Compliance overhaul at SNC-Lavalin

After SNC-Lavalin received a record-setting sanction from the World Bank in April, barring the Montreal-based engineering and construction giant and 100 of its subsidiaries from bidding on any development projects for the next 10 years, the company knew its international reputation was in need of repair.

According to a World Bank letter leaked to news sources in Dhaka, senior company officials allegedly offered bribes to a Bangladeshi minister that resulted in SNC-Lavalin becoming the top contender for a $50 million bridge construction contract. The World Bank also revealed that SNC-Lavalin may have conspired to bribe public officials in other countries, including Cambodia, Libya and Algeria. At least four senior executives at the company have been arrested and charged with fraud and other crimes, including former CEO Pierre Duhalme, who was arrested by Canadian police in November for fraud and forgery. None of this news was good for business.

Equally bad for business was the revelation that at a time when the spotlight on corruption of foreign officials is brighter than ever, a global company that is currently working on projects in more than 100 countries had never had a chief compliance officer (CCO). Perhaps sensing that it needed to begin cleaning up its act, SNC-Lavalin hired its first CCO in late February to manage the fallout from the bribery scandal. Andreas Pohlmann, the compliance specialist who helped Siemens rehabilitate its image after the US Department of Justice, the Munich Public Prosecutor’s Office and the SEC slapped it with a record $1.6 billion in fines and penalties for Foreign Corrupt Practices Act (FCPA) violations in 2008, is taking on this new challenge with SNC-Lavalin.

After starting his tenure as CCO on March 1, Pohlmann assured markets that his emphasis on compliance and conducting ‘clean business’ would be implemented in a top-down approach throughout the company. The appointment of a CCO also reflects the board’s recognition of the growing importance of compliance expertise for multinational corporations that hope to grow their global businesses.

Offering amnesty

Pohlmann went to work assessing the situation immediately upon joining the company. ‘The first priority is certainly to get a complete overview of what has happened in the past and try to get to the bottom of what we are seeing today, just in order to make sure we cover everything,’ Pohlmann told Corporate Secretary at the time. ‘We as a management team need to understand what the issues are in order to move on.’

Pohlmann says he hasn’t laid down any rules that didn’t already exist before his tenure, but as he concedes he was hired ‘to design and implement a robust and effective compliance program’ capable of prevention, detection and response in order to avoid wrongdoing in the future, it’s fair to conclude that any prior policy wasn’t being strongly enforced.

By late May, the management had decided the firm would offer ‘amnesty’ to any current employee who reports information about potential corruption or anti-competitive practices of which he/she has direct or indirect knowledge. Pohlmann had used an amnesty strategy while at Siemens to resolve its bribery scandal, so it came as no surprise to see SNC-Lavalin adopt this option.

Amnesty offers are rare and seen as an extreme measure taken by companies in crisis that want to quickly root out corruption and mitigate reputation damage caused by a protracted trickle of revelations of misconduct. On June 15, German steel manufacturer ThyssenKrupp concluded a 60-day amnesty offer launched in response to charges of price-fixing of certain steel products against it and two other companies.

To qualify for amnesty, an employee must file a request with the company’s CCO within the 90-day period from June 3 to August 31, 2013. SNC-Lavalin has guaranteed that it ‘will not make claims for damages or unilaterally terminate employees who voluntarily, truthfully and fully report violations of its code of ethics and business conduct during this period.’ The amnesty offer doesn’t preclude ‘prescribing less severe disciplinary and/or remedial measures as necessary; nor does it provide support or protection to employees against potential law enforcement actions or civil litigation’, a detailed overview of the policy on the company website explains. Excluded from the offer are members of the president’s office and the management committee, as well as anyone who may have directly profited from misconduct.

An unusual approach

SNC-Lavalin’s desire, through offering amnesty, is to quickly get all the information it can and wipe the slate clean. While this is an understandable goal, the scheme is unlikely to be as effective as a fully applied program operating 24 hours a day, seven days a week and readily available to employees, says Randy Stephens, head of the Ethical Leadership Group, the advisory services division of NAVEX Global.

‘Normally, the approach would be to provide awareness of your reporting mechanisms, whatever they might be, like a compliance hotline,’ he says. ‘It’s unusual to have an amnesty offer as a distinct element of a compliance program.’

Still, Pohlmann believes amnesty can bring to light unique insights about practices in which staff were personally involved. ‘We provide boundary conditions under which employees can come forward with information they would not necessarily provide to the corporation if there were no amnesty program,’ he says. ‘I would expect information confirming what we already know, but there is also the possibility that we will get information about cases or issues we don’t know of yet.’

