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Surviving an Internal Investigation: What Can We Learn from the SNC-Lavalin Matter?

06/03/2012


If you thought you had a bad week...

The last few months have seen multiple headlines on SNC-Lavalin’s ties with the Ghadafi regime in Libya, and an alleged plot to smuggle one of Colonel Ghadafi’s sons into Mexico involving one of its consultants. For several months, SNC-Lavalin maintained it was not involved with the plot and that it had done nothing wrong with respect to its Libyan operations.

Then last week, SNC-Lavalin announced an independent investigation into $35-million worth of improperly documented payments related to construction projects "and certain other contracts" in the last quarter of 2011. It said in a news release that the payments "were documented to construction projects to which they did not relate". So far, the company has not provided additional details on the payments, or whether they are linked to its operations in Libya. This is likely due to the ongoing investigation.

SNC-Lavalin lost 20% of its market value in a single trading session last Tuesday. To add to the SNC’s woes, it announced last week that it would fall $80 million short of its 2011 net income targets. The value of its shares on the Toronto Stock Exchange fell from $48.37 to $40.22 in three days, to Friday, a loss of just over 16%.

The latest news which came out this past weekend is that a Quebec City-based law firm has asked a judge to approve a $250-million class-action lawsuit against the company. The law firm alleges that SNC-Lavalin released "materially false and misleading" information about its "code of conduct, legal compliance and internal controls."

Finally, an Illinois county executive has been waging a campaign to stop Montreal-based SNC-Lavalin from building a $300-million (U.S.) airport in his community south of Chicago, due to his dismay over the company’s ties with Libya.

This is a painful illustration of the dangers of doing business in politically sensitive markets and of the damage alleged wrongdoing, such as the issues being investigated by SNC-Lavalin, can wreak on organizations – even if the allegations are eventually found to be unsubstantiated. This damage goes well beyond financial costs and the impact on employee morale. SNC-Lavalin is now facing severe reputational damage, potential disbarment from public sector and other contracts, and collateral litigation. And should it find that all or a portion of the $35 million was illegally paid to foreign public officials, it and its directors could face civil and criminal prosecution for violations of anti-corruption legislation.

The SNC-Lavalin matter is a high profile case involving relatively large sums. Nevertheless, it’s essential that any organization, regardless of size, that becomes aware of allegations of wrongdoing by its management, employees, or agents take the matter seriously and immediately commit to dealing with the allegations by:

  • Swiftly performing a thorough, independent and transparent internal investigation into the matter at hand;
  • Designing and implementing a communication policy with respect to the issue to manage the expectations of stakeholders and preventing rumours from causing further damage;
  • Cooperating with the authorities;
  • Appropriately dealing with the individuals responsible, no matter the position; and
  • Implementing a robust compliance program and controls to prevent such matters from recurring.

Such a reaction will go a long way in allowing a company to show the authorities, the public and its employees that such behaviour will not be tolerated and that it can be trusted to deal with the issue at hand. This will allow it to retain control of the investigation and minimize the impact of the allegations on its operations and bottom line.

SNC-Lavalin, in launching an independent investigation into the improperly documented payments and with the dismissal of at least two executives who were responsible for its Libyan operations, is taking positive steps to get to the bottom of its issues. This highlights the need for companies to take swift action before rumours and allegations flood the press and investors are surprised. Delays result in the need to do more to reassure the markets and the authorities that a company is dealing with the matter and that it will implement measure to prevent recurrence.

Learn about how MNP's Investigative and Forensic services can help if your organization has experienced workplace fraud or theft by contacting us today.