SNC-Lavalin and the sometimes murky ethics of doing business abroad

If the federal Liberals’ SNC-Lavalin scandal has taught us anything, it’s that doing business overseas—particularly in developing countries—isn’t always as simple and straightforward as it is in Canada.

As you likely know, the SNC-Lavalin matter erupted into a national scandal when officials in the Prime Minister’s Office—and Prime Minister Justin Trudeau himself—were accused of pushing then-Justice Minister Jody Wilson-Raybould to reverse a prosecutor’s decision and offer Canadian global engineering giant SNC-Lavalin a Deferred Prosecution Agreement (DPA) in exchange for a tightening of the firm’s compliance policies and payment of a hefty fine. This lobbying came in the wake of accusations that a handful of the engineering firm’s executives had bribed Libyan authorities over more than a decade to win government contracts.

That the executives likely broke the law has not been proven in court, but evidence seems to point to at least some form of corporate wrongdoing. A DPA would have given the company a legal jolt, exposed its executives to prosecution, but saved the firm itself from the same fate—and the possibility of being precluded from bidding on federal contracts for more than a decade. Those contracts are a crucial source of business for SNC-Lavalin and a major risk for the ruling Liberals in vote-rich Quebec, where the firm is based.

The importance of adhering to Canadian business standards

Questions linger as to how the company should have been punished, who was responsible for the alleged corruption and the degree to which the federal government should have lobbied the supposedly independent Attorney General to secure an outcome more favourable than the lengthy—and potentially devastating—court case that loomed.

We’ve worked with many clients whose export activities abroad inevitably resulted in requests for business favours, even straight bribes, in exchange for contracts or sales. Our clients all declined to line those officials’ pockets.

It’s no secret that corruption happens everywhere in the world, Canada included. But in many jurisdictions the act is a veritable art form. In these countries, kickbacks to government bureaucrats or even elected officials are commonplace. The wise CEO is the one who refuses and insists on doing business the Canadian way—transparently, ethically and with a mind to adhering to carefully-crafted international corruption laws that prohibit illicit dealings, even while outside of the Great White North.

We aren’t naïve enough to assume this is always the case, of course.

A history of overseas corruption

In China in years past, for example, there are many anecdotes of firms in the West arranging agreements with sales or distribution agents on the ground to negotiate deals on their behalf. Many of these North American or European clients were large, multinational organizations. But because the agents were considered independent wholesalers, they acted outside the reach of western anti-corruption statutes, leaving them free to get deals done in ethically-dubious ways that may have involved paying off elected officials or bureaucrats. The implicit understanding was that agents were tasked with making sales or facilitating trade on their clients’ behalf, and given rough guidelines on pricing and other key business measures. How they made those sales or arrangements was their business. In these scenarios, the corporations were able to sell into the Chinese market with relative impunity.

Conduct due diligence to help prevent unethical business practices

In today’s business environment, such questionable dealings are not only frowned upon in the West, but corporate directors are increasingly subject to prosecution if they wilfully engage in corrupt practices. Canada, for example, is a signatory to the Organization for Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The federal government passed the Corruption of Foreign Public Officials Act (CFPOA) in 1999, to fully comply with the OECD directive. Under the law, it’s illegal to bribe a foreign official in the course of business, with individuals and corporations facing prosecution for offences committed both at home and abroad. In 2017, even so-called facilitation payments—funds exchanged with officials ‘to secure or expedite the performance of acts of a routine nature that are within the scope of the official’s duties’—were prohibited.

The SNC-Lavalin affair is a reminder to Canadian entrepreneurs of the need to respect the rule of law and to carry out necessary ethics due diligence on any third-party selling products or services on their behalf. The case for bribing officials, attributing it to local custom and ‘the way business is done there,’ no longer holds sway.

The line between doing business ethically—and not—can be murky.  But it’s one that’s simply never worth crossing, no matter how lucrative the eventual payoff might be.

Jenny Lian, Partner

Contact us now for more information on doing business abroad or to speak with a member of our team.

Jenny Lian
905-946-1300, x. 238