Canada: SNC-Lavalin Construction Company Scandal Throws Trudeau Government into Crisis

Tim Heffernan, Socialist Alternative (CWI Canada)

For almost a month, the daily front page news for Canadians has been the story of political intrigue at the highest level of government involving, on the one hand, a major multinational, Montreal-based company ensnared both in allegedly making bribes to foreign governments and making illegal donations to the governing Liberal Party. On the other hand, there is the internal crisis within the government brought about by the refusal of the Attorney General, a Cabinet minister and indigenous woman, to bow to the pressure being exerted by both the company and ruling Liberal Party heavies to have the criminal charges against the company softened with some kind of plea deal.

The political scandal of the year is unravelling. At the forefront of media coverage are the high profile politicians: PM Justin Trudeau, ex Attorney General Jody Wilson-Raybould and Trudeau’s top political advisor, Gerald Butts. What seems to whet the media’s appetite is speculation surrounding the “scandal” – who pressured whom, who’s telling the truth, who’s covering up.

What gets less coverage is the issue itself – that one of Canada’s leading engineering/ construction companies, SNC Lavalin (SNC-L), with 50,000 employees worldwide, with offices in over 50 countries and operations in three times that number, is up to its neck in murky and allegedly criminal dealings.

It stands accused of serious criminal charges, bribery and fraud. The argument goes that these charges are over 10 years old, they took place in faraway Libya where, apparently, everyone understands that this is the way business is conducted. This overlooks scandals in Canada itself.

SNC-Lavalin’s Sordid History in Canada

According to a February 1, 2019 article in La Presse, Quebec prosecutors are cooperating with the RCMP [police] in an investigation called ‘Agrafe’ on potential criminal charges against SNC-L concerning a contract in the early 2000s to repair Montreal’s Jacques Cartier Bridge.
SNC-L was the main contractor to build the public private partnership (P3) funded Canada Line rapid transit in Vancouver. Foreign workers were employed in construction and paid about half that of other workers on the project. It took a five-year battle by the Labourers’ Union for these workers to get their proper wages. As part of the P3 contact, a subsidiary of SNC-L operates the line. In 2018, it flipped the cleaning contract to non-union workers with worse pay and conditions.
In 2015, internal documents from SaskPower (the crown corporation that is the principal electric utility in Saskatchewan), revealed that there were “serious design issues” in the carbon capture and storage system at one of its power stations, resulting in regular breakdowns and maintenance problems that caused the unit to be operational only 40% of the time. SNC-Lavalin had been contracted to engineer, procure, and build the facility, and the documents asserted that it “has neither the will or the ability to fix some of these fundamental flaws.” The low productivity of the plant meant that SaskPower was only able to sell half of the 800,000 tonnes of captured carbon dioxide that it had contracted to sell. In addition to the lost sales, SaskPower had to pay the company who was buying the carbon dioxide $12 million in penalties, in 2014. In September 2018, “SaskPower and SNC-Lavalin had completed mediation and were headed to binding arbitration.” SaskPower had already announced that they would not be proceeding with retrofitting two of their aging facilities with carbon capture and storage. According to a CBC News article, SNC-L “received about $765,800,000 in Saskatchewan government contracts from 2009 to 2018.”
Québec authorities described the bribery to do with the construction of McGill University Health Centre (MUHC), as the biggest corruption fraud in Canadian history. Several senior executives, including the former chief executive officer of SNC-L were charged with bribery. SNC-L managers were involved in fraud and forgery in relation to a $22.5 million kick-back described as “consulting fees” to the former CEO and other senior management at the Centre. These bribes related to the contract to build the new $1.3 billion hospital. SNC-Lavalin was awarded the contract even though their bid was $60 million more than a rival bid. The MUHC CEO resigned from his post in the light of substantial public pressure and he was arrested in Panama on fraud charges in 2013, but he claimed the $22.5 million was a legitimate payment. The CEO of SNC-L, Pierre Duhaime, was arrested on fraud charges by Québec authorities in November, 2012, and has since pleaded guilty.

