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Canada’s export agency is at risk of paying corruption-tainted dividends to the federal government because of weaknesses in its regulations and screening procedures, a new report says.

The report, to be published on Monday by independent Ottawa-based watchdog Above Ground, was sparked by The Globe and Mail’s revelations of Export Development Canada’s US$41-million loan to the Gupta brothers of South Africa, who have become fugitives on corruption charges.

EDC announced this month that it will pay $969-million in dividends to the federal government after finishing last year with $60-billion in assets. The Crown corporation said it had “delivered record levels of support” for the global business activities of nearly 9,400 Canadian companies.

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But some of its dividends could be the result of transactions with companies that have a high risk of corruption, the new report by Above Ground warns.

“EDC’s client list includes companies associated with serious corruption risks,” it says. “Some of these companies were approved by EDC after being denied support by other financial institutions on the basis of corruption concerns.”

The loan to the Guptas, who fled South Africa this year after they were named on arrest warrants, was “just one of several that EDC has financed despite clear evidence of high corruption risks,” the report says.

“Such decisions call into question EDC’s claim of ‘zero tolerance’ for business obtained through corruption, and point to the need for improved government oversight of EDC decision-making.”

After loaning US$41-million to the Guptas in 2015 to cover 80 per cent of the purchase price of a Bombardier luxury jet, EDC insisted that there was no proof of corruption by the Guptas, who were business partners of the son of former South African president Jacob Zuma.

But this year the Canadian export bank has waged a court battle to force the Guptas to ground the airplane, alleging that they defaulted on the loan. EDC has complained of a potential risk to its reputation because the airplane could be used for criminal activities.

For nearly a month, the Guptas ignored a judge’s ruling that the plane must be grounded, and they continued to use the plane in Dubai, Russia and India. But on the weekend, according to South African media reports, the plane was flown back from Dubai to Johannesburg, where its fuel was drained and it will be placed in safekeeping in a hangar, even as the Guptas pursue their appeal against the court ruling. If the Guptas had failed to surrender the plane, EDC was threatening to ask a judge to find them in contempt of court.

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The report by Above Ground notes that Canada has been strengthening its anti-corruption policies and ratifying anti-corruption treaties for the past 20 years. “Yet Canada lacks the mechanisms necessary to ensure that EDC’s operations are aligned with government objectives,” it says.

“EDC operates in a weak regulatory environment and lacks robust anti-corruption screening procedures. Each time EDC loans are repaid by clients that have not been subject to adequate anti-corruption screening, EDC risks paying dividends to the Canadian government that are tainted by corruption.”

It is calling for an amendment to the Export Development Act to prohibit EDC from supporting companies when there are indications they may be engaged in corruption.

The agency’s anti-corruption policy is focused on individual transactions, not the companies that receive the loans, according to Above Ground’s report.

“The policy contains no clear commitment to avoid financing a company associated with credible or even proven allegations of corruption unrelated to the EDC-supported activity. In fact, the agency has provided support to companies in these very circumstances.”

In recent comments on the corruption issue, EDC has argued that the Gupta case was a unique incident. “This is the first time in nearly eight decades that we’ve dealt with this kind of situation,” the agency said in a statement last month. “With more than 20,000 financing transactions under our belt in every corner of the globe in that period, this is the first time where we’ve gone to court because of the risk of corruption.”

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The agency also notes that it is subject to careful scrutiny from a wide range of officials, including an independent board of directors and the federal Minister of International Trade, and its corporate plan is subject to federal approval. “EDC has a level of accountability and oversight higher than many public institutions and far beyond the oversight provided in competing countries,” it said.

An e-mail request Sunday to an EDC spokesman seeking comment was not immediately returned.

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