Monday, 18 February 2013

Faster than a Hammer Squad

Against a backdrop of massive risks and severe criticism of the $7.8 billion Muskrat Falls Project, the NL Government has ignored it all and is pushing full steam ahead. This is despite the fact that a key player in this development, SNC Lavalin, is under a massive cloud of suspicion with allegations that several of its senior executives have engaged in some very dodgy business dealings, misappropriating millions of dollars to influence big contract awards.

You may well ask: Why should this make any difference to the NL Government when nothing else seems to slow their gamble of NL’s future?

SNC Lavalin may book  ±$600 revenue from the Muskrat Falls Project for engineering, procurement and construction management services (EPCM). EPCM companies generally take no risk on cost overruns or schedule, but have an enormous impact on the outcome and success of a project.  No doubt, this is the case with SNC Lavalin on the Muskrat Falls Project.

Given this situation, trust and integrity are absolutely vital.
So, is SNC Lavalin a company that we should trust on the Muskrat Falls Project? Well, let’s look at some of the recent developments.

·       In March of 2012, SNC Lavalin’s long-time CEO, Pierre Duhaime, was replaced after an independent review conducted by the company discovered he signed off on $56-million worth of payments to undisclosed agents, breaching the company's code of ethics. His departure from the company was referred to as a retirement and was given a 5 million severance. So, instead of just booting him out the door, this company chose to give him a handsome reward.

 ·       On November 28, 2012, Mr. Duhaime was charged by the ‘Hammer Squad’, Quebec’s anti-   
       corruption task force with fraud, conspiracy to commit fraud and using forged documents in       
       connection with the engineering firm’s contract to design, build and maintain the McGill   
       University Health Centre’s new $1.3-billion super-hospital. Essentially, Duhaime is charged with
       procuring contracts using kickbacks, although yet to be proven in Court.

·       On December 18, 2012 the Globe and Mail reported that, “Bangladeshi authorities are accusing  
       a senior executive at SNC-Lavalin Group Inc. (former senior vice-president, Riadh Ben Aissa) of
       conspiring to bribe government officials, formal allegations that come days after that executive
       left the company”.  The Globe and Mail noted that “at least six officials have left the company
       under a cloud…”. How much money is involved? In the case of Mr. Ben Aissa, who now sits in a
       Swiss gaol, “…Swiss authorities are now chasing $139-million in suspected illicit payments”,
       according to the newspaper.

·       Mr. Ben Aissa has also been charged with the same three fraud charges as Mr. Duhaime related to the McGill University Health Centre superhospital.

·       In April 2012, Veritas Investment Research, based in Toronto, published a research report titled Skeletons in the Closet that was extremely critical of SNC Lavalin. Veritas said that based on SNC Lavalin’s own public statements, "as many as eight senior executives appear to have been involved in, or had some knowledge of, certain of the improper acts."

·       In September 2012, an Ontario judge certified a $1-billion class-action lawsuit against SNC Lavalin on behalf of investors who saw the value of their investment in the company plummet after allegations arose regarding payments made by SNC-Lavalin to members, associates, and agents of the Gadhafi regime to secure contracts for infrastructure projects in Libya. This lawsuit came on the heels of another, a $250-million claim filed in March of 2012 on behalf of investors in Quebec against the company and some of its former officers and directors. The nub of the claims are that SNC Lavalin violated securities law by misrepresenting that it had adequate controls and procedures to ensure accurate disclosure and financial reporting. Neither of these have claims have yet been proven in Court.

·       The Montreal Gazette noted the full-page newspaper advertisements that SNC had placed last Fall, announcing that it was bolstering compliance and ethics measures, and is committed to root out any breaches of corporate policy by its employees. The Paper noted that the Company is strengthening previously announced enforcement of business procedures, and is hiring an outside consultant to run a 24 hour-a-day ethics and compliance hotline. OUCH!  A 24 hour-a-day ethics and compliance hotline for a single public company.   And, we think we have problems with Dunderdale and Bill 29!
So what are we to make of all of this? Sure, nothing has been proven in Court yet. Does that mean we simply ignore it just like everything else that should be concerning about the Muskrat Falls Project has been ignored by the Provincial Government?

