I and my fellow Canadians can quite rightly be proud of our standing on the global stage. Canada is seen by most as a country with integrity, whose people are viewed as fair-minded and different in persona to some of their noisy neighbors south of the border.
So, when an investigative journalist claims to have unearthed evidence that Canada is supporting some of the most corrupt regimes on the planet, we must take notice and drill down to see if the allegations have merit.
Up there with the most corrupt and problematic of governments is that of South Africa and President Zuma. The investigative reporter in question, Richard Poplak, had his piece published in The Walrus in mid-December. To say that the allegations he makes are far-reaching and hard-hitting is an understatement. Mr Poplak draws attention to the dubious relationship between President Zuma and the infamous Gupta family (Atul, Ajay, and Rajesh) and an intertwining between the President, the Guptas and Canada.
Mr. Poplak explains that, for many years, it had been suspected that the Guptas and the Zuma family had joined forces to tap hundreds of millions of dollars from government institutions into offshore shell companies. Humorously, an opposition leader hit on the word “Zupta” to describe the relationship between the two families. He goes onto describe the South African scenario as a form of “State Capture” by the Guptas.
What is the Canadian connection to this particularly questionable jar of worms? Before we castigate ourselves too quickly, it is important to understand that Canada is not alone in its apparent support for doing business with the regime in question. Indeed, the Poplak piece goes on to draw in the UK and major league banks such as HSBC and Standard Chartered, who he suggests were integral to many “turning-a-blind-eye” incidents over the years. These transactions could and should have been blocked. In fairness to the banks concerned, they have now acted and Mr. Poplak reports that they have dropped the Guptas from their list of clients.
In addition, Mr. Poplak also draws attention to the resignation of eight leading KPMG members of staff, who he conjectures may have questions to answer given the shady dealings under consideration, having ignored several red flags. KPMG is a highly reputable firm, but given the very public nature of the allegations being played out, at the very least the Guptas should have been seen as Politically Exposed Persons. This was one of the more obvious and serious of the red flags allegedly ignored by the KPMG staff who subsequently found themselves seeking employment elsewhere.
In turn, this corrupt façade saw significant sums of money finding their way to Canada. Leaked emails showed that Montreal’s Bombardier aircraft company had sold a luxurious private jet to the Guptas for $52 million. Mr. Poplak asserts that the company has previously been criticized for failing to conduct appropriate due diligence in favor of securing lucrative deals. I am not in a position to comment on the overall allegations. However, it is surprising that given the notoriety of the Gupta family, that Bombardier went ahead with the transaction.
More disconcerting for me isn’t that the transaction took place: it is the funding of the deal that causes concern. If, as Mr. Poplak asserts, the deal was funded in significant terms by governmental body, the Export Development Canada (EDC), then this surely calls into question its due diligence processes, too. It is astounding that a public body, tied closely to the Canadian government, permitted the loan to go through.
The EDC exists to provide financial support to Canadian companies seeking to fund business with foreign counterparts. It enjoys an annual turnover in excess of $100 billion; its transactions in 2016 amounted to almost 20 times as much as its American equivalent, the Export–Import Bank. Globally, it can rank as high as the second or third largest such institution.
According to its own figures, the EDC generates about five percent of Canada’s gross domestic product. But given that the money loaned out is effectively underwritten by the Canadian public, one would expect the EDC to conduct meaningful due diligence before parting with the cash. This apparent lack of transparency is complicated further by the assertion Mr. Poplak makes, that two other lenders had previously turned down the Gupta’s applications for loans to fund the jet’s purchase. The decision to ignore these prior failed loan applications speaks volumes. The average person in the street understands that a failed loan application is usually detrimental to your credit rating: so why were the loans declined and why did the EDC remain undeterred in its support of the deal?
Mr. Poplak describes a meeting with an EDC spokesman, Phil Taylor, who attended their coffee shop get-together in sandals and shorts. His explanations were at best soulless, and at their worst simply waffle. From the outset he had sought to explain that discussing individual transactions was out of bounds, due to client-confidentiality.
In addition, there was an assertion that any “access to information” requests would flounder due to the exceptions contained within the Export Development Act. The signing of an NDA should and does provide protection from information being shared with corporate rivals, and it is also right that it ensures privacy. However, it should not be perceived or used as a corporate forcefield to preclude any information provided from being subject to enforcement agency scrutiny. If in doubt, you disclose and seek guidance.
