Export Development Canada took an unusual step on Wednesday: It apologized for a business deal it should not have made.
The deal in question is a US$41-million loan to the now-disgraced Gupta family of South Africa. The money covered most of the bill for a new Bombardier luxury private jet. The federal export bank had assessed the deal beginning in 2014 and brushed aside questions about the Guptas, around whom corruption allegations had long swirled. EDC then stood by the Guptas as a corruption scandal exploded in South Africa. EDC finally cut ties in late 2017.
On Wednesday, EDC issued a detailed statement from its chief business officer, Carl Burlock. EDC said it regrets the loan, called it a mistake, and said it failed to conduct an in-depth examination of the risks of politically exposed persons – the Guptas in this case, and their murky dealings with then-president Jacob Zuma.
Acknowledging a lack of transparency and publicly conceding a major mistake is welcome, and surprising, from a Crown corporation that otherwise operates with little scrutiny. EDC’s frank language and concession it can do better is refreshing.
But this admission also didn’t come out of nowhere. Journalists reporting on EDC and the Guptas, starting with work from The Globe and Mail two years ago, is part of the reason EDC is suddenly saying more about this story than it had in all the time that journalists were pressing for answers.
Nor is EDC the first big name involved in the Gupta scandals that has found itself saying sorry. In September, 2017, the chairman of auditing firm KPMG apologized for its work for the Guptas. A month later, SAP, the software company, also apologized. Last summer, in a speech in Johannesburg, the head of consultancy McKinsey & Co. said the words “sorry” and “apology” more than a dozen times. Bell Pottinger, a British PR firm, ended up out of business.
EDC’s admission this week is Step One.
EDC needs to say more about its work with South Africa’s state-owned freight rail company, Transnet, which has also been embroiled in Gupta-related scandals. SAP and McKinsey had worked with Transnet. EDC, soon after the jet deal, lent US$450-million to Transnet to help Bombardier sell US$1.2-billion of locomotives. EDC didn’t mention Transnet in its apology on Wednesday, and told The Globe last year it was launching an internal investigation of that financing. No additional details have been shared with Canadians.
Because of the Guptas, EDC has made changes. It said it is better informed about the risks around politically exposed persons and has lowered its risk tolerance in such cases.
This is an important change – but it also touches on the careful balance EDC has to strike. It is an important pillar of Canada’s export economy. It is among the world’s largest government-backed export banks. Last year, EDC provided financial support for more than $100-billion of Canadian exports, foreign investment and trade development. It is a self-financed organization – in most years, it pays Ottawa a dividend – but even as it operates on its own dime, its brand is Canada, and thus its actions deserve greater scrutiny.
EDC is in the business of taking calculated risks with money – that’s what lenders are supposed to do. Much of its work is in guaranteeing private loans of several million dollars on behalf of Canadian exporters. The EDC imprimatur is essential in many cases. EDC has to learn from its mistakes with the Guptas, and avoid loans carrying legal and reputational risks, while continuing to do traditional, necessary financing.
EDC is in the midst of a once-a-decade review, and a report recently tabled in Parliament made clear it can be more transparent about its dealings. “EDC’s approach to transparency … is an issue that recurred throughout the review,” the report said. A higher standard of transparency should be expected – along with clearer oversight from the federal government.
But at the same time the report urged EDC, with its strong financial position, to be confident in its business dealings to buoy Canadian companies. “Taking on more risk is an opportunity for EDC,” the report concluded.
It is a good sign when an important Canadian institution reviews its action, publicly concedes its mistakes and aims to do better. The institution, and Canada, are better for it. But as EDC is more careful, it can’t forget to also stay bold in its work to propel Canadian exports.