Given the impact that the Muskrat Falls Project will have on the Province and its people for decades to come, the fact that this Project is the largest on SNC Lavalin’s books, and the fact that as the EPCM for the Project, SNC Lavalin will have huge influence on its success, isn’t the little matter of trust and integrity something that should be front and centre?

It is not that rare for an executive or two of a company to engage in illegality; it is rare, though, for people as senior as a CEO and a Vice-President, among others, of a company as established and respected as SNC Lavalin, a group fond of boasting a 100 year Corporate history, to find so many senior people either charged or under a cloud, all at the same time.

Let’s make one thing clear. The integrity of SNC Lavalin has been called into question; not by Newfoundlanders and Labradorians, but by the company’s own former senior officials.  Indeed, based on the company’s need for an outside consultant to run a 24 hour-a-day ethics and compliance hotline, you might be forgiven for concluding that its present senior officials continue to question the company’s integrity.

The fact is, as the EPCM for the Muskrat Falls Project, SNC Lavalin will have to be relied upon heavily by Nalcor and the NL Government. From a technical standpoint, SNC Lavalin is the company, ostensibly at least, bringing the expertise to Muskrat Falls; Nalcor certainly does not possess the kind of experience or expertise a Project of this size and complexity demands. Yet, despite all of the allegations swirling around this company, you have to ask why nobody from Nalcor or the NL Government has even raised a question about the trust and integrity of SNC Lavalin.

I suppose it should be noted that back on May 3 of last year, Natural Resources Minister Jerome Kennedy, did offer a view on the company. However, it is a view that does nothing to shine as much as a flicker of resplendent glamor upon the diming lights of a corporate vigil.  Opposition Leader Dwight Ball queried the Minister on whether he had a Performance Bond in place on SNC Lavalin.  In a quote from Hansard, the Minister replied: Thank you, Mr. Speaker.  I think the member opposite misinterprets my confidence. My confidence is not in SNC Lavalin. I know nothing more than what I read in the papers, what I am told. My confidence is in Ed Martin….”

How very telling! Our luminous Minister has no confidence in the company who will have more impact on the success of the Project than anyone else; but has complete confidence in the CEO of Nalcor, a man who has never built a hydro dam, even a wee one. Now that should keep the home lights burning!

All joking aside, given the amount of money at stake, a prudent Provincial Government would have put a lot of questions to SNC Lavalin.  And, they would have informed the Province what these questions were and the standard of behaviour expected of the company.

Yes, we need to ask some questions of SNC Lavalin, but we have many for our own Provincial Government as well. Likely, they have been asked before.  So, today, we’ll make them more pointed.

Why all the haste to sanction the Muskrat Falls Project before Christmas, given that the Federal Loan Guarantee and the Emera Sanction Agreement are so undefined and unfinished that you could drive a Mack truck through them?

What safeguards has the Premier put in place to protect us against corrupt practices, whether with SNC Lavalin or with any other company doing business on the Project?

Has Nalcor considered removing all responsibility for the Project except for engineering from SNC? If not, why?

Will the Premier permit the Province’s Auditor General complete access to Nalcor’s accounts including those that deal with SNC Lavalin? 

Will SNC permit the Auditor General access to its offices in order to scrutinize every invoice the company sends to Nalcor?

Does the Province have full audit rights of the SNC Lavalin contract including the procurement and contracting activities on the Project?

These are important questions.   In the circumstance, SNC Lavalin or any other legitimate company would expect to be asked these questions and more.  They would be expected to deal with them. Still, even these questions won’t get to the bottom of why the Premier is moving Muskrat Falls forward, faster than the Feds, faster than Emera, faster even than a Quebec  ‘Hammer Squad’.

But, one thing at a time.

Note: Uncle Gnarley will Post again on Thursday.