The husband of Canada's ambassador to Libya was hired by SNC-Lavalin to work as part of the Montreal-based company's joint project with the Gadhafi regime, CBC News has learned.

The discovery led Foreign Affairs Minister John Baird to request a review last month into the potential conflict of interest and to re-examine the Canadian government's policies on companies doing work for foreign militaries.

Edis Zagorac, the spouse of Canada's ambassador to Libya, Sandra McCardell, was hired to work as part of a military-civilian engineering unit that SNC-Lavalin created with the dictatorship of Moammar Gadhafi, according to documents obtained by CBC News.

The documents show Zagorac listed as leading a joint project between SNC-Lavalin and "The Corps of Engineers of Libya."

The initial project for the unit was a controversial $271-million prison in the North African country, known as the Gharyan Rehabilitation Institution or "Judicial City," a SNC-Lavalin PowerPoint presentation from June 2010 shows, with hopes it would be followed by work on a highway, water and power plants, as well as a “military academy.”

The prison project — launched long before the dictatorship was overthrown — came under fire due to the Gadhafi regime’s record for mistreating its prisoners.

SNC-Lavalin has defended the project, telling The Globe and Mail in a February 2011 story that the prison was being built "according to UN standards for human rights," and the joint venture would provide education and skills training under the partnership.

The effort was part of SNC-Lavalin’s billions of dollars worth in contracts with Libya, procured by Riadh Ben Aïssa, the executive vice president in charge of construction.

Ben Aïssa, known for his intimate ties to two of Gadhafi's sons, oversaw the project that hired the ambassador’s husband shortly after her appointment to Libya. He also hired Bruno Picard, freshly retired as Canada's ambassador to Tunisia, to become SNC-Lavalin's head of business development.

Ambassador sought 'proper guidance'

When asked whether McCardell had declared her husband's SNC-Lavalin connection, Joseph Lavoie, spokesman for Foreign Affairs Minister John Baird, told CBC News that “Ambassador McCardell did seek the proper guidance from the department's values and ethics division.”

But Lavoie also said Baird only learned on Jan. 18 of Zagorac’s work with SNC-Lavalin involving the controversial Libyan projects, prompting the minister to request a review and a report, which is still pending.

Canada's ambassador to Libya, Sandra McCardell, sought the 'proper guidance' from the Foreign Affairs Department's ethics division regarding her husband's work with SNC-Lavalin. (Sean Kilpatrick/Canadian Press)

The Foreign Affairs spokesman also said Baird “has been clear on his views of Ambassador McCardell's great work in ensuring the safety of Canadians on the ground in the lead up to the liberation of Libya.”

CBC News consulted a number of current and former senior diplomats who said ambassadors must not only declare potential conflicts of interest, personal or familial, but that the Department of Foreign Affairs itself ultimately must ensure that there is no question or appearance of favouritism toward specific commercial interests.

Haig Sarafian, Canada's ambassador to Libya prior to McCardell's appointment in July 2009, refused to discuss specifics about the country or any of his colleagues, but agreed to talk in generalities.

"It behooves each individual to bring to the attention of [Foreign Affairs] any potential conflicts," he told CBC News. "If an ambassador's spouse is a partner in a chocolate store, that wouldn't be the end of the world. But if they have a financial interest in a construction company bidding on major projects, that would be different."

'Perception' very important

Larry Lederman, a retired DFAIT protocol chief, says beyond simply reporting to her superiors, the department itself has a responsibility to McCardell to rigorously vet any potential conflicts of interest.

“So leave that up to the department to make any decisions,” Lederman told CBC News. “I would be concerned. It's the perception that is very important, and as you know perception goes a long way to convincing people of things that are happening that maybe not be true. This is a very sensitive case.”

Both Zagorac and Picard continue to work for SNC-Lavalin.

Cyndy Vanier has been held without charge in Mexico since Nov. 10 on accusations she led a plot to smuggle members of former Libyan dictator Moammar Gadhafi's family into the country.

Ben Aïssa and executive Stéphane Roy, who was a vice-president in finance for SNC-Lavalin, resigned two weeks ago. Their hasty departures came after it was revealed that they hired Cyndy Vanier, a Mount Forest, Ont. consultant who stands accused of attempting to smuggle the Libyan dictator's son, Saadi Gadhafi, and his family into Mexico.

Ben Aïssa and Roy have refused to comment on the reasons for leaving. But a company statement cited SNC-Lavalin’s code of conduct in announcing the pair’s departure and has since distanced itself from the hiring of Vanier, suggesting it was done by rogue employees.

Roy was found in Mexico City on Nov. 11, 2011 in the back of a Chevrolet Suburban as police moved in to arrest Vanier’s two co-accused — Gabriella D'avila Huerta and Pierre Flensborg — in connection with the alleged Gadhafi smuggling plot.

Roy was released at the time, but Mexico’s deputy attorney general told Mexican media earlier this month that Roy is one of five new suspects in the alleged plot.