MONTREAL – The former head of Canada’s biggest engineering firm, who once mused that Quebec was taking sufficient measures to fight corruption in the construction industry, was arrested Wednesday by the squad at the centre of those efforts.
Pierre Duhaime, the former chief executive of SNC-Lavalin (TSX:SNC), was taken from his home by police in connection with alleged fraud involving one of Montreal’s huge new superhospitals.
The arrest warrant alleges that Duhaime and Riasdh Ben Aissa, another former top executive, also committed conspiracy to commit fraud and uttered false documents in connection with a contract pertaining to the multibillion-dollar McGill University Health Centre.
The infractions are alleged to have taken place between April 30, 2009, and Aug. 31, 2011.
Duhaime was released from custody late Wednesday and is expected to appear in court at a later date after being questioned by provincial anti-corruption squad investigators.
He walked out from provincial police headquarters around 7:45 p.m., brushing past a number of journalists, covering his face with his coat and an arm as he approached an awaiting BMW. He sat in the back seat with his head down as the car pulled away
Meanwhile, squad chief Robert Lafreniere said “international proceedings” have been initiated against Ben Aissa, who is currently detained in Switzerland.
Ben Aissa, SNC’s former head of construction, is accused of fraud, money laundering and corrupting a public official tied to his dealings in North Africa.
Duhaime received a $5-million payout after he stepped down as SNC-Lavalin’s CEO last March.
He was “relieved” of his duties after an independent review conducted by the company discovered he signed off on $56-million worth of payments to undisclosed agents, breaching the company’s code of ethics. His departure was classified as a retirement.
In 2011, Duhaime said in an interview he didn’t see the need for a public inquiry into construction, although he said he found revelations in a report by Jacques Duchesneau, former head of the anti-collusion squad at the Transport Department, to be “troubling.”
Concerned about the use of anonymous sources in the report, Duhaime said at the time the province was already getting results in its battle with corruption.
The strike by the anti-corruption squad at the heart of corporate Canada came within days of SNC-Lavalin being recognized by the Canadian Institute of Chartered Accountants for excellence in financial reporting.
An SNC-Lavalin spokeswoman said the company has been co-operating with police and will continue to help in the investigation.
“We are categorical, no unethical acts or illegal acts should be tolerated,” she said in a statement. “We believe that anyone who has committed an offence . . . should be brought to justice.”
However, the company said it wouldn’t comment on the allegations against Duhaime.
One industry observer said Duhaime’s arrest didn’t come as a total surprise given the RCMP raids on SNC-Lavalin’s headquarters in April and the detention of Ben Aissa.
“If you are an investor and you are trying to look at the scenarios of probabilities, this was in the scenarios, that’s for sure,” said the analyst, who didn’t want to be identified.
He said it’s normal that the company’s shares would come under pressure following the arrest, but added that SNC-Lavalin has a new chief executive and remains fundamentally strong as a company.
Denis Durand, a spokesman for Jarislowsky, Fraser Ltd., the largest shareholder in SNC-Lavalin at 14 per cent, acknowledged the dollar amounts being mentioned are of concern but noted the investigation seems limited to a small group.
“The more that is revealed, the better it will be for the understanding of the situation,” Durand said.
“But it doesn’t, we think, impair significantly the value of the company. The company is still a great company.”
He pointed out that SNC-Lavalin still has a large backlog of orders and he doesn’t believe the scandal will be a roadblock to getting future contracts.
“The new president is certainly very competent and new rules, new regulations, better controls are being put in place. We’re confident for the future.”
Wednesday’s arrest is the latest blow to the 101-year-old SNC-Lavalin, which is considered a Canadian success story.
In September, an Ontario judge certified a $1-billion class-action lawsuit against SNC-Lavalin on behalf of investors who saw the value of their investment in the company plummet following revelations of mysterious payments in North Africa.
The lawsuit was brought on behalf of all investors who purchased SNC-Lavalin securities between Feb. 1, 2007, and Feb. 28, 2012, or who bought debentures through the company’s June 2009 prospectus offering.
The lead plaintiff is Brent Gray, a resident of Surrey, B.C., who purchased 600 shares in January at $52.20 per share.
In addition to current and former members of SNC’s board of directors, those named in the Ontario lawsuit include SNC-Lavalin International chairman Michael Novak. The claim said certain officials, including Duhaime and former controller Stephane Roy, assisted Ben Aissa in arranging “improper or unlawful payments” to secure contracts in Libya.
Roy lost his job along with Ben Aissa and Duhaime.
The engineering and construction giant has never identified the two projects that received a total of $56 million of payments but insisted that none of the funds were directed to Libya. A newspaper report said one of the projects in question is the Montreal hospital.
SNC-Lavalin did acknowledge this week that it paid commercial agents Duvel Securities Inc. and Dinova International Inc. in connection with projects in Libya between 2001 and 2011 that are part of an investigation by Swiss authorities. A Swiss TV report said Ben Aissa has been formally charged in relation to at least $139 million in payments in North Africa.
SNC-Lavalin removed $900 million worth of Libyan projects from its backlog in 2010 amid the civil war in the North African country.
The RCMP has already executed search warrants at SNC-Lavalin’s headquarters at the request of Swiss police.
In Quebec, the anti-corruption unit was created in the wake of other scandals surrounding collusion in the construction industry and its links to political parties and organized crime.
Since its creation last year it has arrested numerous construction-industry players as well as people tied to municipal political parties.
On the Toronto Stock Exchange, SNC-Lavalin’s shares dropped another 92 cents to $39.99 in Wednesday trading. The shares have fallen nearly 29 per cent in the past year.
– with a file from Graham Hughes