethics matters. And it said there are shortcomings in the way the company has dealt with past allegations of misconduct. It said it will seek more information about Bombardier’s anti-corruption efforts over the observation period and monitor any new revelations linking the company to cases of alleged corruption or other financial crimes.

Bombardier spokeswoman Anna Cristofaro said the company has found no evidence of wrongdoing in its business dealings. “We take these matters very seriously and we’re co-operating with the relevant regulatory authorities,” she said. “Conducting business with integrity and the highest ethical standards is a top priority for Bombardier and its more than 13,000 employees.”

The development is new flashpoint for Bombardier chief executive officer Éric Martel, who is trying to steer the industrial company back toward profitability after years of crisis. Bombardier has been dogged for years by claims it was involved in corruption, but this is believed to be the first time an institutional investor has publicly called out its internal culture and suggested it might not have rigorous enough ethics and compliance systems in place.

Norway’s sovereign fund has a 1.2-per-cent stake in Bombardier worth about $33-million at current trading prices, according to Refinitiv data. It will stay invested in the company during the observation period at the council’s recommendation because most of the allegations and suspicions of corruption are linked to Bombardier’s former train unit, which it sold to France’s Alstom SA last year. Bombardier’s current private jet business carries less corruption risk, the council said.

Scrutiny into Bombardier’s past business dealings continue on several fronts.

The World Bank has alleged in a preliminary audit that Bombardier used corruption and collusion to win a rail-signalling systems contract in 2013 in the former Soviet state of Azerbaijan, then obstructed an investigation of the deal. The bank accused the company of colluding with senior officials at Azerbaijan railways to win the US$340-million deal and says it also used an intermediary to “funnel bribes” worth millions of dollars to Azerbaijani officials while routing tens of millions more through a network of Russian-controlled shell companies.

The company has disputed the findings and has filed its own response to the audit process. The bank, which financed the bulk of the project, has yet to release its final conclusions. Meanwhile, a Swedish court acquitted a former Bombardier vice-president of aggravated bribery this past December in connection with the contract and said there was no conclusive evidence that the tender was rigged to Bombardier’s benefit.

In another case, Britain’s Serious Fraud Office opened an investigation in 2020 into Bombardier over suspected bribery and corruption related to contracts and orders from Garuda Indonesia, the flag airline of the Southeast Asian country. The U.S. Department of Justice and the Royal Canadian Mounted Police have also launched probes in the same matter and requested documents from Bombardier.

An Indonesian court convicted Garuda’s former CEO and an associate in 2010 of corruption and money laundering in connection with five procurement processes, including the sale and lease of Bombardier CRJ1000 aircraft. No charges have been laid against Bombardier or any of its directors, officers or employees. The company has launched its own internal review into the case led by outside lawyers and says it has found nothing unusual. It has since sold all its commercial aircraft assets.

In its risk assessment of holding Bombardier shares, Norway’s ethics council said its chief concern is the practical implementation of an anti-corruption system. While Bombardier has some elements in place to prevent and detect corruption and performs due diligence on its partners and customers, there is “a discrepancy between what the company has disclosed and the information the council has obtained from other sources,” the council said. It said that’s caused it to question how effectively the company is handling third-party risk and reporting possible irregularities.

In the Azerbaijan case, the council said Bombardier received three internal reports on the project in 2015 and 2016 but did not launch, as far as it is aware, any inquiries into these matters until Swedish police started its investigation in the fall of 2016. Nor has Bombardier disclosed whether the case has had any consequences for the employees who were involved, the council said.

“All in all, the council does not consider that this provides reasonable assurance that Bombardier has implemented adequate measures to prevent, detect and deal with corruption,” it said.

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