After a four-year legal saga that hurt its bottom line and resonated to the highest levels of Canadian politics, Montreal-based design-build giant SNC-Lavalin Group Inc. announced on Dec. 18 that it has settled federal charges stemming from alleged bribes by long-departed executives related to gaining Libya construction contracts between 2001 and 2011.
The firm's construction unit, SNC-Lavalin Construction Inc., agreed to plead guilty to a single charge of fraud. All charges against the parent firm and its international marketing arm, SNC-Lavalin International Inc., have been withdrawn, the company said.
As part of the settlement, the unit will pay a $213.5-million fine over five years, and will be subject to a three-year probation. Analysts and observers had believed the firm could have faced a multi-year federal contracting ban.
"This is a game-changer for the company and finally allows us to put this issue behind us," said corporate President and CEO Ian L. Edwards, named to the top job permanently this year. He offered an apology "for past misconduct."
Edwards added: "We are beginning an exciting new chapter that is focused on our future growth and further de-risking our business. I want to thank all of our stakeholders, and especially our employees, for their continued dedication and support.”
SNC-Lavalin Group also said it will hire an independent monitor and will update its compliance and ethics programs as the monitor requires. it already is subject to monitoring by the federal government and World Bank, based on previous settlements.
The firm had upgraded ethics programs significantly for its global operations under previous CEO Robert Card, an American ex-executive of CH2M, who took over in 2012 after Pierre Duhaime, SNC-Lavalin CEO since 2009, was terminated and later arrested.
He pleaded guilty in early 2019 to a federal charge linked not to the Libya bribe scheme but to payoffs on a Montreal hospital project, and was sentenced to 20 months of house arrest.
No charges were filed against Jacques Lamarre, Duhaime's predecessor for 13 years, who was said to have authorized Libya payments made since the late 1990s, according to testimony by terminated SNC-Lavalin North Africa executive Sami Bebawi. A Canadian federal jury on Dec. 15 found Bebawi guilty of five charges he faced, including fraud, corruption of foreign officials and laundering proceeds of crime. Lamarre has denied any connection to the bribe scheme, says Canada's Globe & Mail newspaper.
Neil Bruce, who was elevated to SNC-Lavalin CEO in 2015 but stepped down this year, had sought to negotiate a deferred prosecution agreement to avoid criminal prosecution, a legal approach the Liberal government enacted in 2018 but then declined to offer to the firm.
The negotiations led to a political firestorm in Canada that nearly cost Prime Minister Justin Trudeau re-election this year, with the company planning to take its case to trial, which would have been lengthy.
The settlement "mitigates uncertainty and distraction that has been a drag on [SNC-Lavalin] performance" and will remove legal overhang as it restructures to focus more on high-performing global engineering services, said Edwards.
"The company does not anticipate "that the guilty plea by the construction subsidiary (which has not bid on any new contracts since it was charged in 2015) will affect [its] eligibility to bid on future projects aligned with its new strategic direction," Edwards added. "While it is possible that the plea ... may present risks in the near-term, the company believes these risks will be manageable and does not anticipate that the plea will have any long-term material adverse impact on the company’s overall business."
SNC-Lavalin shares closed up 19% to C$28.70 in Toronto on Dec. 18, its best gain since October. The stock is down 50% this year, said The Wall Street Journal.
SNC-Lavalin is “no longer a pariah investment thesis,” wrote Maxim Sytchev, an analyst at Toronto-based National Bank Financial, in a Dec. 18 client note.
"Leverage concerns were alleviated earlier in 2019 while the better parts of the business have been performing solidly," he said. "The sole overhang now rests with the remaining [fixed-price backlog]; we see value in the shares if these remaining contracts are run-down smoothly as the strategy shift towards a more consulting-type entity."
Even so, Canadian media and observers were still grappling with case implications at year end
SNC-Lavalin ranks at No. 9 on ENR's list of the Top 150 Global Design Firms, reporting about $3.6 billion in worldwide engineering revenue last year and at No. 53 on ENR's list of the Top 250 Global Contractors, with $3.8 billion in worldwide construction revenue reported last year.
