{"id":4522,"date":"2017-08-03T00:00:00","date_gmt":"2017-08-03T00:00:00","guid":{"rendered":"https:\/\/amabhungane.org\/amabhungane\/stories\/the-leaks-reveal-how-international-entities-were-ready-to-overlook-the-guptas-political-exposure-potentially-breaking-their-own-laws-in-the-process\/"},"modified":"2024-09-22T17:01:25","modified_gmt":"2024-09-22T17:01:25","slug":"guptaleaks-how-the-canadian-government-helped-the-guptas-buy-their-private-jet","status":"publish","type":"post","link":"https:\/\/further.co.za\/amabwp\/guptaleaks-how-the-canadian-government-helped-the-guptas-buy-their-private-jet\/","title":{"rendered":"#GuptaLeaks: How the Canadian government helped the Guptas buy their private jet"},"content":{"rendered":"

Export Development Canada, the state-owned agency that extends credit to Canadian exporters and their customers, concluded a US$41-million financing deal with the Guptas\u2019 Westdawn Investments in late 2014. The money was loaned so that they could purchase their Bombardier business jet, which became infamous as ZS-OAK, and has flown South African politicians and officials across the globe. Once again, the leaks reveal how major international entities were willing to overlook the Guptas\u2019 political exposure, potentially breaking their own laws and regulations in the process.<\/em><\/p>\n

Bombs away<\/h5>\n

Quebec-based Bombardier Inc, the Canadian multinational aerospace and transportation manufacturer, currently finds itself in a heap of trouble<\/a> on multiple<\/a> fronts<\/a>. In South Africa, the company is best known for contributing rail hardware and know-how to the Gautrain, the rapid rail commuter project that links Parktown Station in Johannesburg with Hatfield in Pretoria. And while the Gautrain is perhaps the least painful infrastructural side effect of the 2010 Fifa World Cup Finals, it did not avoid the standard pitfalls that bedevil massive tender-based transactions.<\/p>\n

Bombardier, which served as the lead partner in the Bombela consortium that won the Gautrain contract in 2005, was said to have transferred a quarter of a billion rand to a Tunisian fixer named Youssef Zarrouk in a pay-to-play deal. No definitive evidence linked Zarrouck with individual politicians, but Stefaans Br\u00fcmmer couldn\u2019t help\u00a0noting in the Mail & Guardian<\/em>\u00a0<\/a>that the scenario was eerily reminiscent of the billion rand in \u201csuccess fees\u201d paid by Britain\u2019s BAE Systems to local and international fixers during the nightmarish arms deal.<\/p>\n

In 2014, Bombardier raked in $22.2-billion in revenues, the bulk of it earned outside North America, often in places where \u201csuccess fees\u201d tend to be the norm, rather than the exception. But there are other ways in which Bombardier appears to have subverted the spirit, if not the letter, of Canadian law:\u00a0as reported<\/a> in the Globe and Mail<\/em> last weekend, the company has recently become mired in a successive series of scandals in Russia.<\/p>\n

In a near perfect Russian fairytale, the manufacturer is said to have teamed up on a $200-million locomotive manufacturing deal with a Kremlin-owned bank on Canada\u2019s sanctions list, and one of Vladimir Putin\u2019s closest cronies. As the Globe noted, Bombardier is \u201calready embroiled in a sanctions-related controversy after admitting it lobbied Ottawa to keep former Russian Railways boss Vladimir Yakunin, a long-time ally of Russian President Vladimir Putin, off Canada\u2019s sanctions list\u201d.<\/p>\n

(Given Canada\u2019s large and influential Ukrainian \u00e9migr\u00e9 population, the list is a central tenet of foreign policy, and was intended to punish Moscow for the 2014 seizure and annexation of the Crimean Peninsula from Ukraine.)<\/p>\n

