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Canada betrays anti-corruption campaign

March 11, 2019

Montreal-based engineering & construction company SNC-Lavalin Inc. is accused of allegedly bribing foreign officials.

 

When foreign companies employ corrupt business practices in the developing world, they are engaged in illegal activities that undermine good governance, exacerbate the gap between the haves and have-nots, and contribute to social instability that can lead to violence, extremism, and civil conflict.

 

Whether bribing foreign officials to win lucrative government contracts, or deliberately not paying their fair share of taxes, foreign corporations are committing crimes that tend to hurt many of the most vulnerable people in the developing world.

 

Over the past four years, the issue of corruption has garnered significant international attention.  From the G7 summit of 2015 that forced the industrialized world to acknowledge corporate wrongdoing, to the release of the so-called Panama Papers that same year, to the international anti-corruption conference of 2016, the issue of corruption has made headlines around the world.

 

While the countries of the industrialized world tend to pay lip service to the campaign to stamp out bribery of foreign officials, end tax avoidance, and promote good governance in Africa and elsewhere, the reality is that the world’s wealthier countries remain reluctant to close tax loopholes and prosecute companies based within their borders for corporate malfeasance. 

 

For example, the government of Canadian Prime Minister Justin Trudeau is resisting the notion of prosecuting SNC-Lavalin Inc., a Montreal-based engineering and construction company with a global reach, for alleged corporate crimes committed in the developing world.

 

If Canada is not willing to prosecute alleged corporate criminals, what does that say about the Trudeau government's commitment to poverty reduction, good governance, and human development in the developing world?

 

Political interference

 

The Liberal government is caught in a political storm of its own making that shows no signs of abating and may scuttle Justin Trudeau's electoral chances in the upcoming federal election.    

 

It is alleged that in 2018 the Trudeau administration pressured then attorney general Jody Wilson-Raybould to pursue a remediation agreement with SNC-Lavalin.  Such an arrangement, formally known a deferred prosecution agreement, would spare the company criminal prosecution for alleged corrupt business practices overseas.

 

In Sept. of 2018, Kathleen Roussel, Director of Public Prosecution announced the decision to pursue fraud and corruption charges against SNC-Lavalin.  It was then that Wilson-Raybould reportedly came under sustained pressure to override the decision to prosecute and instead pursue a deferred prosecution agreement, effectively giving the company a pass on its alleged crimes.

 

The former attorney general recently testified before the parliamentary justice committee.  And Wilson-Raybould stated that she was pressured not only by the clerk of the Privy Council, the minister of finance, the principal secretary to the prime minister, the prime minister’s chief of staff, but also by Prime Minister Trudeau, himself.  She testified that they raised concerns about the economic repercussions of prosecuting SNC-Lavalin and possible job losses in Canada.

 

 The Trudeau government stands accused of attempting to secure a deferred prosecution agreement for SNC-Lavalin.

 

Despite the sustained pressure, Wilson-Raybould repeatedly refused to overrule the decision of the Public Prosecution Service of Canada on the SNC-Lavalin file, thereby preserving the prosecutor’s independence from political interference. 

 

However, the Prime Minister shuffled his Cabinet in January, shifting Wilson-Raybould to the Veterans Affairs portfolio, which was widely viewed as a demotion.

 

Not long after that, The Globe and Mail broke the story that the Prime Minister’s Office had pressured the attorney general on the SNC-Lavalin file.  Shortly thereafter, Wilson-Raybould resigned from Cabinet, touching off a controversy that has tarnished Trudeau’s international image and caused dissension within Liberal ranks, prompting Jane Philpott to resign as President of Treasury Board and quit the Cabinet.

 

On March 8th, the Federal Court of Canada ruled that the Public Prosecution Service’s decision not to pursue a deferred prosecution agreement was proper.  The court dismissed SNC-Lavalin’s application for a judicial review of the prosecutor’s decision to move forward with the criminal case.