Mr. Taylor was also at pains to explain that the EDC is not taxpayer funded; instead it creates its own revenue via its commercial dealings, although the loans are tax-payer guaranteed. This may go some way to explaining the EDC’s apparent flippant approach to due diligence. Mr. Taylor added that the EDC pays out dividends, payments that have seen the Canadian government net $786 million in 2016. This may explain why the EDC appears to be acting unilaterally in deciding who and what to fund. These two aspects of the EDC business model (that it is self-funding and pays a hefty dividend to the government) could be considered a conflict, given the apparent lackadaisical approach to due diligence.
Mr. Poplak goes on to list a whole mish-mash of historical EDC transactions that were at best unwise, and at worst in direct contradiction of several international law enforcement trading dictates.
Mr. Taylor indicates that the EDC relies on third parties to conduct due diligence on its behalf, be they industry-specific or regional. His rather glib explanation that “…different countries treat different things in different ways,” provides little succour to those of us who ply our trade in the pursuit of the corrupt and their ill-gotten gains. By merely shrugging his shoulders when explaining that, although there may well be a lot of adverse “noise” arising out of the due diligence process, as long as the contract is secured, well…
In addition, Mr. Taylor was dismissive of any reliance on media reports as part of the due diligence process. Most of us in the trade would describe so many disparaging articles about the Guptas as being significant in the context of our overall thought processes. Although I agree that we need to be reliant on something more tangible than the simplistic notion “there’s no smoke without fire,” the sheer weight, volume and seriousness of the allegations concerning the Guptas must surely have raised a red flag.
The connection between EDC and the disgraced Brazilian state-owned Petrobras scandal styled “Lava Jato” (Operation Car Wash) — described as one of the biggest corruption scandals in the world — also comes as no surprise, given the EDC’s apparent cursory approach to due diligence. Mr. Poplak reports that EDC “invested” in excess of $250 million with Petrobras to secure Canadian contracts. These connections add weight to the assertions that the EDC’s compliance team needs to up its game.
Mr. Taylor’s frivolous comment that corruption is “…anything that distorts the market,” is equally cynical. The EDC is dragging the good name of Canada through the mire. Corruption affects us all, but especially the weak. Enjoying a cappuccino in your board shorts and sandals may be a relaxing way to conduct a business meeting. But there are others out there who are impoverished and without basic necessities; people that are suffering as a result of corruption and questionable business practices that are being blindly supported by organizations such as the EDC.
Recent news suggests that the Liberal government is forming a new human rights watchdog to oversee Canadian companies operating overseas. It will be announcing the formation of the Canadian Ombudsperson for Responsible Enterprise (CORE). This follows many years of pressure by groups eager to see Canada crack down on dubious activities perpetrated by Canadian business that affect both human rights and the environment. The hope is that CORE is not a toothless tiger, but a body capable of investigation and bringing wrongdoers to book.
Although the Canadian government should be congratulated on a step in the right direction, it is perhaps surprising that given the activities of the EDC, and in trying to do good and make companies accountable, Canada appears to have overlooked the EDC in terms of allocating loans that could finance the very sort of activities that CORE will be seeking to police and prevent.
Martin Kenney, pictured above, is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. He was selected as one of the Top 40 Thought Leaders of the Legal Profession in 2017 by Who’s Who Legal International and as the number one offshore lawyer for asset recovery.
Martin Kenney states " The EDC is dragging Canada's good name through the mire". When Donald Trump said "every other country in the world is doing it-we're not allowed to" (It of course meaning bribery) Canada was one of the countries he was referring to.The U.S. is correct to be irked about the competitive disadvantage this creates for the U.S. The U.S. position is that other countries need to improve their anti corruption laws and enforcement or,that the U.S. needs to dial back its anti corruption laws and enforcement. In my view this is just common sense. So, for those who ply their trade in the pursuit of the corrupt and their ill gotten gains,which is preferable, for Canada and others to improve, or for the U.S. to dial back? While the EDC is certainly an example of a State owned enterprise that deserves scrutiny, it is far from the only one. While the nascent Canadian Ombudsperson for Responsible Enterprise (CORE) certainly sounds really nice, in my view it is long past time for demonstration to trump conversation. America is known to "talk softly but carry a big stick" perhaps the President's Dec.20th Executive Order might be just what is needed. I think I detected a Canadian connection in that order. So, does Canada help others resist and correct the problem of "State Capture" or is it also a victim and an example of State Capture" that needs the help of "The policeman of the world"? When president Trump said "let them clean up their own act, we shouldn't be cleaning up their act for them" he wasn't speaking just about Canada was he?
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