SNC-Lavalin Group Inc. warned federal prosecutors in writing last fall that the company could break up and move its corporate headquarters to the United States if it was not invited to negotiate a deal to suspend criminal prosecution.
The missive, confirmed by the engineering company late Thursday, appears to conflict with statements last week by SNC-Lavalin chief executive Neil Bruce that the company “never, ever ever put forward a case that talks about economic reasons” in its quest for an out-of-court settlement of charges it faces for bribery and fraud.
SNC insists the correspondence was never meant to push an economic case. It said it is “very unfortunate that an honest and straightforward assessment of potential worst-case scenarios is being taken out of context and interpreted as such.”
The Montreal-based company said Thursday it submitted a confidential document to the Public Prosecution Service of Canada on Sept. 27 outlining a scenario in which it would split up. The company said the correspondence was intended for the director of public prosecutions, Kathleen Roussel, “to be considered in our request for an invitation to negotiate” a deferred prosecution agreement (DPA).
Such an agreement would stay the criminal charges in return for fines and other reforms.
Ms. Roussel told SNC-Lavalin on Sept. 4 that she would not negotiate a settlement and would instead proceed to trial. A federal court filing obtained by The Globe and Mail shows legal counsel for the director of the prosecution service told the company on Oct. 9 that the director had reviewed further information submitted by the company and would not change her mind. The next day, Oct. 10, SNC-Lavalin issued a news release disclosing that SNC-Lavalin would not be invited to negotiate a remediation agreement.
“What we submitted was the public interest rationale, which is wider and more encompassing than the national economic interest. We never threatened. Rather, we laid out a few possible scenarios,” the company said in response to questions from The Globe and Mail. “We provided the public interest considerations of a possible [settlement] negotiation with SNC-Lavalin to protect innocent employees, pensioners, suppliers and other stakeholders.”
In an interview with The Globe March 20, Mr. Bruce said SNC-Lavalin “never threatened anybody” in the federal government with the prospect of picking up its head office and leaving Canada if it did not win a deal. He characterized the company’s communications with federal officials on that topic as a discussion about “an outcome” in the event no deal was offered and the company was convicted in court.
“We can’t just sort of sit there and say ‘Oh well let’s see what happens and if worst comes to worst we’ll deal with it then.’ I mean, that’s stupid,” Mr. Bruce told The Globe and Mail. “Part of the conversation was all about, you know, if we get to a stage where ultimately the worst comes to the worst and … ‘What are you going to do if you’re found guilty in three or four years time?’ And we go, ‘Well, we need to live with that and we need to make alternative arrangements.”
Canada’s top bureaucrat had suggested to Mr. Bruce that the company should approach Ms. Roussel to discuss the “public interest argument” for avoiding a criminal prosecution, according to handwritten notes submitted to the House of Commons Justice committee.
The Liberal government amended the Criminal Code in 2018 to allow prosecutors to use deferred prosecution agreements as an alternative to trials. When it introduced the measure, the government said prosecutors would be able to use this tool at their discretion to address certain economic crimes if they considered it to be in the “public interest.” But matters of economic interest are not to be considered when a decision is made whether to grant a DPA.
The documents were first obtained by The Canadian Press and describe at least one of the company’s so-called Plan B scenarios, essentially actions it could take in the event it is has to endure a lengthy criminal trial. Under one plan, SNC would move its Montreal headquarters and corporate offices in Ontario and Quebec to the U.S. within a year, cutting its domestic workforce to just 3,500 from 8,717, before eventually winding up its Canadian operations, according to the wire service.
In its Thursday statement, SNC said it has always been transparent with its various stakeholders about the importance of SNC-Lavalin remaining free to bid for work in Canada and headquartered in Montreal. “It is important to underscore that this does not mean that we have chosen one option or that a decision has been taken on which option we will pursue, simply that there are various possibilities we must consider,” the company said.
The developments came after Mr. Bruce told The Globe and Mail earlier this week that there is a risk of further job losses in Canada as the company prepares for trial.
SNC’s Canadian work force has shrunk by more than half since 2012, and Mr. Bruce said in an interview in London this week that it could be cut again because of the damage to its reputation stemming from the criminal case. The situation has also caused a huge political controversy in Ottawa. After the prosecutor’s office decided last fall not to offer SNC a path to negotiating a DPA, the Prime Minister’s Office put pressure on then-attorney general Jody Wilson-Raybould to intervene in the matter.