 

SNC-Lavalin will, barring intervention by current Attorney General David Lametti, face criminal prosecution.  An RCMP investigation has revealed that the company allegedly paid tens of millions of dollars in bribes to Libyan officials between 2001 and 2011.  If true, SNC-Lavalin would be in violation of the Corruption of Foreign Officials Act and face a ten year ban from working on federal government contracts.

 

However, SNC-Lavalin has friends in high places and has lobbied the Trudeau government for help.  And the governing Liberals continue to publicly warn that the prosecution of SNC-Lavalin would supposedly put 9,000 Canadian jobs at risk indicates.  And the Liberals' advocacy for SNC-Lavalin raises  troubling questions.    

 

For example, does a powerful elite hold sway over the current Canadian government?  Is the system rigged in favour of the super-rich, also known as the plutocrats?

 

Plutocrats

 

In Plutocrats, Chrystia Freeland’s well received 2012 political economy book about the rise of super-rich elites around the globe, the former journalist writes of her 2011 interview with Dr. Kiran Bedi, India’s first woman police officer who was later promoted to head up the investigative division.  By the time that Justin Trudeau’s future Foreign Affairs Minister met Bedi, the accomplished Indian woman was a grandmother and one of the top lieutenants of Anna Hazare, an anti-corruption activist.

 

Bedi told Freedland that India was “overwhelmed” by corruption, causing the country’s decline.  “It was a relationship of illicit wealth between the people in power and the people who had money,” Bedi said.  “They could afford to buy better contracts and those contracts are expensive and monopolistic—the mining rights, the key infrastructure rights.” 

 

As a result of those cozy relationships, continued Bedi, the playing field was tilted in favour of the rich, causing an imbalance in India’s economy.

 

Similarly, Arum Maira, a former industrialist who became a member of India’s planning commission, told Freeland that one of the great advantages that the elites enjoy is “access to people in power.”  Based on this statement, the author concludes that “corrupt business deals are the most extreme use--and abuse--of those relationships.”

 

 In her 2012 book Plutocrats, Canadian Foreign Affairs Minister Chyrstia Freeland writes about the rise of a super-elite class and its corrupt business practices.

 

Another source, Indian hi-tech pioneer Kris Gopalakrishnan said that people who have access to power and governments “tend to get a better deal.”

 

To gain a better understanding of “what it is like to operate in a society where both opportunity and corruption are flourishing,” Freeland decided to interview an “up-and-coming” Mumbai businessman.  She refers to her source merely as Raj. 

 

The young businessman’s plastics enterprise was “thriving” at the time of the interview, due, in part, to corrupt practices.  “It took me a long time to figure out who to bribe in government to get a government contract,” Raj confessed to Freeland.

 

Raj told her that he did not mind paying off government officials.  “But he wished it had been easier and quicker to identify and befriend the right decision-maker in the civil service,” Freeland writes.

 

In the concluding chapter of Plutocrats, Freeland warns that the plutocrats are prone to short-term thinking.  The super-elite class sometimes comes to the erroneous conclusion that their own self-interests are the same as those of society. 

 

“Low taxes, light-touch regulation, weak unions, and unlimited campaign donations are certainly in the best interests of the plutocrats, but that doesn’t mean they are the right way to maintain the economic system that created today’s super-elite,” Freeland concludes. 

 

Freeland also reckons that the plutocrats “can be betrayed by their own short-term self-interest into undermining the foundation of their society’s prosperity.”

 

Finally, Freeland addresses the exploitation of the developing world by the super-rich elite.  For example, she contends that oligarchs who prosper in emerging markets don’t need to worry too much that repression at home is cutting them off from the innovation that democracies are better at nurturing.”

 

It is apparent from Freeland’s outstanding treatise that corruption is the enemy of good governance.  But we must ask another central question:  How does corruption affect the poorest and most vulnerable people in the developing world?

 

Bretton Woods institutions

 

The International Monetary Fund is dead set against corruption for a number of reasons, IMF official Rhoda Weeks-Brown told the 35th International Conference on the U.S. Foreign Corrupt Practices Act in a Nov. 2018 address.

