SNC Lavalin’s missing millions mess: is Ben Aïssa responsible?

$56 million in missing funds. Suggestions of corruption, bribery and an alleged connection to the Gadhafi regime. The departure of a CEO. An RCMP raid. Did one man cause all of this?

Riadh Ben Aïssa had been with Lavalin International for just two years when he received a call from president Marcel Dufour.

“I hear that you are a capable Tunisian,” Dufour said.

“Well…I guess I am.”

It was 1987. Dufour explained that Lavalin, the Montreal-based engineering and construction firm that later merged with SNC Group, was in big trouble with a project in Tunisia, and the client was suing for $3 million. Even Lavalin’s lawyer had given up. “I need you to get over there and sort things out,” Dufour ordered. Ben Aïssa, then working in Morocco, was on a plane to Tunisia the next day. Within 48 hours, he convinced the client to drop the lawsuit and give Lavalin an extension to finish the work.

This story, a testament to the prowess of Ben Aïssa, is recounted in a corporate history published last year by SNC-Lavalin to honour its 100th anniversary. The tale doesn’t explain how he assuaged the Tunisian client, except to note that “he had always performed best under pressure.” Whatever skills he used served him well at SNC-Lavalin. “There’s a caveman mentality that if you go out and kill something and drag it back to the cave, then you’re the big man,” says one former executive. “He brought the meat into the cave, pure and simple.” By 2007, Ben Aïssa was in charge of the company’s construction division and joined the office of the president, a coterie of SNC-Lavalin’s top executives. Over the years, he secured projects worth billions of dollars. Much of his success came from Libya, where he forged close ties with the regime of Moammar Gadhafi, while expanding the company’s footprint in Algeria and the Middle East.

He was a fiercely competitive and territorial executive who had an aura that seemed to prevent even senior managers from questioning him. He also desired privacy, and had a penchant for conducting business using personal e-mail addresses and phones, according to former employees who worked with him in North Africa. One recalls being reprimanded more than once for relying too much on e-mail instead of the phone.

Ben Aïssa may now be responsible for one of the most complex and bizarre scandals in Canadian corporate history. He was forced out of SNC-Lavalin in February, along with a financial controller from his division, Stéphane Roy. A company investigation alleges Ben Aïssa requested $56 million in payments to commercial agents that now cannot be traced. Authorities in Switzerland arrested him in April, accusing him of bribery, fraud and money laundering. The Swiss federal prosecutor’s office opened an investigation into business in North Africa in May 2011, long before Canadian officials became involved. The Royal Canadian Mounted Police raided SNC-Lavalin’s headquarters in Montreal after the Swiss requested assistance. In a strange subplot to these allegations, both Ben Aïssa and Roy were involved in hiring Cynthia Vanier, an Ontario mediator, to conduct a fact-finding mission to Libya last year. She is now in jail in Mexico accused of plotting to smuggle Saadi Gadhafi, a son of the deceased Libyan dictator, and his family to Mexico. All of this at SNC-Lavalin—a $6-billion company, hailed as one of corporate Canada’s few international successes, with a board stacked with corporate heavyweights, including founding EnCana CEO Gwyn Morgan. The company has prided itself on its commitment to ethics; all 28,000 employees sign a lengthy code of conduct every year. Now, the scandal has prompted the departure of CEO Pierre Duhaime, shaved 25% from the company’s stock price this year, and spawned at least two shareholder class-action lawsuits. SNC-Lavalin’s previous statements and responses to questions from Canadian Business have struck the same tone: these are isolated incidents conducted by former employees who acted beyond the scope of their authority. A company spokesperson declined to comment further, citing ongoing investigations.

The company has put much of the blame on Ben Aïssa, portraying him as an apostate. (None of the charges against him have been proven in court.) But former employees point to an environment at SNC-Lavalin that was intensely competitive, fractious, and allowed top managers a lot of autonomy. It may have been the kind of environment in which a determined maverick like Ben Aïssa could thrive. SNC-Lavalin was, at the very least, a company comfortable doing business in North Africa, where corruption is common, and companies must rely on local agents to help secure work by promoting their services to potential clients or assisting with bid preparations. Such conditions require close scrutiny, but a troubling question is how much oversight the company had over Ben Aïssa, who spent much of his career working in SNC-Lavalin’s office in Tunisia, and what—if any—steps were taken if his colleagues or superiors had concerns. SNC-Lavalin’s own investigation found that its chief financial officer had objections regarding a contract involving Ben Aïssa in 2010. Duhaime knew even earlier that Ben Aïssa had hired agents in “unusual circumstances” and even approved a portion of the improper payments. Did the company choose to ignore a rogue in its midst?

