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SNC-Lavalin Group Inc.'s bet that it could strike a deal with Canadian prosecutors to settle past corruption charges ahead of a preliminary inquiry later this month has fizzled. It now looks as if the courts will decide.

Shares in Canada’s biggest engineering firm fell the most in six years Wednesday after the Public Prosecution Service of Canada decided against a negotiated settlement with the company that could have suspended and eventually stayed attempted bribery and fraud charges under new corporate crime laws. The stock fell as much as 15 per cent to $43.82, its biggest intraday decline since February, 2012, according to Bloomberg data.

“The train has left the station” on SNC-Lavalin, said Alan Sarhan, an anti-corruption specialist with Bretton Woods Law Canada. “Maybe [prosecutors] are not comfortable at this time hitting the brakes just because this legislation exists.”

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The development is a blow to SNC-Lavalin chief executive Neil Bruce’s efforts to shut the door on a series of legacy issues that have soaked up resources and hampered the company’s competitive position against global rivals over the past six years. In May, the company struck a $110-million agreement to settle class-action lawsuits related to allegations that it misled investors about its activities in Libya. The company also signed an agreement with Public Services and Procurement Canada in 2015, giving it the right to do business with the government.

The biggest unresolved issue remains the federal charges against the company. Prosecutors laid rare corruption and fraud charges against SNC in February, 2015, alleging that it paid millions of dollars worth of bribes to public officials in Libya between 2001 and 2011 to secure government contracts.

In the wake of those charges, SNC-Lavalin and other organizations urged Ottawa to adopt negotiated settlement agreements as a way to hold companies accountable for alleged wrongdoing while reducing the harm that a trial or criminal conviction would inflict on employees and other third parties who didn’t take part in the alleged offence. Such systems are in place in countries such as Britain and the United States, where hundreds of agreements have been used to settle white-collar crime cases in the past 15 years or so.

Earlier this year, federal legislators voted in a made-in-Canada system, called the remediation agreement regime, that took effect in September. Under the system, companies would agree to pay significant fines and put in place more rigorous ethics and compliance systems in addition to accepting responsibility for the wrongdoing. In exchange, criminal proceedings against them would be suspended and eventually dropped if they fulfilled their obligations, sparing them a potential conviction that would trigger other consequences such as violating debt covenants.

Prosecutors' unwillingness to strike a deal with SNC-Lavalin now means more uncertainty and potential reputational damage for the company as the court process plays out. A preliminary hearing in the case scheduled for September this year was postponed and is now slated to start Oct. 29, an SNC official said.

“I’m surprised” by the decision, Mr. Bruce said in an interview Wednesday. “Who’s being penalized today with this news? It’s all the innocent people again. It’s the employees. It’s the pensioners. It’s the [people] who’ve invested in the shares. They’re the ones who have been penalized here, not the people who actually caused the problems in the first place.”

None of the charges has been proven. The engineering firm has maintained its innocence, saying executives who have since left the company were responsible for the wrongdoing and that it has since reformed its ethics and compliance procedures to be among the toughest in the world. Mr. Bruce said SNC is reviewing its options to appeal the decision but that it is “working on the basis that we’re going to follow the court process from now on.”

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It remains unclear why federal prosecutors are declining to engage in talks with SNC-Lavalin. A spokesman for the Public Prosecution Service said the Criminal Code of Canada sets out the criteria for remediation agreements and that prosecutors determined that the criteria were not met.

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