 

 Corruption is not "a victimless" crime, according to the IMF.

 

Weeks-Brown explained that the IMF cares about corruption, “because it impedes the IMF’s basic objectives of promoting global economic stability and helping our member countries achieve strong, sustainable and inclusive economic growth.”

 

In addition, she said that corruption isn’t “a victimless crime.”  In fact, Weeks-Brown, who serves as General Counsel and Director of the Legal Department at the IMF, describes corruption as “a bribe given to evade taxes.”  And this results in the loss of tax revenues, rendering governments “less able to pay for basic services or for important infrastructure projects that they need to boost economic growth.”

 

Like the IMF, the other Bretton Woods institution takes a tough stand against corruption and corporate malfeasance. 

 

“The World Bank Group considers corruption a major challenge to its twin goals of ending extreme poverty by 2030 and boosting shared prosperity for the poorest 40 percent of people in developing countries,” declares a World Bank briefing paper published in Oct. 2018.  “In addition, reducing corruption is at the heart of the Sustainable Development Goals and achieving the ambitious targets set for Financing for Development,” notes the brief, which is aptly entitled Combating Corruption.

 

The World Bank document points out that corruption hits the poor hardest, eroding access to public services, such as health care and education.  And the poor in many developing countries end up paying the highest percentage of their meagre incomes in bribes. 

 

“For example, in Paraguay, the poor pay 12.6 percent of their income to bribes while high-income households pay 6.4 percent,” states the briefing paper.

 

Echoing Freeland’s warning in Plutocrats that the corrupt practices of the super-elite undercuts social stability, the World Bank offers a bracing admonishment to the super-rich.  The Bretton Woods institution warns that corruption diminishes trust in government and social cohesion, fuelling inequality, extremism, and violence.

 

 According to the World Bank, corruption is a barrier to achieving its goal of eliminating extreme poverty by 2030.

 

How do corrupt practices undermine good governance and shortchange vulnerable people who rely on public services and infrastructure? 

 

Bribes are used by corporations to “bypass the public procurement process,” the IMF official stated in her address to the conference.  “This could lead to both higher public expenditure and lower-quality public investment.”

 

In addition, Weeks-Brown warned that corruption tends to distort government spending priorities.  “Corruption undermines the scale, composition and quality of public spending —skewing it towards big infrastructure projects that generate big bribes, but only small economic and social benefit. It can also lead to inflated procurement costs and off-budget transactions,” she stated.

 

As a result of tax avoidance and wasteful spending on big projects, governments are left with big fiscal deficits and large national debts.

 

According to the IMF, the annual global cost of bribery amounts to approximately $1.5 to $2 trillion dollars, which is the approximate equivalent of two per cent of 2016’s global Gross Domestic Product (GDP).

 

Corruption also reduces financial oversight and stability, Weeks-Brown said.  “This can lead to weak lending practices, poor banking supervision, and unwarranted regulatory forbearance—threatening the stability of the financial system.”

 

Corruption breeds inefficiency in government.  Weeks-Brown told the conference that “an over-regulated economy provides opportunities for regulators to demand bribes, corruption creates a strong incentive to undermine both transparency and innovation.”

 

Corruption also has negative social impacts on the vulnerable.  “For example, spending on education and health is typically lower when corruption is rampant —making it harder if not impossible to reduce poverty and inequality,” asserted the IMF official.

 

Distrust and anger are rampant in countries with pervasive corruption, which can give rise to street protests.  “Think about the recent huge protests in Brazil, Moldova, South Africa and South Korea—even leading to presidential impeachments in Brazil and South Korea,” Weeks-Brown said.  “Think about the 2014 Ukraine Maidan revolution and even the 2012 Arab Spring, which erupted in large part due to concerns about rampant corruption and poor governance.”

 

Inequality and corruption

 

Given all that the Bretton Woods institutions said about corruption in 2018, it seems highly unlikely that the Trudeau government was unaware of the ethical issues that its defence of SNC-Lavalin has raised.  Of course, it is possible, however unlikely, that the Liberal government is ignorant of the work that the IMF and World Bank have done on the issue of corporate corruption in the developing world. 

