An unfolding corporate scandal struck one of Canada's most successful global enterprises Monday, claiming the chief executive of SNC-Lavalin Group Inc. and prompting the board of directors to call in police to find out what happened to $56-million in missing company funds.
Pierre Duhaime, who ascended to the top rung of the $7-billion Montreal-based construction and engineering giant in 2009, left abruptly after an independent board committee determined that he overruled his own chief financial officer and approved payments to an agent whose identity and function remains a mystery.
Chairman Gwyn Morgan said the board can't determine what happened to the missing cash but said it doesn't believe the mystery payments were related to SNC's controversial operations in Libya, where recently ousted SNC senior executive Riadh Ben Aissa – the central figure in the scandal – had a close relationship with the son of the country's late dictator Moammar Gadhafi and helped steer several megaprojects for the company.
Mr. Duhaime "made some errors," said Mr. Morgan, who heads a blue chip board that includes Senator Hugh Segal and Canadian National Railway CEO Claude Mongeau. However, Mr. Morgan portrayed the CEO's departure as a retirement. SNC director Ian Bourne will be interim CEO until a replacement is hired.
Mr. Duhaime and Mr. Ben Aissa could not be reached for comment.
SNC revealed an investigation into the payments in February after allegations about its work to protect the Gadhafi family that landed one of its hired consultants, Cynthia Vanier, in a Mexican jail.
The board said Monday the missing money had gone to commercial agents SNC hired to help win two major construction contracts. SNC didn't say where the projects were located but did indicate that some of the payments went through the company's office in Tunisia.
It is not uncommon for companies operating overseas to hire local agents to help win contracts and facilitate projects. However, their roles can become murky and some agents have been used to pay bribes. SNC is already under investigation by the RCMP over bribery allegations related to a $10-million contract it bid for in Bangladesh.
SNC said it requires its agents to adhere to all laws and company policies and that the questionable payments were isolated violations of procedures. But the company's internal probe raised questions about how seriously its own senior leaders took those codes, and of the relationship between Mr. Duhaime and Mr. Ben Aissa.
The two executives joined SNC in the late 1980s and rose up through the ranks, eventually winning appointments to its elite Office of the President.
In 2009, Mr. Duhaime, who is from Quebec City, became CEO. Tunisian-born Mr. Ben Aissa ran SNC's activities in Libya as well as the company's construction operations worldwide. That year, according to the board, Mr. Ben Aissa approved a $30-million contract to an agent to help win a contract. The company alleged Monday that the agent's arrangements were not properly documented, had nothing to do with the project and the identity of the agent couldn't be verified.
Mr. Duhaime learned about the contract in a meeting in 2010 along with chief financial officer, Gilles Laramée, according to the SNC-Lavalin report. The CFO objected to the payments, but Mr. Duhaime did not. A year later, Mr. Ben Aissa entered into another agent contract worth $33.5-million for a different project. Once again Mr. Laramée objected. Mr. Duhaime later authorized Mr. Ben Aissa to make the payments anyway – an action that "did not comply" with SNC's code of ethics and business conduct, the board said.
Mr. Morgan said he had no reason to believe the former CEO "overtly wanted" to breach the code, adding he should have sought approval from the board before approving the payments. "For various reasons he felt he was obligated to pay the bill. In hindsight we all regret that."
He instead blamed Mr. Ben Aissa, suggesting his division had hidden and improperly documented the payments, and that Mr. Ben Aissa, unlike the CEO, had not co-operated with the investigation. Mr. Ben Aissa has denied any wrongdoing and threatened to sue SNC over his departure. Another former executive from his division, Stephane Roy, was also dismissed last month.
Mr. Morgan said the board is confident it has uncovered all unauthorized agent payments. He also said the fees paid by Mr. Ben Aissa were extraordinary and that on average SNC pays agents about $700,000 in total.
Despite Monday's news – including a disappointing earnings forecast for 2012 – SNC stock closed up by 5 per cent as the damage was more limited than investors had feared.
"We have great confidence in the board and leadership, and they seem to have done a very thorough job," said Len Racioppo, president of Jarislowsky Fraser Ltd., one of SNC's largest shareholders with about 14 per cent of the stock. "This is going to remain a holding in our portfolios."
With a report from Les Perreaux
SNC-Lavalin's global influence far-reaching
Engineering and construction giant SNC-Lavalin is one of Canada's most global companies, with offices in 36 countries outside Canada and contracts under way in about 100 countries. Its vast array of projects includes designing, building and operating power facilities, irrigation systems, upgrading mines, providing building maintenance and constructing sulphuric acid plants.
The 101-year-old, Montreal-based company has done business in many of the countries in the bottom 20 of Transparency International's corruption index, such as Libya, the Democratic Republic of Congo, Venezuela, Equatorial Guinea, Haiti and Afghanistan, albeit for clients that include the World Bank (in Haiti) and the government of Canada (at its military airbase in Kandahar, Afghanistan). In Libya, where former executive Riadh Ben Aissa was close to Saadi Gadhafi, the son of the late dictator Moammar Gadhafi, the company won a series of huge contracts, including a $425-million water-diversion project, a $500-million airport in Benghazi, a prison in Tripoli, as well as roads, bridges and housing developments.
SNC earned revenue of $7.2-billion in 2011, up from $6.32-billion in 2010.
2010 revenue by geography:
Middle East 6%
Latin America, Caribbean 6%
Reported by Sean Silcoff