SNC-Lavalin is under scrutiny for its ties to Gadhafi regime

In early January, Saloua Benkhouya stood in front of a packed room at the University of Toronto’s Rotman School of Management. Armed with a Power Point presentation, the international director of strategy and infrastructure projects for SNC-Lavalin Inc. talked about the risks and mega-rewards of building highways, airports and other infrastructure in the Middle East and North Africa. Among her tips: the “critical” importance of befriending a local partner, someone who can “open doors” and make the necessary introductions. When the topic of the Arab Spring came up, she mentioned that SNC-Lavalin was forced to pull out of Libya, where it had signed deals worth nearly $1 billion with the late Moammar Gadhafi’s regime. “We’re monitoring the situation and hopefully we can go back very soon,” she said.

Lately, though, it’s the dark side of what it may take to open those doors that’s drawing all the attention to SNC-Lavalin. The Montreal-based engineering giant has suddenly found itself embroiled in a deepening scandal about the extent of its ties to the deposed Gadhafi regime—particularly third son Saadi Gadhafi, a former footballer and international playboy who appears to have been the company’s key man in Libya. In the weeks since Benkhouya took the podium in Toronto, allegations surfaced that SNC-Lavalin spent millions lavishing Gadhafi with expensive gifts, ranging from cases of champagne to hunting trips. More troubling are links that have emerged to a bizarre plot to smuggle Gadhafi out of Libya into neighbouring Niger last August, in apparent contravention of a UN ban on his travel.

So far, two SNC-Lavalin executives have been sacked in apparent connection with the affair. The company is also probing $35-million worth of unexplained construction project payments, although it hasn’t said whether they are connected to Gadhafi or Libya. Investors are nervous, sending shares down by more than 25 per cent over the past month. Some are even seeking a class action lawsuit that accuses senior management of being “engaged in unlawful activities in Libya.” SNC-Lavalin has denied any wrongdoing.

It is also hardly the first time SNC-Lavalin has been swept up in such an international mess—and one that reveals an ugly side of operating in countries where corruption is common. Indeed, some experts suggest that any company working in the developing world, where personal relationships are paramount, is bound to get its hands dirty from time to time. Others, however, aren’t convinced that SNC-Lavalin tried hard enough to avoid falling into that trap in Libya.

Leslie Quinton, an SNC-Lavalin spokesperson, stresses the company has not been contacted by any law enforcement agencies about any investigations into its Libyan operations. But as uncomfortable details continue to leak out about its coddling of the son of a dictator, it’s doubtful that it will be business as usual any time soon.

The events of the Arab Spring landed SNC-Lavalin in the public eye, as it suddenly found itself on the wrong side of toppled regimes in the region. But the engineering and construction giant, with projects in over 100 countries, is no stranger to scrutiny or scandal in foreign lands. Last September, the RCMP raided the firm’s Toronto-area offices in connection with a failed bid it made to oversee a bridge project in Bangladesh. The Padma Bridge project was backed financially by the World Bank, which suspended its US$1.2-billion loan amid an investigation into allegations of corruption surrounding the bidding process. The bank said last year that it had contacted law enforcement officials in Canada about the issue because it may have involved SNC-Lavalin employees. The company had bid on a $10-million contract to supervise the contractor in charge of the overall project, but wasn’t selected. RCMP spokesperson Marc Ménard said the investigation remains ongoing, but refused to elaborate (as did SNC-Lavalin).

SNC-Lavalin also remains at the centre of a corruption scandal in India that dates to the mid-1990s, when the local state government decided to renovate three hydroelectric dams and build a fourth one. SNC-Lavalin won the rights to the project with a bid of $83 million and completed the work by 2003, but an auditor’s report later found problems with the bidding process. It suggested that a rival company had submitted a lower bid, and that there were problems with the negotiated rate on a loan provided by the Export Development Corporation of Canada as part of the package. SNC-Lavalin also agreed to spend $27 million to help pay for the construction of a local cancer centre, but the centre claimed it received only part of the funds. Though the fallout from the scandal continues to play out in Indian newspapers, where it has been called a “scam,” Quinton characterized the controversy as more of “a local political imbroglio that our name got caught up in.”

That’s not the case with Libya, by far the most sensational of SNC-Lavalin’s misadventures. The scandal first came to light after a private contractor who had been previously hired by the company was arrested in Mexico by the police late last year. Cynthia Vanier, the president of Vanier Consulting in Mount Forest, Ont., is now in jail, accused of being involved in a plot to smuggle Saadi Gadhafi to Mexico. She was hired by SNC-Lavalin to go to Libya last July on a fact-finding mission and came back with a pro-regime report. It was later revealed that Stéphane Roy, SNC-Lavalin’s former vice-president and controller who left the company last month, was also in Mexico when Vanier was arrested and met with one of her co-accused. Roy, who the company says was there to discuss water treatment projects, was not arrested.

