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In 2015, despite years of media coverage of corruption allegations against the Gupta brothers, EDC helped the Guptas by lending them 80 per cent of the purchase cost of the Bombardier airplane.handout

Canada’s export agency, admitting error in a much-criticized loan to a client of Bombardier Inc., has promised a tighter screening process to guard against the risks of doing business with politically influential customers.

Export Development Canada expressed regret on Wednesday over a US$41-million loan to the Gupta brothers, who have been at the heart of South Africa’s biggest post-apartheid corruption scandal.

It took more than two years for EDC to acknowledge it made a mistake when it helped the Guptas buy a US$52-million luxury aircraft from Bombardier, the Montreal-based manufacturer of trains and aircraft. The deal was disclosed by The Globe and Mail in August, 2017.

The agency, a Crown corporation, promised to take a tougher stand in the future on any deals with politically connected people.

The Guptas, business partners with the son of former South African president Jacob Zuma, fled the country last year after they became the targets of a criminal investigation into the lucrative business deals that resulted from their political connections. The scandal was a key factor in triggering Mr. Zuma’s resignation last year.

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In 2015, despite years of media coverage of corruption allegations against the Gupta brothers, EDC helped the Guptas by lending them 80 per cent of the purchase cost of the Bombardier airplane. The money was funnelled through a Gupta company, Westdawn Investments.

“We recognize we haven’t always made the right business decisions,” said the statement from Carl Burlock, EDC’s executive vice-president and chief business officer.

“The Westdawn transaction is a case in point. We need to do better, and we will do better.”

In a separate statement on Wednesday, a spokesman for Bombardier said the company “would not proceed with such a transaction” if it knew what it knows today.

“In light of all data that has emerged in the years following the delivery of the aircraft, it goes without saying that Bombardier would not proceed with such a transaction with all information available today,” Olivier Marcil, vice-president of external relations for Bombardier said in an e-mail.

“Bombardier is continually reinforcing its processes and will continue to take pro-active steps to ensure that it abides by the highest standards of ethics and compliance no matter where we conduct business.”

There have been extensive media reports of corruption by the Guptas since 2011, and an inquiry in 2013 found illegalities when South Africa allowed Gupta wedding guests to bypass normal immigration procedures by using a military base for their private plane. But EDC still went ahead with its loan for the Bombardier deal, which was negotiated throughout 2014.

An investigation by The Globe over the past two years has disclosed a host of shortcomings in EDC’s handling of the deal. The agency’s statement on Wednesday confirmed many of those issues.

When EDC approved the loan in 2015, it had failed to conduct an “in-depth examination” of the risks related to politically exposed persons (PEP), Mr. Burlock said in his statement.

Instead, its decision relied heavily on the lack of criminal charges or formal police investigations in South Africa, it said.

“As a result, EDC chose to proceed and acknowledges that that decision was a mistake,” the statement said. “This transaction has provided powerful lessons for EDC.”

The uproar over the US$41-million loan has helped EDC see the “gaps” in its decision-making processes and its due diligence, and those gaps have now been filled, it said.

EDC said in a statement that it now “regrets” its participation in the loan to the Guptas. It also acknowledged a lack of transparency in its conduct: “We should have been more transparent in response to questions related to this loan, including whether we saw risks during our due diligence, why we proceeded, and what we have learned as a result.”

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Businessmen Ajay Gupta and Atul Gupta, shown in 2011, are embroiled in a political scandal in South Africa. Gupta companies have been supported by EDC loans.Gallo Images/Gallo Images

Critics such as Above Ground, an Ottawa-based research and advocacy group, have said that the EDC loan to the Guptas is part of a larger pattern of lax standards. The loan was “just one of many questionable decisions” by the federal agency, Above Ground said in a tweet on Wednesday. “Ottawa can’t leave it to EDC to catch and fix its own mistakes; it must create effective accountability mechanisms.”

The loan was cancelled in late 2017, but the Guptas continued to use the Bombardier plane for months afterward, provoking a court battle between EDC and the family.

As a “direct result” of the Gupta loan, EDC is now “better informed” about the risks of doing business with PEP, and this will be factored into its future decisions, Mr. Burlock said.

“All financing transactions are now reviewed for political influence risks,” he said in his statement.

“When there is an allegation, it is systematic that we conduct further due diligence into the concern. … Based on our experience with this transaction, and from our improved screening for PEP-related risks, we would not proceed today with transactions that feature the same risk profile.”

In future, EDC will “review the company’s governance and ownership structures” to look for evidence of risks in any new client, Mr. Burlock said.

In addition, he said, EDC will lower its tolerance for PEP-related risks.

He added that EDC has already established a chief compliance and ethics officer, a new policy on financial crimes, and a new management committee to review the risks of prospective customers.

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In a separate transaction in 2015, EDC provided a US$450-million loan to help Bombardier sell locomotives to Transnet, the South African state-owned freight rail company. There has been widespread evidence of corruption at Transnet, and the locomotive deal has come under scrutiny at South Africa’s public inquiry into state corruption, which began last year and continues this year.

EDC did not mention the Transnet transaction in its statement on Wednesday, although it had previously said it was investigating the loan.

In an interview on Wednesday, Mr. Burlock told The Globe that EDC is continuing to “monitor” its Transnet loan. He said the bank is “closely following” the South African inquiry where the Bombardier contract and other locomotive deals are being investigated.

A spokesman for International Trade Diversification Minister Jim Carr, the federal minister responsible for supervising EDC, said the government supports EDC’s promises.

“EDC has said they need to do better, and we agree with them,” the minister’s spokesman Michael Jones said in a statement.

“We’re pleased to see EDC is moving ahead with their efforts to strengthen their processes and we will continue to monitor their progress.”

He noted that Mr. Carr sent a letter to EDC last year, directing it to “ensure that responsible business practices and human rights are core considerations in any transaction.”

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