Jack Mintz: Trudeau going soft on SNC-Lavalin’s corruption could cost Canada a lot

Jack Mintz: Trudeau going soft on SNC-Lavalin’s corruption could cost Canada a lot

Prime Minister Justin Trudeau has said time and again that SNC-Lavalin jobs should be considered in deciding whether the company’s charges for bribery and fraud should be swapped for a deferred prosecution agreement, contrary to the existing legislation. At the same time, he says he strongly supports the rule of law, including in the context of Canada arresting the CFO of Chinese telecom giant Huawei, after a U.S. request for her extradition, although China’s retaliatory trade measures, starting with its decision last week to blacklist some Canadian canola, put other Canadian jobs at risk.

Both scandals highlight an important question: Does the rule of law affect a country’s economic growth and ability to create jobs? Most Canadians would probably say “yes,” in the belief that better governance promotes a stronger economy. By that logic, even if SNC-Lavalin were put on trial and convicted and some jobs were lost, it would be worth it. Our reputation as a country with a strong rule of law is itself far more important because it preserves jobs in all industries.

But having recently read up on the question of whether rule of law affects economic growth, I can report that there is no overwhelmingly consensus about the answer. China has had strong growth over the past three decades, but it’s only the 87th least-corrupt country out of 180 countries ranked by the Transparency International Index, with a score of just 39 of 100. By contrast, Canada is the ninth least corrupt, with an impressive score of 81 out of 100.

The theoretical argument made by some experts is that corruption might not hurt growth, since bribery can facilitate trade and investment in countries with weak institutions and poor governance. On the other hand, corruption, the risk of expropriation, unenforceable contracts, violence and inefficient bureaucracy raises the risk of investing in a particular country.

It is the rule of law that is the primary public interest

Indeed, most empirical studies tend to support the notion that a poor rule of law leads to less growth. One 2011 meta-analysis found that an increase in the corruption-value index by one unit causes GDP per capita growth rate to fall by 0.91 percentage points. That’s sizeable. Some studies find the largest negative impacts of corruption are on countries with high-quality public-sector governance regimes, such as Canada. For less-developed economies with poor institutional quality, corruption has a smaller or little impact on growth.

Harvard University economist Robert Barro has found that, after controlling for numerous variables, stronger law and order, as measured by the International Country Risk Guide, leads to higher economic growth. A rise in the measure of rule of law increases the annual growth rate from a 2.1-per-cent average among countries to 2.4 per cent. Going from the worst to the best rule of law increases the annual growth rate by 1.6 percentage points per year. That’s very big.

If SNC-Lavalin ends up being tried and convicted, maybe it really would sink the company. But maybe that would be better than Canada being viewed as being weak in enforcing the law against a company that has so openly flouted it for so long. SNC-Lavalin’s record from 1996 to 2011 is abysmal: disbarment by the Asian Development Bank for fraud in 2004; allegations of corrupt practices in Mozambique in 2008; allegations of corruption in Uganda in 2010; disbarment by the World Bank in 2013 for corrupt practices in Bangladesh; criminal charges related to bribery for Libyan projects (the charges it’s now trying to fight in Canada); and bribery and corruption crimes in obtaining contracts in Quebec from 1996–2011 including the McGill University Health Centre, as well as illegal federal election campaign donations.

Of course one company’s crime spree won’t likely undo our reputation for law and order, but it sure has given Canada a black eye. Thanks to one crooked company, Canada has had the shameful honour of dominating the World Bank’s corruption list since 2013.

That’s not to say that there won’t be other cases where a deferred prosecution agreement might be appropriate. In 2015, I wrote in these pages calling for Canada to legislate these very agreements, arguing that “not all employees, customers and other stakeholders are at fault for fraudulent behaviour by some (corrupt) employees.” However, I don’t mean it as a matter of preserving jobs — but about ensuring fairness: Should everyone in a corporation bear responsibility of the criminal acts by some?

The U.K. (also highly ranked for its rule of law) makes clear with its deferred prosecution agreements that the criminal prosecution is only suspended, pending a company cleaning up its internal controls, paying a fine, and co-operating with the prosecution of those individuals responsible for committing the crimes.

But as a U.K. justice minister explained in a 2013 speech on the topic, there are some cases that warrant deferral, and some that don’t: “For example …. a public interest factor in favour of prosecution is if there is a history of similar conduct (including prior criminal, civil and regulatory enforcement actions against it). A public interest factor against prosecution is if there has been a genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice, involving self-reporting and remedial actions.”

Note that what is clearly not a public interest factor is the jobs a company claims are at stake. Whatever happens with SNC-Lavalin, it is the rule of law that is the primary public interest — not least because that in itself is a more important economic consideration than the fate of just one corrupt company.

Jack Mintz is the president’s fellow at the University of Calgary’s School of Public Policy.

.