Earlier\u00a0in 2017<\/a>, three of the company\u2019s executives were detained, and one arrested, in Stockholm, Sweden, on suspicion of \u201caggravated bribery\u201d in relation to a separate Azerbaijani railway-signaling contract.<\/p>\n

Despite these controversies, and despite the disparity between its cratering bottom line and the lavish bonuses\u00a0paid out to its executives<\/a>, Bombardier is all but bulletproof in Ottawa. Successive Canadian governments, regardless of their ideological imperatives, have ensured that Bombardier remains a major recipient of corporate welfare<\/a>.<\/p>\n

Across Canada, but particularly in the French-speaking province of Quebec, the company generates employment for over 64,000 people, and contributes $12-billion to the local GDP, even if that contribution comes at a whopping cost to the taxpayer.<\/p>\n

The conundrum is that\u00a0Canada needs Bombardier<\/a>, both in terms of national bragging rights and pork barrel politicking\u2014the Quebecois separatist movement bubbles away perennially, and propping up the province\u2019s big employers helps keep the neighbourhood quiet<\/a>.<\/p>\n

That said, as the Russian (and South African) examples illustrate, the collision between Bombardier\u2019s political role at home and its activities abroad are becoming increasingly difficult to square.<\/p>\n

AmaBhungane and Scorpio can now confirm that Bombardier\u2019s aerospace division heavily courted the Guptas in order to sell them at least one of their Global 6000-BD-700-1A10 business jets.<\/p>\n

In doing so, the Canadian giant paired up, as it so often does, with Export Development Canada (EDC)<\/a>, the state-owned lending institution that serves as a credit agency for Canadian exporters. Think of the EDC as a vast taxpayer-funded money reservoir that allows big companies like Bombardier to lock massive deals abroad by tacitly promising of billions of dollars in loans\u2014at decent rates, without intrusive oversight, all bearing the imprimatur of the hand-sanitizer-clean government of Canada.<\/p>\n

But the Gupta deal, which culminated at the end of 2014, exposes both the manufacturer and the EDC to allegations that they may have flouted Canadian regulations pertaining to their involvement with \u201cpolitically exposed\u201d foreign nationals \u2014 and were at best asleep, and at worst willfully derelict, when performing their due diligence investigations.<\/p>\n

To pimp a plane<\/h5>\n

According to a thread of emails included in the #GuptaLeaks, Bombardier Aerospace and South Africa\u2019s first family started communicating as far back as 2013. The Guptas were looking to add another aircraft to their fleet, which at the time constituted four planes, including a Cessna Citation Sovereign business jet. A proposal, dated 30 November 2013, was drafted by Bombardier, and offered the Guptas a fully kitted-out Global 6000 for the eye-watering price of $52-million.<\/p>\n

Over the course of 2014, Hani Haddadin, the company\u2019s sales director for Africa, was engaging Ajay Gupta both by email and by phone on a regular basis. Following a visit made by Trevor Lambarth, the company\u2019s then-vice president of sales, Haddadin tried to secure the Gupta-owned Westdawn Investments as much as $51-million in financing from Guggenheim Corporate Funding, the lending arm of the massive New York City-based investment firm.<\/p>\n

The Guggenheim loan never seems to have made it past the due diligence stage. And while an Indian lender called Alpha Capital<\/a> was, according to Wouter du Preez, Bombardier\u2019s finance director for the Middle East and Africa, \u201cok broadly with the politically connected nature of the Gupta\u2019s\u201d [sic], that loan also appears to have died on the vine.<\/p>\n

By May, however, du Preez was negotiating a big loan on firmer and more receptive ground, namely the Export Development Canada. Oakbay’s Ronica Ragavan, serving as the Gupta\u2019s defensive-minded front row, collated financial details from both Westdawn and Sahara Computers, and EDC quickly initiated its due diligence investigations.<\/p>\n

