Above Ground logo

Export Development Canada playing loose with loan risks: Auditor-General report

By Barrie McKenna, The Globe and Mail

Export Development Canada is mishandling loan risks and keeping board members in the dark about key financing arrangements, according to a scathing report by federal Auditor-General Michael Ferguson.

“The audit found a number of weaknesses in risk management that, when combined, amount to a significant deficiency,” the Auditor-General said in a statement Monday.

Mr. Ferguson faulted the Ottawa-based export lender for not adequately tracking potentially risky loans, failing to keep up with industry norms, being slow to fill vacancies on its board of directors and keeping information from directors that they need to “fully understand” the risks facing the agency. The audit uncovered many of the same problems identified in an earlier 2009 audit, he pointed out.

The report does not cite any specific problem loans, but focuses instead on gaps in the agency’s policies and practices.

The EDC is currently battling in court to recover a US$52-million Bombardier luxury jet after the Gupta brothers of South Africa defaulted on a US$41-million loan. The lender has alleged that the Guptas – business tycoons linked to ousted South African president Jacob Zuma – deliberately hid the plane and could have used it for criminal activities.

South African prosecutors, acting under organized-crime laws, recently placed a preservation order on the aircraft and warned that it could eventually be seized as the proceeds of crime. The Bombardier jet is now under the control of South African authorities after being flown back from Dubai.

Critics of the EDC’s lending practices say too many of the agency’s clients have been linked to allegations of corruption, environmental problems and human-rights abuses around the world.

“[The Auditor-General’s report] is consistent with the findings we see when we examine their portfolio,” said Karyn Keenan, director of Ottawa-based watchdog Above Ground. “There are companies that are qualifying for support that have significant risks associated with them.”

Above Ground argued in a report last month that EDC may be paying corruption-tainted dividends to the federal government.

EDC recently paid a dividend of nearly $1-billion for 2017 to the federal government. The EDC extended roughly $28-billion worth of loans and guarantees to 7,150 customers around the world in 20.

Ms. Keenan said it’s “hard to believe” EDC officials were unaware of the allegations of corruption swirling around the Guptas when they lent the family money in 2015 to purchase the Global 6000 aircraft.

Decisions on who qualifies for EDC aid are “completely opaque,” Ms. Keenan complained.

“So there is no way of knowing whether they are doing poor assessment … and not understanding the risk, or they are doing an excellent job of assessing the risk, but they are deciding to finance and guarantee transactions anyway,” she said.

The agency said it does not dispute Mr. Ferguson’s findings and said that the lender is currently overhauling its risk-management practices to address the problem identified in the report.

“We take no issue with the [Auditor-General’s] findings and in fact, we’re pleased to say that the … conclusions mirror our own plans which we’re in the process of carrying out,” EDC spokeswoman Shelley Maclean said.

The reforms, under way since 2012, are expected to be fully implemented next year, she said.

“At the heart of this work is the goal of creating greater capacity to do more for Canadian companies as they look to grow their business in an increasingly complex risk universe,” Ms. Maclean said. “EDC does important work, and we do it well. But we will never stop trying to do it better.”

Among the findings by the Auditor-General:

  • Board members are not getting enough information from EDC management to do their job;
  • The terms of eight board members have expired;
  • The compensation for its chief executive has “fallen behind” the ranges for EDC’s own senior vice-presidents, which could “hinder” its ability to attract qualified CEO candidates;
  • There are no limits on credit risk across various lines of business;
  • The EDC does not have a “systemic process” to identify and mitigate risk in its various business units.