Bombardier could face an investment ban by the Norwegian sovereign wealth fund

Norway’s sovereign wealth fund, the world’s largest with $1.3 trillion in assets, has placed Bombardier Inc. BBD-BT on a watch list as it considers whether to withdraw its investment in the Canadian multinational for ethical reasons.

Bombardier will be placed under surveillance for two years due to an “unacceptable risk that the company contributes to, or is responsible for, flagrant corruption”, said Norges Bank, the country’s central bank. Adani Ports in India and Hyundai Glovis in South Korea have been placed under similar scrutiny by the fund.

The bank manages the wealth fund but follows an ethical mandate set by the Norwegian parliament, based on advice from a special ethics board appointed by the Ministry of Finance. This mandate means that it will not invest in certain companies in sectors such as arms manufacturing and tobacco production.

“The board’s investigations revealed that Bombardier or its subsidiaries may be linked to allegations or suspicions of corruption in six countries over a period of more than 10 years,” he said in documentation provided by Norges. Bank. All cases relate to bribes or suspicious transactions amounting to more than 100 million US dollars, carried out through agents, intermediaries or partners, with the aim of obtaining contracts for Bombardier subsidiaries, the board said in its recommendation.

The board expressed doubts about Bombardier’s ability to set the “top tone” on ethics. And he said there were shortcomings in how the company handled past misconduct allegations. He said he would seek more information on Bombardier’s anti-corruption efforts during the observation period and monitor any new revelations linking the company to alleged corruption or other crimes. financial.

Bombardier spokeswoman Anna Cristofaro said the company found no evidence of wrongdoing in its business dealings. “We take these matters very seriously and we are cooperating with the relevant regulatory authorities,” she said. “Conducting business with integrity and according to the highest ethical standards is a top priority for Bombardier and its more than 13,000 employees.

The development is a new flashpoint for Bombardier chief executive Eric Martel as he tries to steer the industrial company back to profitability after years of slump. Bombardier has been dogged for years by allegations that it is involved in corruption cases, but it is believed to be the first time that an institutional investor has publicly denounced its internal culture and suggested that it may not have put in place sufficiently rigorous ethics and compliance systems.

Norway’s sovereign wealth fund has a 1.2% stake in Bombardier worth about $33 million at current trading prices, according to Refinitiv data. He will remain invested in the company during the observation period on the recommendation of the board because most of the allegations and suspicions of corruption are linked to the former rail unit of Bombardier, which it sold to French Alstom SA last year. . Bombardier’s current private jet business carries fewer corruption risks, the board said.

The review of Bombardier’s past business relationships continues on several fronts.

The World Bank alleged in a preliminary audit that Bombardier used bribery and collusion to win a rail signaling systems contract in 2013 in the former Soviet state of Azerbaijan, then obstructed an investigation into the deal . The bank has accused the company of colluding with senior Azerbaijani railway officials to win the $340m deal and claims it also used a middleman to ‘route bribes’ from worth millions of dollars to Azerbaijani officials while funneling tens of millions more through a network of Russian-controlled front companies.

The company disputed the findings and filed its own response to the audit process. The bank, which financed most of the project, has not yet issued its final conclusions. Meanwhile, a Swedish court acquitted a former Bombardier vice-president of aggravated bribery last December over the contract and said there was no conclusive evidence the tender was rigged. for the benefit of Bombardier.

In a separate case, Britain’s Serious Fraud Office opened an investigation in 2020 into Bombardier for alleged bribery and corruption related to contracts and orders for Garuda Indonesia, the Southeast Asian country’s national airline. . The US Department of Justice and the Royal Canadian Mounted Police have also launched investigations into the same file and requested documents from Bombardier.

An Indonesian court convicted the former CEO of Garuda and an associate in 2010 of bribery and money laundering in connection with five procurement deals, including the sale and lease of Bombardier CRJ1000 aircraft. No charges have been brought against Bombardier or any of its directors, officers or employees. The company has launched its own internal investigation into the case by outside attorneys and says it found nothing unusual. It has since sold all of its commercial aircraft assets.

In its assessment of the risks of owning Bombardier shares, the Norwegian Ethics Council said its main concern was the practical implementation of an anti-corruption system. Although Bombardier has put in place certain elements to prevent and detect corruption and exercises due diligence on its partners and customers, there is “a discrepancy between what the company has disclosed and the information that the board has obtained from other sources,” the council said. He said it made him question how effectively the company manages third-party risk and reports any wrongdoing.

In the case of Azerbaijan, the council said Bombardier had received three internal reports on the project in 2015 and 2016, but had not, to its knowledge, launched any investigation into these matters before the Swedish police began its investigation in the fall of 2016. Neither did Bombardier reveal whether the case had any consequences for the employees involved, the board said.

“Overall, the board does not consider this to provide reasonable assurance that Bombardier has put in place adequate measures to prevent, detect and deal with corruption,” he said.

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