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Weak commodity markets have forced engineering and construction giant SNC-Lavalin Group Inc. to lay off 4,000 employees, but its punishment is far from over: The extensive bribery scandal that broke open under chief executive officer Bob Card's predecessor has led to charges against some executives. If there are convictions, Mr. Card has warned SNC could "cease to exist."

Some might be compelled to wish just deserts on a company allegedly tied to unethical practices in Libya and its backyard of Montreal. But there's a bigger problem, and it has greater implications than the fate of one company. The problem is in Ottawa, not Montreal, and the perpetrator is the federal government.

In its zeal to show it's tough on crime of all sorts, the government last March amended its "Integrity Framework" covering the awarding of contracts by Public Works and Government Services Canada. Now, any company convicted of one of a range of offences, including fraud, bribery, money laundering or extortion, is debarred from doing business with the government for 10 years.

When Mr. Card warns of SNC's fate, he means that a conviction would shut the company off from one of its biggest customers. It's a kind of moratorium that would harm many other Canadian companies that rely on government contracts as well. No wonder business groups like Canadian Manufacturers & Exporters have asked Ottawa to reconsider.

At first blush, that may sound like reasonable punishment. But it isn't. Ottawa's stance is much more extreme than that of other countries, notably the U.S. and European nations, where debarment isn't as prevalent or lengthy. The Canadian government "is taking a sledgehammer" approach, says lawyer Paul Lalonde, a director with the Canadian chapter of Transparency International, a global anti-corruption organization. "A decade is a ridiculously long sentence."

Companies or their executives who engage in corrupt practices should be punished. But the punishment should not threaten the company and its employees or shareholders – and it should be tempered if the firm cracks down on malfeasance and takes every reasonable step to prevent it from happening again. That is the view of the United Nations Convention against Corruption, which argues sanctions against corrupt companies should be "effective, proportionate and dissuasive," and include not only fines and confiscation of illicit profits, but "remedial measures."

Consider the approach in the United States. Under the Foreign Corrupt Practices Act and other statutes, legal authorities pursue companies for corrupt practices at home and overseas. The goal is not just to punish, but to improve behaviour. Often, the authorities will strike agreements with companies: In exchange for paying huge fine, acknowledging the facts and promising to enact strict compliance measures, the government will defer or suspend prosecution. If a company has an existing compliance program, authorities will show leniency, understanding that even the best programs aren't perfect. The approach is pragmatic: It's a profitable shakedown scheme, to be sure – Washington's annual take is typically in the hundreds of millions of dollars – but the end result is that sanctioned companies pay a price that stings but doesn't kill, and take the path to redemption through remediation.

That's the path Ottawa should take. The debarment period should be flexible and subject to a reduction in exchange for good behaviour and other consideration. That would be good for taxpayers and incentivize companies that have sinned to seek salvation. Instead, the government's framework as it's now written is absolute: If there's a conviction, you're out for 10 years.

That's a shame, because SNC has already made a case for leniency: Since taking over, Mr. Card has hired one of the world's top compliance officers and enacted a range of measures to ensure employees stay clean. In the U.S., that would count in SNC's favour. In Canada, it doesn't.

Federal officials seem content with that stance, but they should reconsider. It would be a shame if Canada only punished companies that fell afoul of the law, rather than encouraging them to do better.