The head of SNC-Lavalin, one of the world's biggest engineering and construction companies, has stepped down after an internal investigation found he had broken company rules by authorizing $56 million in mysterious payments.
But based on the findings of the investigation, Montreal-based SNC said it did not believe the payments were related to Libya, where the company has worked on several projects, including building a prison for the now-deposed regime of Libyan dictator Muammar Gaddafi. The company was the subject of unflattering media attention in recent weeks over ties between a senior company executive and Gaddafi's family.
In announcing the resignation of Chief Executive Pierre Duhaime on Monday, SNC said it was handing over material from the probe to Canadian law enforcement and other authorities.
Even so, SNC's stock ended 5 percent firmer as investors bet that the reputation of the company was not irreparably damaged. Shares of the company, which employs 28,000 in more than 100 countries, is still down 20 percent since the start of 2012.
"The biggest worry that the market had was that this was a systemic issue. The management made it clear that it was a once-off," said Morningstar Inc analyst Min Tang-Varner. It is not the first time that SNC's business practices have come under the spotlight. Canadian police last September launched an investigation of SNC employees for possible corruption involving a $1.2 billion bridge project financed by the World Bank in Bangladesh.
The century-old Canadian company made the disclosures on Monday as it reported a steeper-than-expected 52 percent drop in fourth-quarter profit and forecast little change in earnings for all of 2012.
The company had delayed releasing its quarterly and full-year results pending the findings of the independent probe by Canadian law firm Stikeman Elliot.
SNC warned on Feb. 28 that it had launched an investigation into tens of millions of dollars of unauthorized payments, just weeks after it suspended two executives who Canadian newspapers said had ties with Gaddafi's son, Saadi Gaddafi.
"We have not been able to get to the bottom of where the money went to," SNC chairman Morgan said on a conference call.
The company said the exact nature of the payments was still unclear, and SNC would not say where the projects in question are located.
The company, which generated revenue of C$6.3 billion ($6.4 billion) in 2010, said it believed that documents falsely linked $33.5 million in payments made in the fourth quarter to unrelated projects, prompting the investigation.
The probe widened in February to include about $22.5 million in payments made by the company in 2010 and 2011. These payments, made through a Tunisian subsidiary of SNC, may have also been improperly documented.
The company said its former head of construction, Riadh Ben Aissa , who was one of the two executives who left SNC in February, may have "direct and significant knowledge" about most of the transactions but that the company has not been able to meet with him.
Ben Aissa had requested SNC's chief financial officer and another senior official to make the payments but they had refused. He then approached SNC CEO Duhaime, who authorized them.
Duhaime was appointed SNC's CEO nearly two years ago after 20 years with the company, most recently as head of its mining unit.
NO PLANS TO BACK AWAY FROM LIBYA
Neither the Royal Canadian Mounted Police nor the Autorité des marchés financiers, the securities regulator for the Canadian province of Quebec, where SNC is based, could be reached for comment.
SNC's audit committee, which probed the payments matter, said the dealings highlight weaknesses in its internal control over financial reporting.
Ian Bourne, a director since 2009, will take over as SNC's interim CEO. A search for a new CEO is set to begin immediately and will consider both internal and external candidates.
SNC said it had no plans to back away from business in Libya or North Africa and was in fact looking for new opportunities there, Bourne said.
SNC's net income attributable to shareholders fell to C$76.0 million ($76.13 million), or 50 Canadian cents per share, in the three months to end-December from C$158.7 million, or C$1.04 per share, a year earlier.
The sharp decline in profits mainly reflected an operating loss at its infrastructure and environment arm, along with a loss from its hydrocarbons and chemicals units.
The company, which raised its fourth-quarter cash dividend by 4.8 percent, expects 2012 profit to be little changed.