By August, Michael J. Smart, EDC\u2019s financing manager, aerospace corporate and asset-backed lending, was requesting financials from companies that have since become pillars of the South African corruption pantheon: Islandsite, Oakbay Resources and Energy, Shiva, and Tegeta. (Westdawn would nonetheless remain the obligor.)<\/p>\n

The lender was preparing to send either one or two reps on a three-day investigative trip to South Africa, at a cost to the Guptas of approximately $15,000.<\/p>\n

Notwithstanding the ruckus that followed the Sun City wedding debacle<\/a>, and ignoring entirely the other Gupta mini-scandals that had peppered the press since 2010, EDC appeared to have found everything in order.<\/p>\n

The Canadian lender seemed blind to what even a cursory Google would have revealed: that the Guptas were indeed politically exposed, linked to President Jacob Zuma in a way that the organisation\u2019s own \u201cReputational Risk Program\u201d apparently considers verboten.<\/p>\n

Indeed, according to its published list of regulations, the EDC must access and assess, via a third party database, \u201cprofiles of companies and\/or individuals who present risks for various reasons including being named on official lists, such as terrorism, corruption, or sanctions lists, being identified as politically exposed, being investigated, charged or convicted for illegal activities, being subject to allegations of wrongdoing or being subject to adverse media.\u201d<\/p>\n

In late 2014, the Guptas qualified on at least three counts. Nonetheless, on 12 December, Ragavan received from EDC a letter of offer, which deemed Westdawn worthy of a $41-million financing package, representing 80 percent of the net costs of a Bombardier Global 6000 business jet.<\/p>\n

The corporate guarantor was Oakbay Investments, and the personal guarantors were Atul and Chetali Gupta. The letterhead bore EDC\u2019s logo, along with the official emblem of Canada, both of which sport the cheerfully iconic red maple leaf, long associated with aw-shucks honesty and good governance.<\/p>\n

Flying high<\/h5>\n

Over the course of the lengthy email threads, Bombardier\u2019s Haddadin, was queasily solicitous with his prospective clients, as befits someone selling a $52-million private jet in a crowded marketplace. On 31 December 2014, he sent a mail acknowledging receipt of a $4-million down payment. (Note the date: while most South Africans were dozing through the holidays, the Guptas were still hard at work.) He included pictures of the aircraft and its spanking new livery\u2014a rich brown swoosh breaking the sedate cream of the fuselage.<\/p>\n

\u201cOnce again,\u201d he wrote, \u201cI would like to take this opportunity to thank you for you business and our relationship, it is one I am dearly proud off. [sic] Welcome to the Bombardier family!\u201d<\/p>\n

The Bombardier family affords its members certain privileges, easy access to credit not insignificant among them. ZS-OAK, the Bombardier plane\u2019s soon-to-be famous registration, was suddenly a reality \u2014 a sleek, fissile luxury object that would shepherd some of the country\u2019s most notable politicians hither and thither, including deputy president Cyril Ramaphosa, who in August 2015 used the aircraft<\/a> to fly to an official junket in Japan.<\/p>\n

Bombardier has refused repeated requests to answer a detailed list of questions. As far as EDC is concerned, its spokesperson, Phil Taylor, would not comment on specific transactions because, \u201cthe law does not allow EDC to disclose third party information without the consent of the obligor.\u201d<\/p>\n

He said that, \u201cin the case of allegations, EDC will undertake enhanced due diligence to better understand the situation (for example, are the allegations politically-driven, are they coming from a business competitor, and, conversely, are they leveled by formal authorities, is there a formal investigation, etc.)<\/p>\n

Where the facts surrounding the allegations cannot be determined or substantiated, EDC will then work directly with the obligor to research and document the issue to the satisfaction of EDC or the transaction does not go forward.\u201d<\/p>\n

In other words, the obligor helps investigate the obligor, not quite the rigorous investigative firewall suggested in the lender\u2019s regulations.<\/p>\n

