Export Development Canada reviewing insurance policy in wake of SNC-Lavalin allegations

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A federal agency that supports Canadian exporters through loans and insurance has retained legal counsel to review an insurance policy covering political risk it underwrote on SNC-Lavalin’s behalf in 2011.

On Wednesday, the CBC reported that an SNC-Lavalin employee who requested anonymity had alleged that portions of loans the engineering giant obtained from Export Development Canada were intended to pay bribes. The Crown corporation told The Globe on Wednesday that it hired the law firm Fasken to conduct the review on March 6 after learning the source alleged EDC had “turned a blind eye” to improper payments in connection with Angola’s Matala Dam.

“Our review is primarily focused on the steps EDC took during the transaction screening process for the Angola transaction to ensure that we did not do what the CBC’s unnamed source has alleged,” EDC spokeswoman Jessica Draker wrote in a response to questions.

It’s the latest twist in a commercial relationship stretching back decades. Between 2001 and the end of last year, SNC-Lavalin benefited from 18 EDC financings worth a combined value of between $2-billion and $4.3-billion. (EDC does not disclose precise values of the support it provides to companies.) Additionally, EDC has occasionally provided loan guarantees and political-risk insurance policies to the company’s benefit.

Data provided by EDC and analyzed by The Globe and Mail suggest SNC-Lavalin has been among the leading recipients of EDC financings over the past two decades.

Bribery allegations against SNC-Lavalin over its activities in Libya have been at the heart of recent political turmoil in Ottawa. Former attorney-general Jody Wilson-Raybould told a parliamentary committee she came under pressure from the Prime Minister’s Office to defer the prosecution against the company in the Libya case.

The Matala Dam was one of several large hydroelectric dams damaged during Angola’s decades-long civil war. SNC-Lavalin won the contract to repair the dam and a bridge in 2010. The following year, EDC underwrote a political-risk insurance policy for Société Générale Canada worth an undisclosed value between $250-million and $500-million to support SNC-Lavalin’s “sale of engineering and procurement services” in connection with the dam’s rehabilitation. According to reports at the time, Société Générale provided an export loan of US$281-million to the Republic of Angola to finance the work; EDC’s insurance covered a portion of that loan.

That year, Angola ranked among the worst 20 of 183 countries on Transparency International’s ranking of perceived levels of public-sector corruption. Hydroelectric projects have long been regarded as particularly vulnerable to corruption. “Today, billions of development dollars are earmarked for large dams and associated project infrastructure in Africa,” noted a 2010 briefing by International Rivers, an NGO that focuses on large dam projects in developing countries. “Lucrative construction, power purchase and investment contracts can drive bribery and other corrupt business practices. The lack of transparency and limited legal enforcement to halt these practices allow shady deals to go forward.”

According to the CBC report, the anonymous source alleged EDC’s due diligence procedures should have detected problems with “technical fees” paid by SNC-Lavalin, some of which went to agents in foreign countries to win the contracts.

EDC said it would not knowingly participate in a transaction involving bribery. “We have a rigorous transaction screening/due diligence process” that meets or exceeds practices recommended by the Organization for Economic Co-operation and Development (OECD), the federal agency said, “but there are limits as to what it can reasonably detect.” EDC did not provide further details about the due diligence it had conducted on the transaction.

In 2011, news broke of an RCMP investigation into alleged corruption at SNC-Lavalin; the company faced numerous corruption-related allegations in the following years. EDC says it increased its monitoring of the company in 2012. Nevertheless, in 2013 and 2014, at a time when SNC-Lavalin had already been debarred by the World Bank for corruption-related infractions, EDC provided two financings that benefited SNC-Lavalin, each in an amount between $50-million and $100-million.

In late 2014, EDC suspended support to SNC-Lavalin. “We can appreciate that people will say that we didn’t act soon enough,” EDC said in a statement on Wednesday. “We don’t disagree with that view … we could have – and perhaps should have – suspended business earlier.”

EDC’s suspension remained in effect until spring of 2017, by which point the Crown corporation was satisfied with measures taken by SNC-Lavalin, including replacing the management team and board and introducing new compliance and ethics programs. Since then SNC-Lavalin has benefited from three additional EDC financings.

In response to questions from The Globe, Ms. Draker confirmed that SNC-Lavalin had not notified EDC of any improper payments in connection with the Matala insurance policy or any other EDC-financed projects.

“It’s important to note that this is not the first time that we have reviewed SNC-Lavalin and SNC-Lavalin-related files,” Ms. Draker wrote. “In fact, we have actively reviewed, as part of our due diligence processes, the company and various SNC transactions throughout our financing history.

“When allegations arose, we worked to understand them and take appropriate actions given the information available at the time.”

Daniela Pizzuto, spokeswoman for SNC-Lavalin, said the allegations about the way the company did business date to before 2012, when SNC-Lavalin was under different management. She declined to comment further.

Société Générale also declined comment. The company said it no longer participates in export finance in Canada.