 

However, another organization also raised the alarm and that should have roused the Liberals.

 

Two years before the World Bank issued its briefing paper and the IMF’s Weeks-Brown delivered her speech to the anti-corruption conference, Oxfam issued its own report on international development that addressed issues of inequality and corruption. 

 

 Humanitarian NGO Oxfam reports that corporate tax avoidance undermines health and education in the developing world.

 

According to a 2016 briefing paper produced by the humanitarian nongovernmental organization (NGO), the expanding gap between the haves and have nots in Africa is making it difficult to “reduce poverty and deliver shared prosperity” on the continent.  Instead of creating a “new middle class,” economic growth is being harnessed to benefit the rich.  The report is entitled The Time is Now:  Building a human economy for Africa.

 

For example, “between 2003 and 2009, Nigeria experienced positive economic growth, yet poverty increased and everyone other than the richest 10 percent experienced a fall in share of the national consumption,” states the report.

 

Oxfam alleges that tax avoidance by wealthy individuals and corporations deprives African countries of vast sums of money.  The feminist charity alleges that “rich individuals in Africa are making use of the global network of tax havens to avoid paying an estimated $14 billion year in taxes.”

 

According to Oxfam, “corporations operating in Africa are also using the global network of tax havens and secrecy to avoid paying taxes.”  Corporate tax avoidance supposedly costs Africa $38 billion in lost tax revenues annually. 

 

A big part of the tax avoidance problem in Africa stems from corrupt corporate practices.  This is especially so in the extractives industry, in which trade mispricing is common.  Some mining companies use offshore centres and tax havens to allegedly conceal their revenues and to avoid paying their fair share of taxes.

 

According to Oxfam, the revenues lost to tax avoidance by rich individuals and corporations “would be enough to pay for the healthcare that could save the lives of four million children and employ enough teachers to get every African child into school.”

 

The Oxfam report states that corporate taxes are “the cornerstone of African governments’ revenue streams.”  And the NGO says that “it is shocking to think of the unbuilt schools, the untrained teachers, the untreated sickness and the gross abuse of human rights that this tax avoidance represents.”

 

While Oxfam says that African governments can take some steps to force corporate tax dodgers to pay their taxes, there is only so much they can do.  “By its nature, this is primarily a global problem, as a result of a broken and outdated international tax system, that requires global solutions,” the report states. 

 

Oxfam is calling for another round of global tax reforms to “put an end to the era of tax havens once and for all.”

 

Group of Seven

 

The issue of corruption has been pushed onto the international agenda in recent years thanks to a number of high profile international gatherings and a very big corruption scandal.  For example, at the Group of Seven summit in June of 2015, then British Prime Minister David Cameron, who was also chair of the G7, called for a crackdown on corruption. 

 

In the wake of the summit, Oxfam called upon the G7 to adopt tax reforms to improve financial and tax transparency. “They must not be content to close tax loopholes at home while letting multinational companies sidestep their tax obligations across the developing world,” the Oxfam statement declared.

 

Less than a year after the G7 summit, representatives from 40 countries, the World Bank, and the IMF convened in London for an anti-corruption summit.  The gathering was called in response to the so-called Panama Papers tax avoidance scandal. 

 

In 2015, documents detailing the financial holdings of offshore entities were leaked to the press, revealing how the plutocrats or super-elite hide their money in tax havens. 

 

Despite all the sound and fury, the anti-corruption summit was a dud.  Oxfam dismissed the reforms announced at the gathering as a piecemeal response to a global problem. 

 

“Unless all governments, including tax havens, commit to a global public register showing who really profits from shell companies - where ever they are based - the corruption and tax dodging revealed by the Panama Papers will continue undisturbed,” declared an Oxfam statement.

 

The failure of the anti-corruption summit to yield meaningful reforms was disappointing, but the battle is not yet lost.  Influential institutions regrouped in 2018 and launched a new offensive against corruption.

