FCPA Compliance and Ethics Blog

March 30, 2012

Is a Major Bribery Prosecution Coming in Canada Under the CFPOA?

“What did the President know and when did he know it?” That is the iconic question from the Watergate Hearings asked by Senator Howard Baker of various witnesses. In the case of the Canadian engineering company SNC-Lavalin Group Inc. (SNC), it appears that its chief executive knew something was amiss and had known so for quite some time.

In an article in the March 27, 2012 edition of the Wall Street Journal (WSJ), entitled “Big Builder’s Chief Resigns”, reporters Caroline Van Hasselt and Satish Sarangarajan detailed the ongoing turmoil at SNC. In an article in the New York Times (NYT), entitled “Chief of Canadian Firm Steps Down After the Inquiry”, reporter Ian Austen reported that the chief executive of the firm, Pierre Dunhaime, resigned on Monday, March 26, after the “release of a report indicating that he had authorized that $56 million in improperly documented payments to unidentified agents.” The WSJ reported that the company “still had unanswered questions about the payments and had referred the matter to the Royal Canadian Mounted Police [RCMP]…”

Both newspaper articles reported on the release Monday of a copy of the company’s internal investigation, although the NYT article stated that it “appeared to raise more questions than it answered.” It appeared from the WSJ articles that Dunhamie had personally approved these payments to unknown agents to secure work for SNC projects. Apparently these agents were hired without any formal vetting process. Further the company reported that it was taking a charge to earnings for separate amounts of $33.5 million and $22.5 million, which had been incorrectly recorded on the company’s books and records. These payments had been made from 2009 until 2011.

Interestingly the company’s Chief Financial Officer (CFO) had objected to these payments because, as reported by the WSJ, “the agents identities weren’t properly disclosed and their fees would be charged to other projects.” The NYT reported that the payments to “agents who broker and manage contracts with foreign governments.”

So what does all this mean under relevant Canadian law? It could mean quite a bit. Canada has its own law prohibiting bribery and corruption of foreign governmental officials, the Canadian Corruption of Foreign Public Officials Act (CFPOA) which was enacted in 1999. The criminal provisions of the CFPOA are almost identical to those found in the US Foreign Corrupt Practices Act (FCPA) but it has no equivalent to the books and records component and there is no civil component which is enforced by the US Securities and Exchange Commission (SEC). The CFPOA only contains a criminal component, similar to that which is enforced by the US Department of Justice (DOJ). The FCPA has a longer jurisdictional reach than the CFPOA, where the test for jurisdiction requires that the cases involved have a “real and substantial” link to Canada. This means that a portion of the illegal activities must have been committed in Canada or have a real impact on Canadians.

Under CFPOA, there are clearly questions raised that would be similar to those raised under a FCPA analysis. What due diligence, if any, was done on the agents? What services, once again if any, were performed by the agents? The fact that the agents are still not known to the company or what the $56 million payment was for, or where it went, are problematic as well? Why did the company executive approve these payments over the objections of the CFO? While there is no books and records equivalent under CFPOA, mis-characterizing payments and expenses would seem to indicate a desire to hide the true nature of the payments.

SNC had strong relationships with members of the former ruling family in Libya, the Qaddafi’s, and had done ongoing work for the country before the regime fell. A consultant for the company was reported by the NYT to have traveled to Libya during the allied forces bombing and “produced a five-page report that was critical of the NATO-led bombing campaign in support of Libyan rebels.” In view of these relationships, could some of this $56 million have been paid as bribes in Libya?

As noted, the matter has been turned over to the RCMP for further action. In a guest post on this blog, entitled “Why Does It Appear Anti-Bribery Enforcement Is Lacking in Canada?” our colleague Cyndee Todgham Cherniak wrote that Canada’s criminal justice system does not include grand juries. As a result, the job of the RCMP is to gather sufficient information to cause the Crown to lay charges. Canada does not use grand juries as an investigatory tool. When there is a Canadian investigation, the RCMP is not inclined to talk about it. Appropriately, they declined comment for both articles.

Many questions are left unanswered by the company report. But as we might say down here south of the border, it is time for several people to “lawyer up”.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

4 Comments »

  1. Don’t hold your breath. Unless the Cdn Gov wants a show trial, NOTHING will happen, Remember, SNC has ties into the Cnd Gov that are deep as well….

    Comment by Lance Macho — March 30, 2012 @ 6:33 pm | Reply

  2. Well if the stock analysts are to be believed this is all over – but for once I am not with the sceptics. The RCMP anti-Corruption unit is said to have over 30 cases and once major scalp to their credit so far. The executed a warrant on SNC Lavalin some months back – apparently a World Bank referral case regarding a $1.2 billion bride in Bhangladesh.

    If you believe that they will let this slide you may be mistaken – this is very public and with the OECD report ringing in their ears, I doubt the government has the stones to sweep this under the carpet.

    What ever does transpire we can be sure of two things.

    1- It will take ages to work its way through the system and

    2 – It will be very interesting to see what develops.

    Comment by Sandy Boucher — April 2, 2012 @ 11:06 am | Reply

  3. SNC Lavalin is affected by bribery scandals in Libya, India and Bangladesh primarily due to the losses incurred view money lost. SNC continues to offset those loses by aggressively bidding for many government contracts. In any other part of the world, the company indicted or convicted anywhere else for bribery, cheating is not allowed to bid for government contracts. But SNC is having the last laugh in Canada. US companies who continue to work with SNC Lavalin should be brought under scanner as they would have been exposed to these corrupt practices as well. SNC Lavalin works with many US companies or major projects and probably there should be an investigation into these companies as well.

    All reading this post should not forget couple of things about corruption :

    1. Paying money to benefit somewhere is almost the last resort in deviating from ethical policies. It could be clearly possible that SNC Lavalin may have been doing more unethical things that just bribing (like influencing people in kind).

    2. The Canadian government is going slow on these investigations as it will bring in job losses in Canada if they aggressively indict this company. Unless OECD wakes up and uses this case to force Canada to improve enforcement, nothing will happen.

    3. People are being indicted or investigated but no one is investigating the board, the existing employees and still SNC Lavalin gets voted as the best corporate citizen in Canada. What a joke ?

    Watch the space as the investigation is pushed under the carpet…..

    Comment by Jax — July 4, 2012 @ 2:45 am | Reply

  4. Jax – I agree that there is much here that is not satisfactory but I feel obliged to point out that the RCMP going slow is not one of them. Since my last post a second search warrant has been executed on the SNC offices in Montreal and two managers have been charged. In the general scheme of things this is very quick indeed, the average corruption investigation takes 1 -2 years these charges were laid after 6-7 months. It is also clear that there is much more to come. I still belive that ultimately the SNC Lavalin case will become the defining example of what can happen to a Canadian company if it is believed to have fallen foul of the anti-corruption law.

    Comment by Sandy Boucher — July 5, 2012 @ 6:47 am | Reply


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

%d bloggers like this: