Does Canada's "Integrity Regime" actually work?

The federal government’s sole-sourced contracts with McKinsey & Company raise questions about Canada’s contracting safeguards.

Canadian Prime Minister Justin Trudeau's Liberal government sure has shoveled a lot of taxpayer cashola out the door. 

One of the biggest beneficiaries of the Liberal’s inflationary deficit spending spree is the scandal-plagued management consulting behemoth McKinsey & Company, to whom Trudeau's Liberal government awarded at least $116 million worth of contracts.

Referring to McKinsey & Company "scandal-plagued" is fair game. A simple google search of "McKinsey scandal" yields a litany of examples. For starters, McKinsey & Company reached a settlement agreement with attorney generals in 47 American states for its role in the opioid crisis. The company is also facing an investigation by French authorities into potential tax fraud and allegations of potentially inappropriate behavior concerning French elections. Concurrently, the company has been charged by South African authorities for its alleged role in a national corruption scandal.

With all this going on, how the Liberal government’s contracts with this company were able to pass a sniff test for ethical standards is a mystery to me.

The government and the company both maintain that no procurement rules have been broken. But how was the company, even with a significant public history of scandal, rewarded with big-time Canadian federal government contracts - particularly to provide advisory services? Is this a failure of the Liberal government, a failure of policy, or, most likely, both?

To do my part in looking into this matter, on Monday of this week, I placed a question on the House of Commons order paper to begin to ascertain what action the federal government has taken to determine if McKinsey could, or should, be facing consequences under Canada's so-called "Integrity Regime." Many of my colleagues in the Conservative Party have been doing great work pressing the issue of the overall acceptability of these contracts and I wanted to contribute to the effort.

For the uninitiated, Canada's Integrity Regime is a set of policies that are supposed to act as a safeguard to prevent companies who have engaged in specific unethical behavior from being rewarded with government contracts. The regime is supposed to ensure that contractors with the Canadian government are held to high ethical standards and that Canadian taxpayers aren't inadvertently enabling unethical corporate behavior that hurts people. 

But recent history has proven that how the Integrity Regime is supposed to work and how it functions in practice may be two different things. 

The most high-profile recent test of the Integrity Regime’s safeguards occurred when the Canadian federal Liberal government was confronted with a significant fraud charge against construction megacorp SNC-Lavalin. Understanding what happened with the ensuing scandal from a procurement-based perspective is critical to evaluating whether the rules that exist to prevent tax-dollars from going to scandal-plagued companies are sufficient.

So indulge me for a minute.

Under the iteration of the Integrity Regime that existed at the time, the charges brought against SNC-Lavalin were likely to result in the company becoming ineligible from receiving federal government contracts for ten years (something otherwise known as disbarment). Disbarment would have dealt a significant blow to the company's bottom line. So, SNC-Lavalin embarked on an intense lobbying campaign to pressure the Liberal government to change the system. 

Faced with a choice to functionally lock SNC-Lavalin out of the government procurement process per the guidelines of the Integrity Regime, the Trudeau Liberal government opted to water down the Integrity Regime by introducing something called a deferred prosecution agreement (DPA). The introduction of the DPA process gave SNC-Lavalin a potential path to avoid disbarment by allowing federal prosecutors to grant the company this agreement instead of pressing forward with charges.

One of the theoretical safeguards baked into the arguments for the DPA instrument was that if the charges against a company were severe enough, federal prosecutors could still press forward with charges, and in theory, the disbarment provisions of the Integrity Regime could apply. But this safeguard got shot to hell when Trudeau attempted to pressure then Justice Minister, Jody Wilson-Reybould, to interfere in the matter.

In the end, Wilson-Raybould stuck to her guns. Her doing so should have acted as the ultimate safeguard. But instead, she was swept aside and fired by Trudeau, and replaced with a different Minister. And even though federal prosecutors still elected to bring the charges to court, SNC-Lavalin pled guilty to the charges and struck a deal with the government that would still allow the company to be awarded federal contracts. Finally, even though Trudeau was found in violation of ethics rules for his involvement in the scandal, he faced no real consequence.

It's hard to argue that the Liberal government, in this very real test, succeeded in sending a message that Canada’s procurement rules were such that the government could address bad corporate behaviour.

Fast forward to today.

The Trudeau Liberals have, in the past, entertained proposals that further weaken the Integrity Regime. In 2018, the government released a white paper that floated things like significantly reducing the amount of time a company could face debarment and introducing so-called "flexibility" in how the government chooses to apply punishments. In short, the government was, and may still be for all we know, entertaining making changes to the system that would make it easier for companies found in violation of certain rules to avoid punishments like disbarment.

Further casting doubt was cast on the system today when Canada’s Ethics Commissioner raised questions about if key players in the Liberal government have the moral compass needed to ensure ethical safeguards are maintained in general.

So why should Canadians care about whether the Integrity Regime actually works?

Let’s start with the obvious. A strong Integrity Regime that forces the Liberals to be more resistant to the wiles of steak-dinner-wielding corporate lobbyists means less room for political interference in how Canada chooses and engages with contractors.

Second, a robust Integrity Regime encourages good corporate behavior. If companies know that the threat of severe punishment is real and is impervious to political interference, unethical behavior becomes more of a risk to profitability. Under these circumstances companies are more likely to put stricter controls on directors and executives, encourage more rigorous diligence at the corporate board level, and shy away from taking business that could put them in a position where they cross ethical boundaries. Said a different way, if companies have more tools to lobby their way out of the consequences of unethical behaviour, they may be more likely to engage in it.

Third, for the Liberals to credibly claim that contractors are held to the same standard as public servants, there should be no daylight between the ethical standards for each group. This principle is particularly true now that the Liberals are trying to justify outsourcing hundreds of millions of dollars worth of labour to McKinsey - again, a company that is operating under a cloud of controversy - that arguably could have been completed by public servants.  

And finally, with the introduction of deferred prosecution agreements, the Liberals opened the door to exemptions from the Integrity Regime’s disbarment policies if a prosecutor was convinced it "was in the public interest." At the very least, given the SNC-Lavalin scandal, the Liberals should be avoiding sending messages that may tempt companies to test the limits of this.

There are three main arguments made by some corporate lobbyists against the strongest provisions of the Integrity Regime. All are easy to counter.

Corporate lobbyists will argue that disbarment can lead to job losses. But thankfully, there's a simple solution for companies to avoid this outcome. If a company wants government contracts with the Canadian federal government, it should be doing everything possible to prevent, detect, and punish unethical behaviour that could lead to disbarment. 

Lobbyists will also argue that there are examples where some temporary and narrow leeway may be in the country's best interest. For example, a company that has the sole capacity to operate a critical component of Canada's existing defense system. However, it's hard to argue that this principle universally applies to companies that produce things like deliverology PowerPoint presentations. 

Third, there is an argument that companies should only face the most severe consequences when actually convicted with certain types of severe crimes. However, this raises questions about what rules should apply to companies who succeed in settling in cases where they have had a role in a big scandal, like in the case of the McKinsey opioid settlement, and then seek to provide senior level advisory services to the Canadian government.

The best rebuttal to all these arguments is that there are many good corporate actors who conduct themselves with the highest level of integrity. They heed calls for the highest standards of corporate stewardship and ethics. The federal government should be doing everything in its power to make sure Canada rewards these types of companies, not those that have a history of blurring the lines of corporate ethics.

It’s not lost on me that the last time the government came under pressure to change the Integrity Regime they did so by attempting to quietly sneak it into a budget bill.

Given everything that’s happened since then, at the very least, Canadians should be keeping an eye out to see if history repeats itself this year. 

I sure will be.