"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),
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),
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
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".
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
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 email@example.com.
© Thomas R. Fox, 2012
For more information about LexisNexis
products and solutions connect with us through our corporate site.