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The political storm in Ottawa over the handling of a corruption case against SNC-Lavalin marks a low point in the government’s troubled effort to shore up its anti-corruption regime.

On Tuesday, former attorney-general Jody Wilson-Raybould abruptly quit cabinet less than a week after The Globe and Mail reported that the Prime Minister’s Office had put pressure on her not to take the case against the Montreal-based engineering giant to trial.

“The government has really tied itself in a knot on this,” said lawyer Brenda Swick, a specialist in anti-corruption, government contracting and trade law at Cassels Brock in Toronto. “It’s a mess.”

SNC-Lavalin was already in a heap of trouble before the RCMP hit the company with fraud and corruption charges in 2015 over allegations it made illegal payments to win government work in Libya. A year earlier, Stephen Harper’s Conservative government had quietly imposed a 10-year ban on companies convicted of a long list of white-collar crimes – anywhere in the world – from doing business with the federal government.

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For SNC-Lavalin – Canada’s largest engineering company – government work at home has long been a vital source of revenue, providing a solid base for its riskier overseas work. Any finding of criminal wrongdoing would put the company’s financial viability at risk. A decade-long ban could be a death sentence.

It tried for the first time to reach a settlement with prosecutors in 2015 – steep fines in exchange for a guilty plea. But pleading guilty would also mean automatic banishment from federal contracts – something the company desperately wanted to avoid. And so the deal fell apart.

Unfortunately for SNC-Lavalin, there was no alternative to a guilty plea or a trial at the time. There is now, but it’s proving to be of little use to the company.

Last year, Canada followed the lead of the United States and Britain and introduced changes to the Criminal Code, allowing deferred-prosecution agreements in cases involving charges of corruption and other economic crimes. Under the arrangement, prosecutors can suspend charges in exchange for the defendant agreeing to a set of specific remedial actions, including tough internal controls, third-party monitoring, paying back any ill-gotten gains plus fines. If the company lives up to the deal, the charges are eventually dropped.

But in October, federal prosecutors delivered the bad news: Without explanation, they told SNC-Lavalin it wasn’t going to get such a deal.

Under the amended law, federal prosecutors can consider the “national economic interest” in weighing whether to offer deferred prosecution. SNC-Lavalin would seem to meet that test, given its work on major infrastructure projects, 8,500 Canadian employees and important position atop a vast network of suppliers.

But as Ms. Swick pointed out, national economic interest can’t be invoked when a company is facing charges of trying to corrupt foreign government officials – as is the case with SNC-Lavalin.

It’s not the first time that changes to Canada’s anti-corruption defences have been embroiled in controversy. In 2014, the Department of Public Works and Government Services was forced to backtrack after it imposed a sweeping 10-year ban on government contracting. Critics complained the ban was too broad and excessively rigid because it covered offences by loosely connected corporate affiliates in foreign countries and no process for contesting a banishment.

Several major government suppliers, including Hewlett Packard Inc. and Siemens AG, suddenly found themselves offside because they had corruption convictions in the United States. Others, such as SNC-Lavalin, quickly realized they would be next in line for banishment.

One of the government’s first mistakes was to introduce its new Integrity Framework as a policy change, rather than passing new laws or regulations. As a result, it didn’t need to consult outside groups or do impact assessments. The backlash was predictable.

And now the first test case of the government’s deferred-prosecution process is embroiled in scandal.

Canada’s efforts to modernize its defences against economic crimes such as corruption and money laundering have been slow and disjointed. Now it’s facing the consequences, argued James Cohen, executive director of Transparency International Canada, the domestic chapter of a Berlin-based organization devoted to combatting global corruption.

“Regretfully, we’re doing a lot of catch-up on a number of fronts in Canada,” Mr. Cohen said.

What looked like an escape clause for the company has become a trap, apparently dooming efforts to avoid a criminal trial.

Follow Barrie McKenna on Twitter: @barriemckennaOpens in a new window

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