SNC-Lavalin’s name has also been uncomfortably associated with Gary Peters, another Ontario-based contractor. A former Australian military man, Peters has acted as Saadi Gadhafi’s long-time bodyguard and claims to have worked on and off for SNC-Lavalin over the years. For example, he says the company hired him four years ago when Gadhafi travelled to Toronto to attend the city’s film festival, party with rapper 50 Cent (who Peters says is also a client) and take English lessons. The National Post reported that SNC-Lavalin lavished Gadhafi with expensive and “sentimental” gifts, including two dozen red roses sent to his Toronto hotel room on his 35th birthday and cases of champagne. “I was paid by [SNC-Lavalin],” Peters told Maclean’s. “And when getting money for Saadi while he was here, for spending, I went through them. They paid a majority of the bills for him to stay here.” Quinton says Peters was an employee of its contractors, and has no records of any payments.

Peters joined Vanier on her July fact-finding trip for SNC-Lavalin (in fact, he says the trip was his idea). Then, the following month, he travelled back to Libya and undertook a daring mission to sneak Saadi Gadhafi out of the country into Niger. But first he stopped in Tunisia to meet with SNC-Lavalin officials, saying that the company paid for him to travel to the region to discuss security issues related to SNC-Lavalin employees in the area. In Tunis, he says he met with Riadh Ben Aïssa, then SNC-Lavalin’s executive vice-president of infrastructure and construction and, according to Peters, a close friend of the Gadhafis. Peters claims SNC-Lavalin paid for his flight back to Canada after he was wounded in a firefight on his way back into Libya from Niger. Even so, he says that SNC-Lavalin was not involved in his plan to whisk Gadhafi out of the country. “They knew nothing,” he says. “They didn’t know I got shot until I got back.”

Ben Aïssa left the company alongside Roy last month. At the time, SNC-Lavalin said that both Roy and Ben Aïssa had been the “focus of public attention” and that it “reiterates that all employees must comply with our code of ethics and business conduct.” Ben Aïssa responded that he has decided to “undertake the appropriate legal recourse against SNC-Lavalin in order set the record straight and re-establish [my] reputation.”

Peters, now back in Ontario, says he doesn’t see anything wrong with SNC-Lavalin’s payments to Gadhafi, or its tangential involvement with his personal mission to remove him from Libya. He says he had been planning a way to rescue his boss since early 2011 and continues to work with others on a plan to relocate Gadhafi elsewhere. “We’re still working it out,” he says.

By all accounts, SNC-Lavalin is now in crisis mode. Senior executives have reportedly hired outside legal counsel to represent them as the company probes the $35 million in mystery payments. At the same time, Peters says he’s been questioned by the Canada Border Services Agency, the RCMP, Canadian Security Intelligence Service and Mexican prosecutors, although he doesn’t believe he will ultimately be charged with any crime.

Investors and analysts, meanwhile, are wondering if the scandal will ultimately be blamed on the bad judgment of two former employees, or whether other senior managers were involved. “At a minimum, it would reflect poorly on their internal controls,” says Mohammed Fadel, an associate professor at the University of Toronto’s law faculty. “If it’s true that senior management didn’t know what’s going on, then you have to ask: ‘Why don’t you know what’s going on in your own company?’ ”

While Peters claims SNC-Lavalin doled out $2 million to Gadhafi to keep him happy, Quinton says “we cannot and do not confirm the amounts of any expenses related to hospitality or business development.” However, it is well known that SNC-Lavalin sponsored a soccer team in Libya where Saadi played and was one of several corporate sponsors of a 2005 art show in Montreal that featured brother Saif al-Islam Gadhafi’s art work (ridiculed as a “triumph of banality” by critics).

There are also questions about SNC-Lavalin’s support of Syrian leader Bashar al-Assad. Another SNC-Lavalin employee, Nawaf Al Dandachi, an estimator who worked out of the Toronto office, was reportedly fired after he sent an email inviting unnamed people to a pro-regime rally last June. He did not return calls seeking comment. SNC-Lavalin has no projects in Syria, but it has a contract to design a pipeline to move Iraqi oil through the country. And Radio-Canada has reported that another SNC-Lavalin executive had been given power of attorney over some Canadian property held by the son-in-law of Ben Ali, Tunisia’s deposed president.

Walid Hejazi, an associate professor of international business at Rotman, says it’s unlikely SNC-Lavalin did anything wrong by nurturing a close relationship with the Gadhafis or other regimes—unless, of course, there is proof laws were broken. “These guys aren’t bribing the son of Gadhafi,” he says. “This guy has more money than SNC does.”

Indeed, many multinationals say nurturing personal relationships is how business works in developing countries. But Fadel argues that companies need to be careful they don’t cross the line. He notes that Canada is a signatory to an Organisation for Economic Co-operation and Development convention that aims to combat bribery of foreign officials by businesses. “The whole reason you have a convention against bribery of public officials is to change the way business is done,” he says. “Corruption has a really negative effect on the countries where this takes place.” The problem, however, is that the convention, like Canada’s own laws, makes a distinction between payments and favours that are designed to obtain or retain business, and those made once contracts are secured. How do you tell which is which? “The favours you give someone for an existing project might be beneficial for a future project,” says Fadel.

For its part, SNC-Lavalin is still trying to put a positive spin on its Libya ties. “We have been working in that country for decades, alongside companies from the U.S., U.K. and France, and are proud to be able to create infrastructure for the benefit of the people, just as we do in 100 countries around the world,” says Quinton. One thing is near certain, though: SNC-Lavalin will be trying to put as much distance between itself and its former “friends” in the region as possible.