John Keefe, an anti-corruption lawyer at Goodmans in Toronto, cautions that an amnesty program is a good idea for companies like SNC-Lavalin but isn’t really  amnesty for employees who were involved in misconduct. ‘There’s amnesty in the sense that they may not lose their jobs, but stepping forward still puts employees in a position of potentially exposing themselves to some form of criminal prosecution,’ he notes. He adds that he’s seen many cases in which a company under criminal investigation entices employees to share information and then makes a deal with the authorities, leaving employees exposed without fully standing by them.

Focus on clean business

When Corporate Secretary spoke with him in June, Pohlmann was interviewing candidates for business unit and regional compliance officer roles. He initially envisions a staff of 20 to 30, including officers in charge of six or seven business units and a number of corporate-defined geographic regions. The final number will depend on the specific risk assessment the compliance department will conduct in designated regions, he says.

The new compliance program will prompt changes in the way the company does business around the world and emphasizes a commitment to ‘clean business’ but that won’t necessarily require SNC-Lavalin to withdraw from any current business relationships, even in difficult regions, says Pohlmann.

But ‘we have to make sure we insist that if we cannot get clean business, if we cannot get a clean contract, then we will not take the contract,’ he adds. By doing business in this manner Pohlmann says SNC-Lavalin ‘will be recognized as a company that resists bribery and is determined to do clean business within the business community’, which is the desired result.

Getting external verification such as certifications used in the UK and Germany to prove that the company’s compliance efforts are real and effective will also be necessary. As part of its settlement agreement with the World Bank SNC-Lavalin is to be monitored over the next few years by FCPA-experienced lawyers who will assess the implementation of the compliance program, serving as a kind of external validation, says Pohlmann. Thoroughly communicating the new compliance focus down through the organization to every one of Lavalin’s 34,000 employees worldwide is the biggest challenge, he acknowledges.

Facilitation payments

Unfortunately, Canadian law doesn’t make that any easier, as there’s a gray area as to what counts as bribery under the law. Currently, under the Corruption of Foreign Public Officials Act (CFPOA), facilitation payments – small payments made to officials to expedite non-discretionary decisions – are considered legal. The problem is that ‘those two things are a little subjective,’ says Stephens. ‘What’s considered a small payment in one country may be significant in another country. Determining whether an official is executing a decision that is non-discretionary is not always easy.’

That puts the onus on employees to distinguish facilitation payments from bribes. ‘If a company is going to allow facilitation payments, there has to be a system for training and education put into place by the company to ensure employees fully understand the payment limits and also to ensure they have a mechanism by which they can obtain advice or clearance if there’s any confusion at all,’ says Stephens.

Despite being legal for now, tolerance for facilitation payments is diminishing. Companies that continue to use them need to understand they will be perceived as ‘doing something a little shady,’ says Stephens.

While the CFPOA – the Canadian equivalent of the FCPA – has been around for 14 years, there was no dedicated enforcement agency until 2008, when the Royal Canadian Mounted Police created its International Anti-Corruption Unit, staffed with 15 full-time officers. At last count, the unit had 35 open investigations and has charged some companies, says James Klotz, a partner at Miller Thomson in Toronto and chair of the firm’s anti-corruption and international governance group. ‘That’s a dramatic increase from just a few years ago,’ he notes. ‘These cases are expensive to investigate because they involve other countries.’

The Canadian government has ratcheted up enforcement in recent months, imposing a C$9 million ($xx million) fine and an additional 15 percent victim fine surcharge on Griffiths Energy International in January, and resolving to strengthen efforts to make Canadian companies play by the rules. This entails significant changes to the CFPOA, including eventually making facilitation payments illegal. Separately, SNC-Lavalin could also face additional charges from the SEC under the FCPA as a result of the company’s US subsidiary operations.

Because SNC-Lavalin’s staff members aren’t expected to consult extensive compliance guidelines while in difficult situations in remote parts of the world, Pohlmann sees a need to help all employees hone their inner moral compass. Incorporating compliance-specific performance indicators or leadership capabilities into the company’s leadership development program is a possibility, he says.

Stephens believes this is the right thing to do. ‘It gives people the clear understanding that you want performance – but you want compliant performance,’ he points out. That’s a positive focus for any company, whether it’s under investigation or not, he adds. ‘Certainly, in this case, it will change the culture a little bit at SNC-Lavalin – and that’s got to be a good thing,’ he concludes.