Punishing SNC-Lavalin

The issue today revolves around how SNC-L should be “punished.” There are two possibilities:

A criminal prosecution gets brought against them on the specific case of Libya where there are charges of fraud and corruption in connection, with at least $48 million in payments made to Libyan government officials between 2001 and 2011. This money was to win contracts, including building a prison, in Gaddafi’s time, as places of torture. If found guilty, they would likely face being banned for 10 years from bidding on Canadian government contracts. This is the option favoured by the federal government Director of Prosecutions, and seemingly also favoured by the Minister at the centre of the storm, Jody Wilson-Raybould. As Attorney General, she had the power to endorse or override the decision of the Prosecutor.

SNC-L should be allowed a plea bargain in the form of the Canadian government granting them a “deferred prosecution,” meaning that the book would not get thrown at them, they would admit culpability and pay what looks like a hefty fine (about $300m) but given that its 2017 revenue amounted to $9.3 billion, most people would see the penalty as a mere slap on the wrist. The bribery in Libya was not a one-off failure; SNC-L in Canada and internationally has a track record of allegedly using bribes. In 2013, SNC-L was debarred from bidding on any construction project backed by the World Bank for up to 10 years, due to corruption in Bangladesh and Cambodia.

In “defence” of SNC-Lavalin

Defenders of SNC Lavalin argue 2 points:

That the Québec-based company is “too big to fail” i.e. the same argument that was used in the 2008 financial crisis to justify government bail outs of GM, Lehman Brothers and others. A successful criminal prosecution, with a penalty of not being able to bid on government contracts for 10 years, would risk closing down the company with the direct loss of 8,000 jobs in Québec. In this context, it’s worth bearing in mind that during the period 2002-12, where most of the bribery charges are concentrated, about 10,000 Canadian employees left the company.
That they should not have to face a criminal prosecution as the offences are over seven years old and during that time current management have cleaned up their act by firing the individuals involved and new management has revamped the company’s “ethics and compliance standards.” This is akin to a serial murderer arguing that his crimes took place a long time ago, he’s taken anger management courses since, is under therapy and, therefore, a conditional sentence involving house arrest for a year or two would be most appropriate.

SNC-L lobbying – half the job done

Until three years ago, Canada, unlike Britain and the US, didn’t have a system of Deferrred Prosecution Agreements (DPA) to deal with corporate crime, allowing a company to pay fines and restitution while escaping criminal prosecution. Things looked grim for SNC-L when the RCMP first laid charges in early 2015 on the Libya file although they gave a bravura performance of pretending to be innocent, claiming that the charges were without merit and that SNC-L would vigorously defend itself and plead not guilty. However, that position did not last long. Justin Trudeau’s government was just four months old when SNC-Lavalin came knocking on the door, looking for help.

The stakes were enormous and SNC-Lavalin saw its very existence at stake if they were found guilty. Over the next two years, SNC-L threw a lot of money and resources at all levels of the Trudeau government in an effort to convince them to change the Criminal Code and introduce DPAs.

Twenty months and fifty one meetings later, SNC-L could breathe more easily, or they thought they could, when the Finance Minister introduced (or snuck through) the change to the Criminal Code via a 500 page omnibus budget bill. The Conservative finance critic asked the Liberal finance minister, Morneau, why his budget bill included “a provision that would allow accused white collar criminals charged with bribery, fraud, insider trading and other offences to have all charges dropped.”

Morneau replied “We believe that our approach to deferred prosecution agreements will enable us to pursue an approach that is functioning and doing well in other economies. One that will result in more effective continuation of business success by companies once they have paid their dues to society.”

So DPAs had become a viable legal option in Canada – step one in SNC-L’s efforts to save itself had been successful. Step two would be more challenging – securing a DPA for itself. The big hitters in the Liberal establishment were definitely on SNC-L’s side. The problem was that the justice officials involved and the Attorney General herself were, to the chagrin of Trudeau and company, unwilling to go easy with SNC-L. The four hours of testimony last week from AG, Jody Raybould Wilson, before a parliamentary committee, will have been an education for Canadians as it shed a light on the wheeling/dealing and bullying of politicians to defend a company of theirs in distress. Furthermore, it will have severely dented the image of Justin Trudeau as ‘Mr Clean’, the feminist, the climate change warrior, the man who was going to do politics differently. Given that a Federal election will take place in seven months, this could have serious implications for whether Trudeau stays in power.

Liberal Party and business links

After almost four years in office, few people can doubt that the Liberals are the party of big business. Not only is SNC-L a big economic player in Québec, it is also a big donor to the Liberal Party.