 

Action plan

 

To effectively address corruption, the IMF has created “a more systematic way of assessing when to ring the bell on corruption and governance issues,” the IMF's Weeks-Brown stated in Dec. 2018.  To uncover vulnerabilities, the IMF examines six state functions: (i) fiscal governance; (ii) financial sector oversight; (iii) central bank governance and operations; (iv) market regulation; (v) rule of law; and (vi) anti-money laundering and combating the financing of terrorism.

 

Weakness in any of those state functions potentially allows for corruption to set in and compromise public policy.

 

The IMF also addresses the issue of  bribing foreign officials.  “These actors, which include powerful multinational corporations, are often from richer countries—countries that themselves might not suffer from significant corruption, but nonetheless might have cracks in their legal and institutional frameworks that contribute to global corruption,” Weeks-Brown told the conference.

 

The Anti-Bribery Convention of the Organization for Economic Cooperation and Development (OECD) is based on the U.S. Foreign Corrupt Practices Act (FCPA).  And the IMF credits the U.S. with being the traditional global leader on targeting bribery and corruption abroad.

 

From the IMF’s perspective, the question of “whether countries adequately criminalize and prosecute the bribery of foreign public officials” is central.  And the Bretton Woods institution has pledged to evaluate national laws to determine if they “adequately criminalize foreign bribery and whether they are effectively enforced.”

 

World Bank gets tough

 

Corruption inhibits investment in the economy, stunting economic and job growth.  “Countries capable of confronting corruption use their human and financial resources more efficiently, attract more investment, and grow more rapidly,” the World Bank reports.

 

The World Bank understands that corruption can take many forms, from the cop on the beat taking bribes, to corporations bribing officials to win lucrative government contracts.  And the World Bank takes them all very seriously.

 

“The World Bank Group has a zero-tolerance policy toward corruption in its projects,” states the briefing paper.  “When allegations of fraud and corruption are substantiated, companies involved in misconduct are debarred from engaging in any new World Bank Group-financed activity.”

 

According to the briefing document, the World Bank thus far “has publicly debarred or otherwise sanctioned more than 700 firms and individuals.” 

 

Last year alone, the World Bank “debarred or otherwise sanctioned 83 firms and individuals and recognized 73 cross-debarments from other multilateral development banks.”

 

To prevent corruption, the World Bank advocates “credible deterrence” in form of accountability and enforcement mechanisms.  Deterrence can take several forms:  criminal prosecution; administrative penalties; and civil lawsuits.

 

The World Bank has attempted to combat corruption by establishing global transparency benchmarks as set out in a number of initiatives:  the Global Initiative on Financial Transparency; Open Contracting Standards; and Asset Disclosure Standards. The Bretton Woods institution also participates in anti-corruption projects, including the Extractive Industries Transparency Initiative (EITI), Publish What You Pay, Fisheries Transparency, and Anti-Money Laundering rules.

 

SNC-Lavalin ban

 

On April 17, 2013, the World Bank announced the debarment of SNC-Lavalin Inc. and its 100 affiliates for a period of ten years.  The sanctioning of SNC-Lavalin was punishment for the Quebec engineering company’s misconduct regarding the Padma Multipurpose Bridge Project in Bangladesh and another case of misconduct under a different World Bank-financed project.

 

According to a World Bank press release, “SNC-Lavalin’s misconduct involved a conspiracy to pay bribes and misrepresentations when bidding for Bank-financed contracts in violation of the World Bank’s procurement guidelines.” 

 

At the time of the 2013 announcement, Leonard McCarthy, World Bank Integrity Vice President, publicly stated that the SNC-Lavalin case was "a testimony to collective action against global corruption.”  Having gathered the evidence against the Canadian company, the World Bank turned the case over to the RCMP.

 

Prime Minister Jean Chretien and Africa

 

In the 21st century, Canada has played a leading role in the campaign to promote good governance, transparency, and responsible corporate behaviour in the developing world, especially in Africa—the world’s poorest continent.