Defusing a lawsuit in Tunisia marked the start of many successes for Ben Aïssa, who was born in Tunisia and earned his MBA from the University of Ottawa. In 1995, he scored a major contract for SNC-Lavalin to work on Libya’s Great Man-Made River. It was a tantalizing project for any firm with a tolerance for risk and that didn’t mind working in a country under UN sanctions. (Libya became a pariah when Moammar Gadhafi refused to turn over two suspects accused of blowing up a Pan Am flight over Scotland in 1988.) The Great Man-Made River was a multi-billion-dollar scheme promoted by Gadhafi to divert water from underground aquifers to towns and cities. Wellheads would be installed along the 2,300-mile route to provide water to farmers. It would be the largest irrigation project on earth.

SNC-Lavalin’s initial US$230-million contract was to drill 117 wells for the first phase of the project. Ben Aïssa secured the work through “sheer persistence,” according to the company’s corporate history. The sanctions prevented SNC-Lavalin from purchasing high-quality American drilling rigs, and since flights over Libya were banned, the company trucked everything in. The project cemented a relationship between SNC-Lavalin and Libya. “Now that the company had the Libyans’ trust, Ben Aïssa was in an excellent position to secure other contracts for the project,” according to the biography.

Those contracts were the only thing holding SNC-Lavalin’s construction division together. In 1998, it was poised to lose more than $14 million. All of the other divisions turned a profit that year, the biggest of which—$48 million—came from the chemicals and petroleum unit. Jacques Lamarre, the company’s influential CEO from 1996 to 2009, recruited an outsider to turn around the construction group. He hired Sami Bébawi, owner of a tiny project management firm in Montreal, who pushed the division deeper into countries few western firms dared tread, including Venezuela, Dominican Republic, Algeria and Libya, while quadrupling the size of contracts targeted by the company to $100 million. Ben Aïssa, the division’s vice-president for Libya, was a crucial asset. “Sami relied heavily on Ben Aïssa to be out beating the bushes in North Africa getting work,” says a former executive. Construction grew to be SNC-Lavalin’s third-most-profitable division by 2002.

Relations between Gadhafi and the West thawed throughout the 2000s after he turned over the suspects in the Pan Am bombing. Foreign firms flooded the country, but SNC-Lavalin remained competitive. In January 2007, Bébawi retired and Ben Aïssa replaced him as head of the construction division. (One former insider says Bébawi’s exit was hastened to promote Ben Aïssa.) Once installed, Ben Aïssa quickly became known as a demanding boss with no concept of work-life balance. He could be exceedingly polite and charming, but easily lost his temper. Those who worked with him in North Africa say he wouldn’t think twice about berating subordinates in public, in one instance hurling his own phone down a hallway in anger. Innocuous events set him off, such as when the labourers on construction projects left their laundry out hanging in their work camp accommodations. He was adept, however, at navigating an intense corporate environment, which often meant competing with other executives. The company’s business units are divided by industry, but there are also offices responsible for geographic areas. How these units interacted was never properly defined, according to former employees. If the company secured work on a hydroelectric dam in Venezuela, for example, should the power division take the lead, or the group overseeing that country? Executives fought with each other for the biggest share. Lamarre rarely got involved. “Jacques quite often said he liked the fact that we were competing amongst ourselves, and that it sharpened our abilities to compete against others,” says the former executive.

Ben Aïssa was particularly skilled at securing the greatest chunk of work and revenue for his division, and he aggressively protected his turf. He was reluctant to share workers with the rest of the company. In at least one instance, he put some of his employees on temporary layoff when he had no work for them, rather than lend them to other divisions. “Riadh was not playing as part of a team, but more for himself,” says a former employee. “He wanted to develop his own castle.” Still, the construction division was envied in some corners. “That was quite often the topic of conversations internally—how come we couldn’t have similar success?” says another former employee.

The competitive and divisive culture led to a feeling that each division was a separate entity. Some referred to fees each unit paid to cover central office functions as the “SNC-Lavalin tax,” for example. “They really had the attitude that they were running their own business,” says a former employee. When Duhaime, formerly head of the mining and metallurgy division, took over as CEO in 2009, one of his priorities was to unify the company, though not much changed. With each division still thinking like a separate business, there may have been a temptation to play by one’s own rules.