In 2016, SNC admitted to a scheme of illegal political donations involving “certain former senior executives.” These executive members encouraged employees to donate to federal political parties, and they were then reimbursed by the company through “false refunds for personal expenses or payment of fictitious bonuses.” Under federal election financing laws, companies are not allowed to contribute to parties or candidates but this scheme allowed SNC-L to circumvent the law by making political donations indirectly through its employees. The vast majority of SNC-L’s political donations in the period 2004 to 2011 went to the federal Liberals. SNC-L admitted to giving $83,534 to the Liberal Party of Canada and various Liberal riding associations received a total of $13,552.

In different contexts, Trudeau spouts on about the importance of “the rule of law.” The Charbonneau Commission, officially the Québec Commission of Inquiry on the Awarding and Management of Public Contracts in the Construction Industry, clearly highlighted what is at stake: “According to the principle of the rule of law, no one is above the law: all individuals are subject to it, including those exercising political power. This principle also aims to protect individuals from the arbitrariness of public authorities, in that the state cannot coerce an individual in the absence of statutory authority to do so.”

The writer, Anatole France, over 100 years ago, sardonically remarked that “the law, in all its majesty, forbids both rich and poor from sleeping under the bridges of Paris.” Despite Trudeau upholding the rule of law from one side of his mouth, he’s made it clear from the other side that should the law by chance pick up on the misdemeanours of the rich, as in the SNC-L case, then the rich shall get off relatively scot free.

The Mechanism

Andrew Nikiforuk, writing in The Tyee, describes the interconnected web of corruption that affects mega-construction projects around the world in these terms:

“So, because construction firms find stakes on big projects so high, and dirty dealings so easy to do, they are more likely to bribe low-level officials with gifts and favours, bribe other firms and use ‘improper contributions to high-ranking officials intended to secure influence over policy, regulatory and/or legislative decisions.’

“The Brazilian film director José Padilha has a name for this kind of collusion and corruption. He calls it ‘the mechanism’ and says it has no ideology. Left-wing parties and right-wing parties all succumb to the mechanism and solicit its favours.

“The mechanism works for itself and by itself. Companies that perform work for governments make political contributions and in turn win overpriced contracts milked to the bone. A portion of the gains goes back to the political parties to fund the mechanism. It is a well-engineered wheel.”

Nikiforuk goes on to say that “many Canadians are in denial about how powerfully the mechanism works in our sputtering democracy. But it is alive and kicking wherever political parties fund over-scheduled and over-priced construction projects with taxpayers’ money (https://thetyee.ca/Analysis/2019/02/22/SNC-Lavalin-Criminal-Record-Corruption/)

The reality is that there are other forms of “the mechanism,” which operate in Canada besides big infrastructure projects. Let’s cast a glance at the “Paradise Papers” revelations of two years ago, detailing rampant offshore banking and tax avoidance. There were 3,400 Canadian names in that leaked data base but the Canada Revenue Agency, up to a month ago, has only identified 100 Canadian taxpayers for audit. None have been referred for criminal prosecution for tax evasion and not a single penny has been recouped.

The ‘socialist mechanism’

Socialists have another “mechanism” for dealing with these issues. We’re not rubbing our hands with glee at the prospect of seeing SNC-L go under. We take seriously the fate of workers’ jobs and livelihoods, just as we did, 11 years ago, when General Motors and other auto companies were in danger of closing down. But we don’t see it in terms of throwing a lifeline to the existing owners. The billion dollar bailouts to GM did not protected the jobs of the Oshawa workers. A judicial deal of a plea bargain on the corruption charges won’t save SNC-L workers’ jobs in the future. SNC-L doesn’t have strong record of protecting jobs or workers’ rights.

For socialists, the financial, legal and moral wrongdoings of management are part and parcel of capitalism and how the business class operates. Workers should not have to pay either for the financial or criminal misdeeds of their bosses.

We recognize that the case of SNC-L, while worse than some, is not an aberration but an indictment of the capitalist system itself. So, yes, put the SNC-L managers on trial for what they did in Libya and elsewhere. In the meantime, nationalize the company and put it under workers’ control and management. And while we’re at it, that should be the fate of the banks, insurance companies and major monopolies across Canada and the world, as major step towards creating socialist society that is for the benefit of the vast majority of working people.