On September 23, 2021, the RCMP arrested and charged two former SNC-Lavalin executives - former Vice Presidents Normand Morin and Kamal Francis - with a number of offences under Canada's Criminal Code, namely forgery, conspiracy to commit forgery, fraud, conspiracy to commit fraud, fraud against the government, and conspiracy to commit fraud against the government.1 Of these offences, fraud has the most serious of penalties, allowing for a jail term of up to 14 years.2 SNC-Lavalin entities SNC-Lavalin Inc. and SNC-Lavalin International Inc. were likewise charged with these offences.
In its press release, the RCMP's Sensitive and International Investigations section emphasized that they remain "committed to disrupting, deterring and preventing both domestic and foreign corruption" and aims "to bring individuals and companies involved in these types of crimes to justice, regardless of when they were committed".
The RCMP's investigation - also known as "Project Agrafe" - relates to events that took place between September 1997 and March 2004. In SNC-Lavalin's 2020 Annual Report, the company describes the RCMP's investigation as related to "alleged payments in connection with a 2002 contract for the refurbishment of [Montreal's] Jacques Cartier Bridge by a consortium which included SNC-Lavalin".3 In 2017, in connection with this investigation, Michel Fournier, the former head of Canada's Federal Bridges Corp., pleaded guilty to fraud-related charges after accepting over $2 million in bribes for the $127-million contract in respect of which SNC-Lavalin was a 50% consortium partner. SNC-Lavalin is the alleged source of these bribes.4
The prosecution has already signalled openness to a remediation agreement - and SNC-Lavalin has said that it "welcomes the opportunity"
According to Québec's chief prosecutor's office, the charged SNC-Lavalin entities have been formally invited to negotiate a remediation agreement (also known as a deferred prosecution agreement or "DPA") pursuant to subsection 715.33(1) of the Criminal Code.
This is precisely the type of agreement that federal prosecutors did not invite SNC-Lavalin to negotiate for in 2019, in respect of fraud and corruption charges that stemmed from alleged dealings with the Libyan regime under Moammar Gadhafi between 2001 and 2011. See our previous client alert for more details.
In its September 23, 2021 press release, SNC-Lavalin responded by saying it "welcomes the opportunity offered by the DPCP to negotiate a remediation agreement to resolve these charges" - the first such invitation given to a Canadian company. SNC-Lavalin further said that it "has always been and remains willing to reach a reasonable and fair solution that promotes accountability, while permitting the Company to continue to do business and protect the livelihood of its over 30,000 employees, clients, investors and other stakeholders".
Conditions for a remediation agreement
The Criminal Code defines a remediation agreement as "an agreement, between an organization accused of having committed an offence5 and a prosecutor, to stay any proceedings related to that offence if the organization complies with the terms of the agreement".6 These agreements exist to, among other things, "denounce an organization's wrongdoing and the harm that the wrongdoing has caused to victims or to the community", "hold the organization accountable for its wrongdoing through effective, proportionate and dissuasive penalties", and "encourage voluntary disclosure".7
Remediation agreements may be offered by the prosecution, in its discretion, where certain requirements are met. In particular, a prosecutor may enter into negotiations for a remediation agreement with an organization alleged to have committed a prescribed offence if the following conditions are met:
- The prosecutor must be of the opinion that there is a reasonable prospect of conviction with respect to the offence;
- The prosecutor must be of the opinion that the act or omission that forms the basis of the offence did not cause and was not likely to have caused serious bodily harm or death, or injury to national defence or national security, and was not committed for the benefit of, at the direction of, or in association with, a criminal organization or terrorist group;
- The prosecutor must be of the opinion that negotiating the agreement is in the public interest and appropriate in the circumstances; and
- The Attorney General must consent to the negotiation of the agreement.8
Remediation agreements are the subject of negotiation and may require the payment of financial penalties, disgorgement, and must or may include the various other elements referenced in the Criminal Code. Final terms require judicial approval. We discuss remediation agreements further in one of our previous client alerts.
Notably, as highlighted in the press release issued by Québec's chief prosecutor's office, among the benefits for defendants that agree to a remediation agreement is the ability to continue to deal and bid on public tenders with government bodies. This will likely be a crucial consideration for SNC-Lavalin as it considers next steps.
Charges and convictions can lead to debarment under Canada's Integrity Regime
Canada's "Integrity Regime", explained further here, was introduced in July 2015. In a nutshell, the regime, which is run by Public Services and Procurement Canada, is designed to ensure the Canadian government only conducts business with ethical suppliers in Canada and abroad.9
As part of this regime, the government determines whether certain suppliers are ineligible to participate in public procurement processes - where certain offences are committed, ineligibility is automatic; for others, the government conducts a case-by-case review. The Integrity Regime is currently undergoing review. A revised regime, which, based on a 2018 draft, is expected to remove automatic debarment while broadening the circumstances in which a company can be disbarred, was anticipated in 2019 but is not yet in force.
Of note for this matter, sections 121 and 380 of the Criminal Code (fraud against the government; fraud committed against her Majesty) are two offences that lead to an automatic determination of ineligibility or "loss of capacity to contract with Her Majesty or to receive any benefit under a contract with her Majesty and any other person". This debarment lasts for as long as the supplier is without capacity to contract pursuant to subsection 750(3) of the Criminal Code. Subsection 750(3) provides that no person convicted of certain offences, including sections 121 and 380, has "after that conviction, capacity to contract with Her Majesty or to receive any benefit under a contract between Her Majesty and any other person or to hold office under Her Majesty".