Ben Aïssa seemed to enjoy a unique status. He dealt with auditors pleasantly enough, but in one instance, after an audit concluded in North Africa, he was on the phone to Montreal to fume about a line of questioning he didn’t like. When some questions were raised about aspects of a particular North African contract on another occasion, nothing was done.

After he took over as executive vice-president for construction in 2007, Ben Aïssa continued to land large contracts in Libya, including the construction of a $500-million airport in the city of Benghazi. SNC-Lavalin also partnered with the Libyan Corps of Engineers, headed by Saadi Gadhafi, on a $275-million venture to build a massive prison outside of Tripoli. The joint venture was dubbed the Executing Agency. Last year, SNC-Lavalin defended the prison project, telling The Globe and Mail that the prison would be “the country’s first to be built according to international human rights standards.” The management team at the Executing Agency consisted not only of Ben Aïssa and Gadhafi, but Edis Zagorac, the husband of Sandra McCardell, Canada’s then-ambassador to Libya. A former employee who worked with Zagorac calls him a “stress ball” who frequently seemed disorganized, despite his high-ranking position. Construction on the prison itself did not progress far. Work began in 2010 to establish the camp for the labourers who would build the prison, largely contract workers from Thailand and the Philippines. The Executing Agency was in such a rush to get started on the prison that sewage from the camp was simply pumped to an open ditch.

Though Ben Aïssa was successful in securing work for SNC-Lavalin, the company now alleges serious transgressions on his part. An internal investigation released in March found that in 2009, he purported to hire an agent for work on an undisclosed project and instructed a senior officer to sign the agreement. At a meeting in 2010 with Ben Aïssa and CEO Pierre Duhaime, CFO Gilles Laramée was told that an agent had been hired, but that the fees would be charged to other projects. The company’s report did not explain why this would be the case, but says Laramée objected to the arrangement. It was never properly disclosed to SNC-Lavalin’s auditors. In 2010 and 2011, $22.5 million in payments were made under this agreement, approved by Ben Aïssa and another person in his division, through the company’s office in Tunisia. The payments were documented to another project entirely. Ben Aïssa requested similar payments of $33.5 million from a subsidiary, SNC-Lavalin International, to another undisclosed agent on another unknown project in 2011. Laramée, when told agents had been hired on this project, again objected to any involvement. He refused to authorize the payments, as did the chairman of SNC-Lavalin International. The payments were then brought to Duhaime. He approved them, despite the refusal of his subordinates. The payments were ultimately recorded as related to two different projects.

SNC-Lavalin couldn’t determine where any of the $56 million in payments actually ended up, though it does not believe they were intended for Libya. The company’s report cited “management override, flawed design or ineffective enforcement” as the reasons behind the improper payments. Though the board maintains these were isolated incidents, the findings nevertheless expose SNC-Lavalin as a company in need of greater control over its affairs.

The first person to ask a question at SNC-Lavalin’s annual general meeting in Toronto on May 3 was Catherine Allen. She sat close to the microphone, barely having to get up from her chair before she was facing chairman Gwyn Morgan, who stood at the front of the room behind a podium. “I am a friend of Cyndy Vanier,” she said, “and she is sitting in jail, in a Mexican prison.” Her brief speech was somewhat disjointed, but her message was clear. “She is caught up in the web of deceit and theft from your company.…You have forgotten her, and allowed her to sit in this prison. Shame on you.” Morgan listened with a pained expression on his face. Allen finally asked: “Are you going to help Cyndy?”

Morgan cleared his throat. “Well, all I can say is we sympathize with your heartfelt feelings,” he said. He explained an investigation was underway, and the company supplied whatever information it could. “We are in a position that we cannot do anything, other than helping those investigations,” he said. “Any other questions?”

The bizarre case of Cynthia Vanier illustrates how the company is distancing itself from anything associated with Ben Aïssa. Vanier, a mediator from Mount Forest, Ont., conducted a fact-finding mission to Libya last July funded by SNC-Lavalin. Since Nov. 10, the 52-year-old mother of two has been in a Mexican prison accused with three others of plotting to shepherd Saadi Gadhafi, his wife, and his two children from Libya to a safe house in Mexico using forged documents. The only two people from SNC-Lavalin, according to the company, responsible for hiring Vanier were Ben Aïssa and Stéphane Roy, a financial controller from the construction division.