According to Karyn Keenan, who works for Canadian NGO Above Ground, this is EDC\u2019s obfuscatory M.O. She told Daily Maverick<\/em> in an email that the lender \u201chas declined to provide us with detailed information about its due diligence process regarding corruption or to inform us about the steps it takes when it becomes aware that a client is under investigation for corruption.\u201d<\/p>\n

Indeed, EDC\u2019s malfeasance by no means begins and ends in South Africa. Above Ground<\/a> has exhaustively documented some of the near insane activities that the EDC has underwritten, most recently the \u201cserious human rights abuses associated with the operations of EDC clients Pacific Exploration & Production and Ecopetrol<\/a> in Colombia\u2019s Rubiales and Quifa oilfields.\u201d The lender was also burned when Brazilian oil and gas giant Petrobras sold off a natural gas distribution unit to Canadian-based Brookfield Asset Management for a laughably discounted price.<\/p>\n

Who backstopped Brookfield\u2019s allegedly corrupt offer?<\/p>\n

Go on and give yourself a gold star.<\/a><\/p>\n

The tax dodge<\/h5>\n

But in the world of international high-rolling one-percenters, nothing this complicated is ever this simple. Come early 2015, and it was now time to dodge paying duties, tariffs and taxes. As per the details included in a leaked memorandum of incorporation, dated 26 March 2015, Westdawn assigned the rights of title to ZS-OAK to a company called Stoneriver MSN 9631 Aircraft Limited, and granted it a purchase option agreement.<\/p>\n

After the transfer of the asset, Stoneriver would then enter into an agreement with EDC and Oakbay, and lease the aircraft back to Westdawn. (The management of the aircraft would be undertaken by Execujet Aviation (Pty) Ltd<\/a>, a local subsidiary of the multinational luxury aviation conglomerate.)<\/p>\n

The next part is a standard-issue rich people\u2019s financial kabuki: a company called Ocorian<\/a> incorporated Stoneriver in the taxpayers\u2019 no-mans-land of Ireland. Ocorian and their ilk are essentially the 21st century\u2019s version of Irish potato farmers, sowing and reaping the latest local staple: tax shelters.<\/p>\n

Westdawn, having off-loaded the jet to Stoneriver, could now write off its lease as a business expense, engineering for itself a commensurate tax break. (Stoneriver reported a meaty $1,072,348 in lease income for its 2015\/2016 fiscal year\u2014an artifice designed to match the interest owed to the EDC, and thus perfectly offset.)<\/p>\n

In summary: the Guptas\u2019 Westdawn Investments bought a private jet from Bombardier Aerospace, financed by a Canadian state-run institution to the tune of $41-million. They immediately flipped the plane to an Irish shell company, avoiding duties and tariffs, and began leasing it to themselves in order to generate expenses that they could write off against their \u201cprofits\u201d.<\/p>\n

The above is perhaps a far more succinct definition of \u201cradical economic transformation\u201d than any African National Congress policymaker has yet devised.<\/p>\n

Just plane loco<\/h5>\n

Of no small concern is the fact that Bombardier is married to Transnet, the South African state-owned freight operator mired in innumerable corruption scandals. In 2014, Bombardier won a portion of the R25-billion locomotive contracts that have recently come under so much scrutiny: in\u00a0June of this year<\/a>, amaBhungane and Scorpio found that Guptas tolled the Transnet tenders to the tune of R5.3-billion.<\/p>\n

The potential double association with Bombardier should raise some serious red flags. (A caveat is that Bombardier Aerospace is considered distinct from its Transportation division, although both report to chief executive Alain Bellemare in Montreal.)<\/p>\n

In August 2016, the company inaugurated a new production site headquartered in Isando, Johannesburg. The EDC came to the party, providing $450-million in financing<\/a> guarantees for the purchase of the necessary hardware.<\/p>\n

For better or worse, the Canadian multinational and its financial enabler are part of the South African corporate landscape. The maple leaf, it seems, is an invasive species. And it\u2019s here to stay.<\/p>\n