Senior federal officials sought to warn Canada’s export agency that it had suffered “significant” risk to its reputation because of its US$41-million loan to the controversial Gupta brothers who were at the heart of a South African corruption scandal, internal documents show.
The documents, obtained by The Globe and Mail under federal access laws, show that Global Affairs Canada wanted an explanation of the risky loan from the federal agency, Export Development Canada, during a planned meeting in March, 2018, where the Gupta deal was scheduled to be a top agenda item.
“What lessons has EDC learned from this?” the department asked in a suggested question for the meeting between Tim Sargent, who was then the deputy minister of international trade, and Benôit Daignault, president of EDC at the time.
“I understand that this transaction is an outlier, but its reputational risk has been significant,” the department added in its planned “talking points” for the meeting.
An EDC spokeswoman, Shelley MacLean, told The Globe that the meeting in March, 2018, did not take place, for reasons that she could not specify. Asked about the concerns expressed by the Global Affairs Department in its agenda for the meeting, Ms. MacLean said: “Every transaction is a lesson learned. For context, this is the first time in nearly eight decades and 20,000 financing transactions that we’ve dealt with this kind of situation.”
Another government document, obtained by The Globe, showed that the meeting between Mr. Sargent and Mr. Daignault was later scheduled for April 13, 2018, with the Guptas still on the agenda.
A separate batch of internal documents, obtained by researcher Ken Rubin under federal access laws, reveal that Canadian officials were anxious to dispel any possible concerns from the South African government about EDC’s business deal with the Gupta brothers.
In briefing materials for a planned meeting in April, 2018, between Canadian officials and South African cabinet minister Pravin Gordhan, who has a reputation as a fierce anti-corruption campaigner, the Global Affairs Department anticipated that Mr. Gordhan might question EDC’s decision to lend money to the Guptas.
In one briefing document, the department devoted several paragraphs to a defence of the export agency, describing its “highest ethical standards” and its anti-corruption procedures. The meeting with Mr. Gordhan was a chance for the Canadian officials to “demonstrate the importance Canada attaches to the ethical and responsible conduct of Canadian businesses operating abroad,” the document said.
The EDC loan to the Guptas was also on the agenda for a scheduled meeting in February, 2018, between an assistant deputy minister of global affairs and a senior vice-president of EDC. Ms. MacLean confirmed that the meeting took place on the scheduled date.
In the notes prepared for that meeting, the Global Affairs Department said it wanted to ensure that EDC’s operations “stands up to such scrutiny” from the media in Canada and South Africa, which had revealed the EDC loan to the Gupta brothers at a time when the Guptas were at the centre of a national corruption scandal in South Africa.
In a deal negotiated in 2014, the federal export agency had agreed to lend US$41-million to the Guptas to finance 80 per cent of the purchase of a luxury jet from Montreal-based Bombardier Inc.
Three years later, EDC cancelled the loan and launched a legal battle in South Africa and Britain to ground the airplane and repossess it.
For the first time, the documents make clear that the deal was cancelled partly because of corruption allegations against the Guptas, who later fled from South Africa as prosecutors raided their luxury villa and issued an arrest warrant for one of them.
Indian businessmen, Ajay Gupta and younger brother Atul Gupta at a one on one interview with Business Day in Johannesburg, South Africa on March 2, 2011.Gallo Images/Gallo Images
The Guptas had been the subject of corruption allegations long before the EDC loan, but by 2016 their political influence had provoked a storm of national criticism. They were business partners with the son of Jacob Zuma, president of South Africa from 2009 to 2018, and their influence was reportedly so enormous that they controlled cabinet appointments and state contracts.
When EDC cancelled its loan to the Guptas in late 2017, the agency’s public explanation at the time was brief and vague, saying only that it was concerned about the rising “political exposure” risk of the transaction.
The documents by the Global Affairs Department are more candid about the deal. They cite a missed payment and corruption allegations as the main reasons for the cancellation of the Gupta loan.
They also disclose that, before the cancellation, EDC had felt obliged to conduct a “further review” of the loan – “including with independent third parties.” The third parties were not identified.
The documents said the federal agency had “conducted the necessary diligence” before approving the loan to the Guptas. But a portion of one document, describing how the loan was approved, was redacted from the version provided to The Globe under the terms of the federal Access to Information Act.
The documents also reveal Ottawa’s concern over a huge EDC loan for a Canadian mining company that had allegedly used an offshore business structure to avoid US$559-million in Canadian corporate-income tax.
The federal agency provided a loan of US$750-million to Turquoise Hill Resources Ltd., a Vancouver-based company that operates a mine in Mongolia. According to a report last year by a Dutch research group, the Centre for Research on Multinational Corporations, the Canadian company used shell companies in Netherlands and Luxembourg to reduce its Canadian taxes. The report led to repeated questions from MPs in the House of Commons.
The EDC loan to Turquoise Hill was on the agenda of the February, 2018, meeting between the assistant deputy minister and the EDC vice-president, with officials warning of political and media “scrutiny” of the deal.
“Given public interest on the issue of tax evasion by big multinationals, it is reasonable to assume that continuous scrutiny of EDC transactions can be expected,” the Global Affairs Department said in the notes for the meeting.
In statements to the media at the time of the Dutch report’s release, Turquoise Hill rejected the group’s report, saying that the tax arrangements were legal.
François-Philippe Champagne, minister of international trade at the time, said in a letter in March, 2018, that the Canada Revenue Agency was investigating the issue of the Turquoise Hill taxation. The letter, addressed to three NDP parliamentarians who had questioned the Gupta and Turquoise Hill loans, was among the internal documents obtained by The Globe under the federal access law.
Mr. Champagne, defending the controversial EDC loans in South Africa and Mongolia, said it would “fly in the face of industry standards” if EDC were to provide “exact terms of each transaction via an ethics screening.”