It should be noted that this debarment occurs following a conviction or guilty plea to such a listed offence. One primary attraction of a remediation agreement is that it avoids a conviction of the entity, but still provides for significant penalties and remediation. This would preclude a permanent debarment, though there would still be the possibility of a suspension period pending resolution of the charges.
Under the Integrity Regime, when a company is charged with one of the listed offences, the government has the ability to immediately suspend a supplier for up to 18 months, irrespective of whether the supplier has been convicted or admitted guilt. This period may be extended if the judicial process is ongoing. As an alternative to suspension, the government has the discretion to negotiate an administrative agreement with a supplier pending resolution of the charges, which, among other things, can stay a suspension and which may require terms and conditions relating to the implementation of compliance programs, employee training, audits, or any other remedial or compliance measure considered to be in the public interest.10 SNC-Lavalin went through this process in 2015, when it entered into an administrative agreement after being charged with corruption and fraud for alleged improper payments to officials in Libya. This agreement permitted SNC-Lavalin to contract with the government while criminal proceedings were underway, on the condition that certain corporate compliance conditions were met.11
In addition to the potential criminal penalties arising from charges relating to bribery, companies could face significant impacts on their revenue sources as a result of being debarred from doing business with the federal government. They could also face debarment under provincial legislation or be barred from bidding on projects backed by the World Bank or other organizations. The reputational costs associated with being subjected to investigations, sanctions, and other actions of this nature can likewise be challenging for companies.
An important reminder for Canadian businesses
The consequences for engaging in conduct that contravenes Canada's anti-bribery and anti-corruption laws can be significant and far-reaching, and those consequences may stretch far into the future.
Companies should be regularly reviewing the implementation and execution of their anti-corruption compliance controls. Canadian courts and enforcement authorities have indicated that the basic elements of any such compliance program should include:
- reviews of existing internal controls, policies and procedures on a no less than annual basis, with updates as appropriate to ensure continued effectiveness;
- a system of internal financial and accounting controls and procedures sufficient to keep fair and accurate books, records and accounts to ensure that bribery is not concealed;
- a rigorous anti-corruption compliance code, standards and
procedures to detect and deter violations of anti-corruption laws
covering both a company's personnel and its business partners
(agents, intermediaries, consultants, and other representatives)
involved in sales, business development, marketing or other
customer interfaces, or government relations, and governing:
- gifts, hospitality, entertainment and expenses;
- customer travel;
- political contributions;
- charitable donations and sponsorships;
- facilitation payments; and
- solicitation and extortion;
- conducting risk assessments in order to develop anti-corruption
standards and procedures based on specific bribery risks facing the
company and taking into account a number of factors, including:
- geographical organization;
- interactions with various types and levels of government officials;
- industrial sectors of operation;
- involvement in joint venture agreements;
- importance of licenses and permits in its operations;
- degree of governmental oversight and inspection; and
- volume and importance of goods and personnel clearing through customs and immigration;
- mechanisms to ensure effective communication of anti-corruption policies, standards and procedures to all directors, officers, employees, agents and business partners, including periodic training and annual certifications;
- providing guidance and advice to directors, officers, employees, agents and business partners on anti-corruption compliance, including urgent advice and advice in foreign jurisdictions;
- a system of confidential reporting and protection against retaliation for reporting;
- effective oversight of agents and business partners, including proper documentation of risk-based due diligence on retention and oversight of such third parties, as well as measures to ensure they are aware of company commitment to anti-corruption compliance, and seeking reciprocal commitments;
- standard provisions in agreements with agents and business partners to prevent violations of anti-corruption laws, including anti-corruption representations and undertakings, rights to conduct audits of books and records, and termination rights in the event of any breach of anti-corruption law or policy; and
- periodic review and testing of the anti-corruption compliance code, systems and procedures designed to evaluate and improve their effectiveness, taking into account relevant developments.
This list is based on the 2019 Probation Order issued in connection with SNC-Lavalin subsidiary SNC-Lavalin Construction Inc.'s guilty plea for fraud under section 380 of the Criminal Code, as discussed further here.
1 Specifically, the offences include: forgery (section 366), conspiracy to commit forgery (sections 465/366), fraud (section 380), conspiracy to commit fraud (sections 465/380), fraud against the government (section 121), and conspiracy to commit fraud against the government (sections 465/121): https://www.rcmp-grc.gc.ca/en/news/2021/snc-lavalin-corporations-and-two-former-senior-executives-facing-fraud-and-forgery-related.
2 See Criminal Code, sections 121, 366, 380, and 465.
3 See page 94.
4 For more details, see: https://www.cbc.ca/news/canada/fournier-charged-snc-lavalin-1.3657923.
5 The offences for which remediation agreements are available are included in the Schedule to Part XXII.1 of the Criminal Code. Sections 121, 366, 380 are included in section 1 of the list. Section 465 is not, but section 3 of the Schedule provides for "A conspiracy or an attempt to commit, being an accessory after the fact in relation to, or any counselling in relation to, an offence referred to in section 1 or 2".
6 Criminal Code, section 715.3(1).
7 Criminal Code, section 715.31.
8 Criminal Code, section 715.32.
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