Mr. Bruce said there would be economic damage from a years-long criminal process. A conviction could see the company banned from bidding for 10 years on federal government contracts, which have historically represented a significant part of its business. “We have been working in the past three years to become more global and less reliant on the Canadian market because this keeps dragging on,” he said.
That effort included the US$3.5-billion acquisition in 2016 of WS Atkins PLC, Britain’s top engineering consultancy, which immediately boosted the company’s foreign work force by 18,000. The company now has about 52,000 employees, more than 80 per cent of whom work outside Canada.
Mr. Bruce asserted that the intense publicity surrounding the case – which has created turmoil within the Trudeau government and led to the resignation from cabinet of Ms. Wilson-Raybould and Treasury Board president Jane Philpott – is having a negative effect on the business.
He revealed that partners have pulled out of bidding groups on two projects because of doubts about SNC’s future, though he declined to name the partners or the projects.
“They are saying that the chances of winning those bids, in their view, by partnering with us have come down because of the bad publicity, and generally they don’t want to be tarnished by association until this is resolved,” said Mr. Bruce, who is Scottish and became SNC’s boss in 2015.
“Over the last couple of months … companies that have traditionally worked with us are now saying, ‘What happens if we partner up with [SNC] in a federal contract in Canada and further down the line SNC is banned from federal work – are you going to indemnify us?’ ”
He said there is a particular risk that SNC employees who work on government contracts will lose their jobs because of the legal uncertainty.
“Should it become difficult or impossible for us to get Canadian federal work, then there will be a natural transition away from [that work],” he said. “We will have to demobilize after we complete [existing] contracts if we can’t win any more. It is not something that we are threatening – that’s just the risk.”
In 2015, the RCMP charged SNC under the Corruption of Foreign Public Officials Act for allegedly paying US$48-million in bribes to Libyan officials and defrauding various Libyan organizations of US$130-million. Two years earlier, the World Bank had banned SNC and its affiliates from taking part in World Bank-financed contracts for up to 10 years because of “misconduct” – conspiracy to pay bribes – related to the multibillion-dollar contract to build the Padma Bridge in Bangladesh.
SNC shares have slumped 26 per cent this year because of a litany of woes, including the legal troubles. Problems with a few projects – notably in Chile, where the state-owned mining company terminated SNC’s US$260-million contract to build two sulfuric acid plants for a copper smelter – have damaged the company’s value. SNC also wrote down the value of its oil and gas business, partly because of cloudy prospects for its business in Saudi Arabia, which has been embroiled in a months-long diplomatic dispute with Canada.
The shares are down about 34 per cent since the company disclosed in October that its efforts to secure a DPA had failed and about 10 per cent since The Globe revealed that the attorney-general had been pressured by the PMO to reconsider the matter. SNC is not considering another big acquisition because the shares have fallen to the point that they are no longer an ideal takeover currency, Mr. Bruce said.
He said a major overhaul of the company’s ethics and compliance procedures has been accomplished under his watch and that of his immediate predecessor, Robert Card, who was recruited after the ouster of Pierre Duhaime, the CEO at the time the scandals erupted. Mr. Duhaime pleaded guilty in February to one charge of helping a public servant commit breach of trust.
Mr. Bruce thinks “there is a possibility” that a DPA could still be granted but said he has absolutely no sense of whether that could happen. He said his contract with SNC does not promise him a bonus for negotiating a DPA, though the share price would likely rise in that scenario, boosting his share-based compensation.
Speculation that he was about to quit SNC, or run the company primarily from London instead of from its headquarters in Montreal, intensified this week when Le Journal de Montréal reported that he and his wife had sold their house in Montreal for $3.3-million. But those rumours are not true, he said.
Montreal will remain his principal office, even though his wife and daughter are moving back to London, where the family owns a house, he said. “My base is Montreal,” he said, “[But] we don’t need a family house there.”
He said he had been approached by a headhunter but added: “I don’t think about quitting, no, because there is a determination to succeed. … We’ve got fantastic businesses … 90 per cent of the businesses are really, really good.”