According to Mexican court documents obtained by Canadian Business, Vanier told authorities that Gary Peters, an Ontario-based private security contractor who served as Saadi Gadhafi’s bodyguard in the past, contacted her in 2011 about a humanitarian trip he was helping put together for an organization called the Canadian Libyan Friendship Association. (She worked with Peters once before, when he provided security on a dispute she mediated between De Beers and the Attawapiskat First Nation.) The association had solicited Canadian companies with operations in Libya to drum up financing, including SNC-Lavalin. The company was interested in Vanier, and requested more information about her background. It ultimately contracted her to assess the conditions on the ground to help determine when it could resume work in the country. (Approximately 4,500 SNC-Lavalin employees and contractors were evacuated earlier that year when the uprising began, and the company had to cease construction of the Benghazi airport, along with other projects.) It’s not entirely clear why Vanier was recruited. She was an experienced mediator, but had never worked in a conflict zone as hot as Libya. Peters, who provided security, maintains there was a plan all along to move Saadi Gadhafi’s family to Mexico with partial funding from SNC-Lavalin, and that Vanier would obtain the necessary documentation. The plan was called off when it couldn’t be done legally, as the Gadhafi clan was under a U.N. travel ban. Vanier has denied she was involved in any such discussions. On Nov. 10, she was arrested in Mexico. She and her husband had come to the country to spend the winter at their home in Puerto Vallarta. According to the court documents, Vanier was also in Mexico to arrange a meeting between the country’s Federal Electricity Commission and a representative from SNC-Lavalin: Stéphane Roy, Ben Aïssa’s financial controller. Roy was actually in a vehicle with two of Vanier’s alleged co-conspirators when they were arrested. He was questioned by authorities, but released.

Court documents state that according to Vanier and one of the other co-accused, the purpose of the meeting was to discuss water-infrastructure projects. The explanation strikes many as strange. Former employees say it would have been highly unusual for a financial controller to be involved at that stage of a project. SNC-Lavalin has no explanation, either. At a press conference following the annual meeting on May 3, Morgan referred to the Vanier affair as an “escapade,” and said, “We have no idea what Stéphane Roy was up to in Mexico.” Roy provided some information to the company during its internal investigation, but it has had no contact with him since his departure in February.

Vanier has been in custody for more than six months. A judge is supposed to rule on how to proceed with her case, but there has been little movement. Her parents, John and Betty MacDonald, are mystified and disturbed by the events. Vanier calls them every day or two at their Brampton, Ont., apartment, which is adorned with pictures and mementos from Mexico, a place where they’ve spent a lot of time in retirement, but it’s now permanently tainted. They’re never entirely sure when their daughter will call—it depends on if she can access the single phone for inmates of the prison that day—and so they spend a lot of their time waiting, worrying, and trying to make sense of everything. SNC-Lavalin has severed all ties, refusing to pay $395,500 her Canadian lawyer, Paul Copeland, says she is owed under contract. A law firm representing SNC-Lavalin sent a letter to Copeland in February denying the company owes “any amount whatsoever” to Vanier. “SNC-Lavalin has never authorized any contracts or dealings of any kind with your clients and therefore, all services your clients may have rendered have been requested by employees acting outside the scope of their normal duties.” The letter asked Copeland to stop contacting the company and direct all correspondence to its lawyers. Betty tries to deal with such setbacks with humour. “Boy, I’d like to direct some correspondence to them,” she says.

Neither of the parents understands SNC-Lavalin’s claim that Ben Aïssa, a senior executive, didn’t have the authority to contract Vanier. “So they fired the two employees who hired her, and now claim no responsibility for her? That doesn’t make any sense,” John says. At the very least, the affair shows how little control the company had over one of its top executives.

Last December, SNC-Lavalin’s board and senior executives received an anonymous employee letter. First reported on by the CBC, the letter contained a string of major—and unsubstantiated—allegations, including that the company had been used to funnel money through shell companies to the Gadhafi family. Board chair Gwyn Morgan downplayed the letter at the press conference after the company’s AGM in May. “I’ve run pretty major companies, and I’ve received anonymous letters before that have no credibility,” he said. “We did take note of it, certainly.”

It’s not clear whether the letter itself triggered the company’s subsequent investigation. SNC-Lavalin maintains “information was received” as part of an accounting review last December, which eventually spawned the review. By February, both Ben Aïssa and Roy had left the company. SNC-Lavalin’s press release announcing their departures stated “SNC-Lavalin reiterates that all employees must comply with our Code of Ethics and Business Conduct.” Ben Aïssa hired a public-relations consultant to issue his own release the next day purporting to set the record straight. “Riadh Ben Aïssa spared no effort to protect the interests of the company, successfully,” it stated. He threatened to sue SNC-Lavalin.

