One dirty hand washes the other

For longer than he can remember, Michael Hershman has visited Montreal for business and as a tonic against the buttoned-down reality of the Washington-area suburb where he resides. “I love Montreal, and always will,” he says of the charmingly askew city.

Hershman’s current Montreal assignment isn’t quite so cheery, however. The 67-year-old anti-corruption expert is helping oversee the rebuilding of SNC-Lavalin as the once-proud Montreal-based engineering firm emerges from the biggest scandal in its 102-year history. Earlier this year, SNC’s president and vice-president left the company amidst a flurry of bribery-related charges in Quebec and abroad. The World Bank recently barred SNC-Lavalin Inc., a company subsidiary controlling 60 per cent of its interests, from bidding on its contracts for 10 years.

For Hershman, co-founder of the corporate- and political-corruption monitoring body Transparency International, the case is clear: Quebec’s business and political culture is by far the most corrupt in Canada. “Are the problems in Quebec more severe than the rest of Canada? My impression is yes,” Hershman recently told Maclean’s. SNC’s alleged widespread fraud is “indicative of a culture of corruption that has grown around Quebec, and has become engrained and accepted.”

The ultimate victims are Quebecers themselves, he says. “Corruption has an enormous psychological impact. When you are dealing with things like this continually, it’s cumulative. It gives people pause for thought.”

Quebecers certainly have enough fodder for cynicism these days. Montreal is now on its third mayor in seven months; the last one, interim mayor Michael Applebaum, was recently arrested and charged with 14 fraud-related counts. Alexandre Duplessis, the interim mayor of Laval, resigned last week after a bizarre episode in which he claimed two escorts attempted to extort him following a jaunty night at his country home. The owner of the escort agency claimed the women only wanted to be paid for their services—which involved a “girls’ night out” with Duplessis dressed in drag. His resignation was doubly bitter for Laval; the Quebec government recently placed the province’s third-largest city under trusteeship, after revelations that all but one of its city councillors were making illegal donations to their party. (Both Applebaum and Duplessis had taken over from scandal-plagued administrations in their respective cities.)

Long a model of Quebec’s business acumen, SNC has paralleled Quebec’s political fall from grace. The company has been hit with allegations of widespread bribery to secure contracts in various countries, including to former Libyan dictator Moammar Gadhafi and his sons. SNC is alleged to have paid $22.5 million to Arthur Porter, the former head of McGill University Health Centre, in order to secure the contract to build its new hospital. Both former president Pierre Duhaime and vice-president Riadh Ben Aissa have been arrested and charged with fraud. According to an investigation by Quebec anti-corruption investigators, SNC had bankrolled more than $1 million in employee donations to the Parti Québécois and the Quebec Liberal Party (PLQ). The practice, commonly known as “straw-man donations,” is illegal in Quebec.

Though it is the largest of its kind in the province, SNC is hardly the only Quebec-based engineering firm to suffer a hit to its reputation. Eight of Quebec’s 10 largest engineering firms have been named in testimony during the Charbonneau inquiry investigating corruption in Quebec’s construction industry, mostly for their alleged participation in similar donation-harvesting schemes.

In March, SNC-Lavalin vice-president Yves Cadotte testified how fundraisers for both the PLQ and the PQ regularly solicited the company. “We wanted to assure our ability to continue our activities with the government, and we responded favourably to the requests that were made of us,” he testified. Between 1998 and 2010, the PQ and the PLQ took in roughly $475,000 and $570,000, respectively, according to investigators. SNC put an end to the practice in 2010, following the formation of Quebec’s permanent anti-corruption unit, Cadotte said.

While he doesn’t condone the paying of bribes and the greasing of political parties, Hershman says management at SNC and other engineering companies felt compelled to engage in these activities. “I call it the prisoner’s dilemma,” he said. “If you want to do business, even if you want to do business cleanly, you can’t. You have to deal under the table in order to succeed. You become the prisoner of a corrupt system. There is this philosophy that this is the way business has always been done.”

Those days are over, according to SNC’s new senior management. Last August, its board of directors appointed president Robert Card, the first non-Quebecer in the company’s history to hold the position. Card has instituted broad reforms, including a 15-point “global compliance initiative” to snuff out corruption amongst the company’s 34,000 employees. In June, the company enacted a three-month amnesty policy, during which SNC employees can “report potential corruption and anti-competition matters,” without fear of disciplinary action.

It also appointed its first chief compliance officer, Andreas Pohlmann. He oversaw the rebuilding of Siemens in the wake of the German engineering and electronics giant’s corruption scandal in 2007. He sounds decidedly bullish about SNC’s future. “Don’t miss a good crisis,” Pohlmann said. “Companies that go into compliance crisis usually come out as better ones, and I would expect that from SNC-Lavalin.”

In Quebec in general, and SNC in particular, the process of rooting out corruption is as slow and painful as it is necessary; the status quo is unacceptable, Hershman says. “Corrupt states, corrupt provinces, corrupt countries are disincentive to attracting capital. If you are now a business trying to decide whether to put your corporate headquarters in Montreal or Toronto, this would weigh on your decision-making. That is the atmosphere in Quebec today.”

Maclean's July 15, 2013