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The Canadian government entity responsible for brokering export agreements with foreign governments, including a $14-billion deal to sell combat vehicles to Saudi Arabia, has not paid sufficient attention to potential human-rights risks in sales contracts, a federal watchdog says.

A report published Wednesday from the Auditor-General’s office said the Canadian Commercial Corp. was not properly screening potential contracts for the possibility that human-rights concerns might jeopardize an export deal.

The Auditor-General’s findings go to the heart of the debate over the controversial 10-year contract to ship hundreds of light armoured vehicles (LAVs) to Saudi Arabia, which has among the worst human-rights records in the world. The Trudeau government has repeatedly defended moving ahead with the deal despite human-rights concerns because reneging on the contract would damage Canada’s reputation and cost taxpayers.

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The Saudi LAV deal was struck under the Harper government, but it was the Trudeau government in 2016 that gave the approvals for shipments to begin.

The Liberals issued export permits over the opposition of human-rights groups and arms-control advocates and despite videotaped evidence showing that Canadian-made armoured vehicles were already being used in Saudi Arabia’s war against Yemeni-based Houthi rebels.

The Trudeau government repeatedly defended its decision to issue the export permits to send the military vehicles to Saudia Arabia, a country with a poorly ranked human-rights record by U.S. democracy watchdog Freedom House, and which has been leading a war in neighbouring Yemen that has killed tens of thousands of people. The federal government revealed earlier this year that a cancellation clause in the contract would have cost taxpayers penalties up to the full value of the contract.

The Auditor-General’s report notes export deals that carry significant human-rights concerns might end up being denied an export permit, which are required for controlled goods such as military equipment before they can leave the country.

The report said the Canadian Commercial Corp., which is the prime contractor in the LAV deal between Ottawa and Riyadh, failed to take this into account when assessing transactions. It said the Crown corporation analyzed transactions for risks associated with corruption and bribery, as well as the ability of suppliers to handle a transaction from a technical, managerial and financial standpoint.

But it found the Canadian Commercial Corp. did not have a formal process for assessing whether human-rights violations might sink a deal.

“This weakness matters because the corporation has committed to the highest ethical standards in business dealings both in Canada and abroad,” the report said.

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“Entering into transactions associated with human rights concerns exposes the corporation to reputational risks and to transactional risks if human rights issues prevent Global Affairs Canada from issuing an export permit.”

Cesar Jaramillo, executive director of Project Ploughshares, an arms-control advocate, said the report shows the Saudi arms deal was flawed since inception.

He said contracts negotiated by the Canadian Commercial Corp. should be not be considered binding until any necessary export permits are approved by the Department of Global Affairs.

“Shortcomings in the CCC’s due diligence process at the early stages of Canadian arms exports contracts may create a perverse incentive for GAC to conduct a lax or perfunctory risk assessment in order to avoid any liabilities attached to non-fulfillment of the contract in question,” he said.

Representatives of the Crown corporation could not be immediately reached for comment Wednesday. The Auditor-General’s report said the Canadian Commercial Corp. was upgrading its due diligence to address the report’s findings. The report also said the Crown corporation had established a committee to review transactions for human-rights concerns.

Peggy Mason, president of the Rideau Institute, a policy research and advocacy group, said she wants to see evidence that the Canadian Commercial Corp. has changed the way it assesses deals.

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The Saudi LAV deal is the highest-valued project in the Crown corporation’s history.

In 2019, Canadian shipments of military goods to Saudi Arabia hit a record high, with close to $2.9-billion of military equipment sent to Saudi Arabia in 2019, nearly all of the light armoured vehicles manufactured in London, Ont., by a subsidiary of U.S. defence contractor General Dynamics.

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