SNC-Lavalin Group Inc. struck a deal giving it the right to do business with the Canadian government despite unresolved corruption and fraud charges against the engineering firm – the first of what could be other similar pacts between Ottawa and supplier companies in the months ahead.
SNC, the country's biggest engineering firm, confirmed Thursday that it signed an "administrative agreement" with the Canadian government's Public Services and Procurement department under the new Integrity Regime – an effort to make sure the government does business with ethical suppliers. The agreement allows companies that have federal charges pending against them to continue to contract with or supply the government, the company said.
The SNC-Lavalin agreement is the first reached under the new regime. As part of the deal, SNC agreed to strict conditions and third-party oversight of its business practices. The specific terms are confidential.
SNC-Lavalin chief executive Neil Bruce hailed the deal as an important milestone allowing the company to continue contributing to the Canadian economy. He said the agreement could also help the company in international bidding, by showing prospective clients that Canada recognizes the significant steps the company has taken to overhaul ethics and compliance.
"It's certainly good news from our perspective and it's a bit of a morale boost for our employees because they can see that we're making progress," Mr. Bruce said in an interview. "This is one step towards the bigger picture."
The previous Conservative government softened its tough anti-corruption rules for companies doing business with Ottawa in July in the face of intense criticism from business groups. The most contentious part of the rules was an inflexible 10-year contracting ban on companies charged with a long list of offences anywhere in the world, which was reduced to five years. Under the new rules, the government can also suspend a company from doing business for 18 months if it is charged with various corruption-related offences. This can occur even before a company is convicted.
Government officials confirmed that SNC-Lavalin was facing an 18-month suspension. The RCMP charged the company in February with corruption and fraud related to its business in Libya.
"The government of Canada initiated the [administrative agreement] process," said Jessica Kingsbury, a spokeswoman for Public Services and Procurement Canada. "The integrity regime enables the government to impose an administrative agreement on a supplier charged with a listed offence in lieu of suspension."
A handful of other companies are also in discussions with Public Services officials after receiving "intent to suspend" notices from the government, according to one lawyer familiar with the situation. The lawyer said he expects other companies will reach administrative deals in the near future if they can demonstrate to the government that they shouldn't be suspended.
SNC has been in legal turmoil since 2012, when it parted ways with former company vice-president Riadh Ben Aissa and uncovered $56-million worth of payments to undisclosed commercial agents. Mr. Ben Aissa, once a jet-setting manager for SNC praised for fixing problems, pleaded guilty in Switzerland's Federal Crime Court last year of bribing the son of deposed Libyan dictator Moammar Gadhafi to obtain lucrative work in that country for SNC.
SNC-Lavalin itself was charged in February under Canada's anti-corruption laws. The company maintains that any wrongdoing was done by executives who have since left the company and that it has reformed its ethics and business practices to be among the toughest in the world. It has sued some of those same executives to recoup what it says were embezzled funds and maintains it should never have been charged.
The company is urging Canada's new Liberal government to adopt corporate corruption settlement deals like those in place in the United Kingdom and United States to resolve the charges. In the U.S., for example, such "deferred prosecution agreements" allow prosecutors to wring multimillion-dollar fines from companies while sparing them a criminal conviction that could trigger other consequences.
The idea is that the offending company be held accountable for its past actions while not being permanently crippled. Critics, however, note that such deferred prosecution deals undermine the rule of law and may encourage crime.
"This [deal announced Thursday] is not the panacea for having a deferred prosecution agreement in place" and paying any eventual fines, said analyst Maxim Sytchev of Dundee Capital Markets. Still, he said it does clear up the uncertainty the company was facing about being able to bid on government work after the new procurement guidelines were introduced in July.
"Now we at least have the intermediate visibility on 'business as usual' when it comes to procuring government contracts for SNC," Mr. Sytchev said in a note. "[This is], a positive development."
A consortium led by SNC-Lavalin was selected earlier this year to build Montreal's new Champlain Bridge, a federal project estimated to cost as much as $5-billion. An SNC group was also picked this summer to operate the Chalk River nuclear laboratory in eastern Ontario, one of the world's biggest suppliers of medical isotopes.