Bloomberg News

SNC-Lavalin Ex-CEO Duhaime Arrested on Fraud Charge

November 28, 2012

Former SNC-Lavalin Group Inc. (SNC) Chief Executive Officer Pierre Duhaime was arrested today, eight months after retiring amid a corruption scandal at Canada’s largest construction and engineering company.

Charges include fraud, fraud conspiracy and forgery, Anne- Frederick Laurence, a spokeswoman for the Quebec anti-corruption unit, said in a telephone interview today. SNC-Lavalin’s former executive vice president, Riadh Ben Aissa, is facing the same accusations, police said.

SNC-Lavalin dropped 2.3 percent to C$39.99 at 4 p.m. in Toronto. About 17 percent of the stock’s value has been erased since Feb. 27, the day before the company disclosed a probe of inaccurate documentation of payments by its construction unit.

“The market has to digest this new information,” Trevor Johnson, a Toronto-based analyst at National Bank Financial, said of Duhaime’s arrest. “It’s hard to quantify the overhang.”

A company spokeswoman, Leslie Quinton, said SNC-Lavalin has voluntarily turned information over to local and other authorities and will continue to cooperate.

“We are unequivocal that no unethical behavior or illegal acts must ever be tolerated,” Quinton said in an e-mailed statement. “Anyone found to have committed any wrongdoing in connection should be brought to justice.”

Payment Bookings

SNC-Lavalin said March 26 -- the day Duhaime’s departure was announced -- that the probe had found $56 million in expenses, apparently related to the hiring of agents, incorrectly booked in the two years through 2011. The CEO failed to comply with the company’s code of ethics in approving some payments, the company said then.

Ben Aissa, who oversaw SNC-Lavalin’s business in Libya, was one of two senior managers who left in February. The other was Stephane Roy, a vice president controller. Ben Aissa was subsequently arrested by Swiss authorities.

Jeannette Balmer, a spokeswoman for the Swiss Attorney General’s office, said Nov. 26 that Ben Aissa was still in provisional detention amid investigations regarding alleged acts of corruption, fraud and money laundering related to business in North Africa.

Quebec’s anti-corruption unit said today it would seek international assistance in the Ben Aissa case.

‘Very Disturbed’

David McAusland, a Montreal lawyer who is representing Duhaime, didn’t immediately return a call seeking comment on the matter today. A woman who answered the phone at Duhaime’s residence in suburban Montreal declined to comment.

Elie Chahwan, a lawyer for the Ben Aissa family in Montreal, said he couldn’t immediately comment on the case. Ben Aissa’s brother, Rafik, said in a Nov. 17 statement that he was “very disturbed” by the Swiss attorney general’s decision to detain the former SNC-Lavalin executive vice president “without charges and without a clear deadline in his detention.”

Ben Aissa’s imprisonment is “outrageous,” his brother said.

Quebec set up the police unit, known by the French-language acronym UPAC, last year after corruption allegations surfaced involving the awarding of public works contracts in the province.

A warrant obtained by the unit accuses Duhaime and Ben Aissa of defrauding the McGill University Health Centre -- whose campus SNC-Lavalin won a C$1.6 billion contract to build and maintain two years ago -- of more than C$5,000. The fraud took place between April 2009 and August 2011, according to the warrant.

McGill Contract

Montreal’s La Presse newspaper reported Oct. 1 that police are investigating “questionable payments” of about C$22 million made by SNC-Lavalin to win the McGill hospital contract. La Presse didn’t identify the source of its information. On Sept. 18, investigators of the unit searched the offices of the hospital as part of the inquiry.

“McGill is a massive contract and it’s very important for them,” National Bank Financial’s Johnson said. “If there are any problems there that would be a massive challenge from a reputational standpoint for SNC.”

A day after the Quebec raid, an Ontario judge certified a C$1 billion lawsuit on behalf of investors who bought company securities from November 2009 to February 2012. It accuses SNC- Lavalin and executives including Duhaime of “misrepresentations” regarding internal controls, 2010 net income and compliance with the company’s code of ethics.

‘Social License’

Robert Card, who took over as SNC-Lavalin’s new CEO Oct. 1, told analysts on a conference call that day he was “committed to ensuring the company’s social license to operate remains our top priority.” SNC-Lavalin had a backlog of C$9.9 billion as of Sept. 30, compared with C$10.1 billion at the end of last year.

Card didn’t answer questions about the scandal on the Oct. 1 call, and wasn’t asked about it by financial analysts on the third-quarter earnings call Nov. 2.

His predecessor, Duhaime, was paid C$4.97 million in connection with his departure, SNC-Lavalin said in an April 2 filing. Duhaime’s “departure arrangement components” include C$1.9 million in “salary continuance,” pension contributions, incentive payments and C$55,000 in “professional development and transition assistance,” SNC-Lavalin said in the filing.

Stephen Jarislowsky, chairman of Jarislowsky Fraser Ltd., SNC’s largest shareholder, criticized the company’s board earlier this year for approving the payment to Duhaime.

“I think he should have been fired on the spot,” Jarislowsky said at the time. He was out of the office today and not available to comment.

To contact the editor responsible for this story: Frederic Tomesco at tomesco@bloomberg.net


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