 

For example, Prime Minister Jean Chretien chaired the Group of Eight in 2002, and he used the G8 leaders’ summit at Kananaskis to push African issues to the top of the international agenda.  At that time, a new African initiative to promote good governance had just been established. 

 

In his political memoir, My Years as Prime Minister, Chretien describes the New Partnership for Africa’s Development (NePAD) as “a visionary initiative put forward by several progressive African leaders and endorsed by fifty-three members of the Organization of African Unity, to consolidate democracy and sound economic management on the continent, to promote peace and human rights, to foster education and health, and to introduce legal and infrastructure requirements for sustainable growth.”

 

At the Kananaskis summit, Chretien devoted “a whole day to discussing Africa and the NePAD process.”  And in the lead up to the summit, Chretien travelled extensively, meeting with African leaders “to build and maintain a consensus with regard to the G8’s Africa plan,” which covered a myriad of important issues areas, including the elimination of corruption, health and education, and child mortality.

 

Like the African architects of NePAD, Chretien understood that prosperity, good health, education, and stability would continue to elude Africa if the continent failed to stamp out corruption and embrace transparency and good governance.

 

Developed nations must do their part to help Africa implement much needed good governance by cracking down on Western corporations that engage in bribery and tax avoidance in the developing world.  Corporate malfeasance tends to undermine good governance in fragile and developing countries.  And without good governance, the future of Africa and the rest of the less developed world would be bleak, indeed.

 

By actively attempting to help SNC-Lavalin avoid criminal prosecution in Canada for allegedly engaging in corrupt practices overseas, the Trudeau government is sending a clear message to Africa that Canada no longer stands firm against corruption and is a hypocrite, preaching the virtues of good governance while shielding a Canadian company in the name of saving Canadian jobs.

 

The hard reality is that Canada has betrayed the international anti-corruption campaign.

 

Black eye

 

The OECD Working Group on Bribery, which works with the 44 Parties to the Anti-Bribery Convention, has expressed concern about “recent allegations of interference in the prosecution of SNC-Lavalin that are subject to proceedings in the House of Commons Standing Committee on Justice and Human Rights.” 

 

On March 11, 2019, the international organization issued a public statement pointing out that “the Canadian engineering and construction group is the subject of an ongoing prosecution into allegations of the bribery of Libyan officials to obtain a Can$ 58-million contract to restore a water pipeline.”

 

The Working Group reminded Canada that it is a signatory to the Anti-Bribery Convention, “which requires prosecutorial independence in foreign bribery cases pursuant to Article 5.”  And the OECD body added that “political factors such as a country’s national economic interest and the identity of the alleged perpetrators must not influence foreign bribery investigations and prosecutions.”

 

While noting the responses to allegations of political interference in the judicial process—an investigation by the federal ethics commissioner and hearings convened by the Parliamentary Commons Justice Committee—the OECD ominously announced that it “will follow Canadian proceedings addressing allegations of political interference in foreign bribery prosecution.”

 

That the OECD felt compelled to publicly express concern about the SNC-Lavalin scandal is a black eye for Canada.

 

Conclusion

 

The SNC-Lavalin scandal precipitated the resignations of Jody Wilson-Raybould and Jane Philpott from Cabinet. 

 

How long will Foreign Affairs Minister Chrystia Freeland, author of Plutocrats, remain in Cabinet?  How can Freeland  justify remaining a minister in a government that seems to be defending the plutocrats?  After all, the corruption that she describes in her book and the super-elites that she warns the reader about are not dissimilar to the alleged corrupt business practices of SNC-Lavalin and the privileged access that the company has to the Trudeau government.

 

In the final analysis, Canada should heed the IMF’s recommendation to implement policies that fix the cracks in legal and institutional systems that contribute to corruption overseas.

 

This article was update on March 13, 2019.

 

Geoffrey P. Johnston is an independent journalist who writes about international affairs, human rights, humanitarian crises, international religious freedom, and political economy.  Follow Geoffrey P. Johnston on Twitter @GeoffyPJohnston

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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