The investigation that ultimately uncovered the $56 million in misallocated payments was hampered by a number of factors. Ben Aïssa refused to answer any questions, despite a request made to his lawyer, and the report notes that “some former employees” used personal e-mail addresses and password-protected devices for work that couldn’t be accessed. Duhaime is gently criticized. The CEO knew that certain agent agreements had not been properly disclosed within the company and that payments would be charged to other projects, a situation he permitted from at least 2009. He also overstepped his authority in approving the $33.5 million in payments in 2011 after the international subsidiary refused to do so. All of these actions violated SNC-Lavalin’s code of ethics and conduct. The news of Duhaime’s behaviour came as a shock to those who worked with him. Duhaime was regarded as a diligent and risk-averse executive. Part of the reason for his appointment was that he would stay the course after Jacques Lamarre’s departure, and eventually hand off the company to Lamarre’s son Patrick, who currently heads the power division. “He was somewhat considered a guy who would not bet the company and lose it before Patrick came of age,” says a former executive. Duhaime stepped down the same day the results of the investigation were disclosed, and the board rewarded him with a $4.97-million compensation package. Ian Bourne, SNC-Lavalin’s interim CEO, attempted to explain the reasoning behind the package. “The fundamental principle here is, when you have a contract, you either abide by it, or you litigate,” he said in May. “We felt very strongly that it was in the company’s best interest, knowing what we knew at the time, to not litigate.”

Laramée, the CFO, is also under scrutiny. Anthony Scilipoti, executive vice-president of Veritas Investment Research in Toronto, published a report recently arguing that Laramée should be held accountable for not making his objections to the agent agreements and payments known to the company’s board or auditors. The board appears to believe Laramée’s responsibility ended with alerting Duhaime. (“We have absolute confidence in him,” Morgan said in May.) SNC-Lavalin even wrote in its March 26 report that employees with knowledge of ethical breaches do not have a “duty” to report them. Scilipoti argues there is no such language to that effect anywhere in the company’s code of conduct. Instead, the code says that employees “are expected to be vigilant in ensuring” that company money isn’t used for illegal or improper purposes. “Despite what we believe to be clear violations of internal controls, the CFO remains employed by SNC,” Scilipoti wrote.

While Duhaime and Laramée have fared well, Ben Aïssa remains in custody in Switzerland. He was arrested in April as part of a criminal investigation launched by the Swiss federal prosecutor’s office in May 2011. His Canadian lawyer declined an interview request.

The company is well aware that more revelations could be forthcoming as the Swiss and Canadian investigations proceed. “Based on the recent arrest of Riadh Ben Aïssa,” Bourne said on a conference call in May, “I’d be quite surprised if there weren’t some more things that surface.”

SNC-Lavalin, meanwhile, has taken steps to improve its internal controls to prevent another breach. It instituted a new process for retaining agents, and now requires the CFO to report directly to the chairman of the audit committee in addition to the CEO. There is no sign that SNC-Lavalin’s clients are turning their backs in the wake of the scandal, or that it’s having difficulty scoring new contracts. In late May, the province of Ontario awarded a highway expansion contract worth $1 billion to a joint venture involving SNC-Lavalin.

The analyst community is optimistic the scandal will blow over, and contend the company’s depressed share price is a buying opportunity. “The market is assuming that the company’s engineering business is falling apart,” wrote analyst Maxim Sytchev from AltaCorp Capital in a recent note. “We believe that over time the negative herd mentality will dissipate.” Frederic Bastien at Raymond James is equally upbeat. “We might not have gotten to the bottom of the SNC scandal just yet, but it sure feels like we’re getting close,” he wrote recently.

Not everyone is so sanguine. Scilipoti at Veritas criticized SNC-Lavalin’s reforms as a “long list of vaguely worded commitments.” A key question that should have been addressed in the company’s investigation was just how $56 million in suspect payments was administered over two years with at least some knowledge on the part of senior management. The answer, according to Scilipoti, is “a failure of corporate governance.” Lawyers are circling, conducting their own investigations into SNC-Lavalin. Peter Jervis at Rochon Genova, the Toronto firm behind a $1.5-billion class-action suit, promises an amended statement of claim in the coming month detailing new allegations. “This was a far more systemic problem,” he says, “which went far beyond this isolated circumstance with Mr. Ben Aïssa.”