Robert Card, Chief Executive Officer of SNC- Lavalin Group Inc., is photographed in Toronto, Ontario Tuesday, November 5, 2013.Kevin Van Paassen/The Globe and Mail
RCMP charges against SNC-Lavalin Group Inc. threaten to severely hurt the company's business – even if it is not convicted.
The construction and engineering firm said Thursday that the charges – stemming from alleged bribes to Libyan officials, and alleged fraud related to a project in Libya – are without merit.
While the allegations have not been proven in court, they are "very damaging for SNC's reputation," said Brenda Swick, a lawyer at McCarthy Tétrault in Toronto who specializes in international trade and government contracting. And if SNC is eventually convicted, it will lose lucrative Canadian government contracts as a result of anti-corruption regulations that Ms. Swick said are "probably the most draconian regime in the world."
SNC president and chief executive Robert Card told The Globe and Mail's editorial board last October that criminal charges would be deeply troubling, and could result in the "dismemberment" of the company, or possibly a sale to a foreign owner.
Just being charged would be so harmful to its reputation that all SNC's government business would be at risk, Mr. Card said.
"We operate on image," he said at the time. "Imagine you are a government official and you are getting ready to award a big contract to a company and they have been charged. You have two other companies that haven't been charged bidding for it …"
Behind closed doors at SNC's Montreal headquarters, Mr. Card is said to have suggested the company could move its headquarters if it falls out of favour in Canada.
"He's said several times that a company like SNC could operate from anywhere in the world, that there's many places that would welcome a company like ours," said one source who asked not to be named. Directors on SNC-Lavalin's board would be against moving the company, the person said. The company was not immediately available for comment.
In a press release Thursday, SNC played down the impact of the charges saying, "there is no change to the company's right and ability to bid or work on any public or private projects."
SNC relies heavily on government contracts for infrastructure and construction projects around the world.
While it operates in more than 40 countries, it earned 66 per cent of its revenue in Canada in 2013, and has many major projects under way for the federal government. SNC's infrastructure investment division specializes in partnering with governments and private companies to work on airports, bridges, public buildings, highways, transit systems and power or water facilities.
Ottawa tightened its anti-corruption bidding rules last year in a move that raised the ire of business groups who argue the regulations go far beyond similar standards in other countries. Under the rules, companies are subject to a 10-year ban on bidding on federal government contracts if they have been convicted of an array of offences, including bribery of a foreign public official.
The ban would also apply if a company pleads guilty and gains a conditional or absolute discharge.
There is little leeway to escape the ban, although the government can make exceptions if work is in "the public interest" in situations such as emergencies or matters of national security, or when there is no other supplier who can provide the goods or services.
While the debarment can't happen formally until there is a conviction, Ms. Swick said, in the meantime just the laying of a charge "has a very, very bad reputational impact." And with some government contracts, she said, the officials making the decisions may have the discretion to reject bidders who are under investigation or who have been charged.
Even SNC's government contracts that are already in place could be at risk. The rules allow the government to cancel an existing contract if a conviction occurs after it was awarded, although it has the right to continue an existing contract with extra "oversight and monitoring measures."
Among its largest projects, SNC is part of the Rideau Transit Group building Ottawa's new Confederation light-rapid transit line, and it is working on a major construction project at CFB Trenton to design new aircraft hangars. The firm is part of a consortium bidding for the federal contract to build Montreal's new Champlain Bridge, one of the largest contracts in Quebec history, worth as much as $5-billion. The winning bidder is expected to be announced at the end of April. Many will be watching the outcome of that process for evidence that SNC continues to hold the esteem of Ottawa or has fallen out of favour.
Some analysts who cover SNC are sanguine about the RCMP charges. Leon Aghazarian of National Bank Financial said he didn't see them as "material" since "we don't feel that new information has come to light here." Maxim Sytchev of Dundee Capital Markets said the market will treat the charges as "yet another cloud over the company's head" but it won't likely alter the penalties SNC will eventually pay for its transgressions. Any penalty less than $300-million "would be viewed positively by the market," he said.