The Canadian Commercial Corporation: Not yet a protector of human rights

Chris Earle Ploughshares Monitor

By Chris Earle

Published in The Ploughshares Monitor Volume 41 Issue 3 Autumn 2020

Canada’s accession to the Arms Trade Treaty (ATT) last year necessitated some welcome changes to Canada’s arms-control policies. But it appears that the export regime’s human-rights protections are still flawed. In this article, we focus on the activities of the Canadian Commercial Corporation (CCC).

The traditional role of the Canadian Commercial Corporation

This crown corporation is responsible for helping to secure deals between Canadian exporters and foreign governments. Most notably, the CCC secured a $14-billion deal for light armoured vehicles between General Dynamics Land Systems-Canada and Saudi Arabia, a country long accused of human-rights violations, most recently in the conflict in Yemen. The CCC has historically negotiated arms deals without adequately taking human rights into account, although such considerations have long been required by Canadian law and are now required by the ATT.

On March 19, 2019, the Office of the Auditor General (OAG) issued a report on the CCC; this report became more generally known when it appeared in the OAG’s collection of reports in spring 2020. Among other matters, the report criticized the CCC’s “contract management” and “performance monitoring and reporting.” Findings indicated that the CCC had been lax in establishing “a formal process to identify and mitigate the risks related to human rights when doing business with foreign governments” and in creating “a monitoring system that tracked actual fees charged on a contract to compare those costs with the estimated pricing.”

On April 9, 2020, Global Affairs Canada (GAC) released the statement “Canada improves terms of light armored vehicles contract, putting in place a new robust permits review process.” It made clear that the deal negotiated by the CCC is governed exclusively by and subject to the Saudi legal system, and that disclosure of the contract terms could cost the Canadian government billions of dollars in penalties.

The CCC’s new process to assess human rights

In response to the OAG report, the CCC established a Human Rights Committee to assess, monitor, and act on human-rights abuses as part of a broader enhancement of Responsible Business Conduct. New processes include due diligence questionnaires based on ATT requirements.

The CCC now also has a role in “influencing Canadian exporters” to aid in assessing human-rights concerns and implementing the CCC’s ongoing monitoring and assessment activities by completing questionnaires and by reporting directly to the CCC any concerns they have about their products being used to violate human rights. However, it is not clear how the CCC intends to ensure that these expectations are met.

According to the CCC’s Human Rights Policy and Human Rights Due Diligence Instructions, if exporters or the CCC itself become aware of possible human-rights violations, they are to inform the CCC’s Human Rights Committee, which then informs and makes recommendation to the CCC’s Risks and Opportunities Committee, which “can further recommend against proceeding with a transaction if the adverse human rights risks are too high, and those risks cannot be prevented or mitigated.“ This committee then raises the concerns with the CCC’s Board of Directors, which “has oversight and provides governance for CCC policies involving Responsible Business Conduct policies, practices and processes.” The Board could then “communicat[e] with the Export Controls Division at Global Affairs Canada if CCC believes it acquires information relevant to the issuance of an export permit.”

The process outlined here could result in the communicating of concerns to GAC, which is, of course, ultimately responsible for clearing export permits.

This new role for manufacturers could be highly effective in deals that include project maintenance and training, giving the exporter on-the-ground proximity that might not be an option for GAC or the CCC. In such cases, a technician or engineer might go to a client country and directly encounter instances in which Canadian exports were being used contrary to specified purposes. In one example, aircraft engines sold to be placed in civilian aircraft were found riddled with bullet holes.

However, not all suppliers will have the capacity to carry out adequate human-rights assurances. For example, PGW Defence Technologies—a manufacturer of sniper rifles that have been sold to Saudi Arabia, among other buyers—apparently operates out of a “nondescript strip mall in Winnipeg,” according to CBC News. Nor is it certain that a company would choose to risk possible future sales by reporting concerns about a lucrative client.

The bottom line is that GAC already carries out human-rights risk assessments, so reporting to GAC adds nothing new to that part of the process. The changes to process outlined above do not change the fundamental flaw in the system: the risk that human rights will be violated is not assessed until long after a contract is signed.

Becoming fiscally responsible

The CCC has also been instructed to become financially self-sustaining, no longer reliant on parliamentary subsidies. Funding is to come from “Fees for Service.” The fees indicated in the CCC’s 2018/2019 annual report provided revenues of $31-million, a 50 per cent increase over fees for the previous year. The CCC annual report states, “Fees are generally calculated as a percentage of the contract value.” A financial snapshot from the OAG report shows figures commensurate with a fee of slightly less than 1 per cent of the contract’s value. At this rate, a $14-billion deal could reasonably generate more than $100-million in fees, roughly three times current annual revenues.

Under the current policy, it appears that the CCC is facing a conflict of interest. It is being held responsible for reporting possible human-rights violations by the same clients that provide the fees on which the organization’s viability depends. Reporting violations could result in loss of contracts for the abuser and, hence, loss of fees for the CCC.

There seem to be many good reasons why both exporting companies and the CCC might choose to not look too closely into possible violations and few reasons to believe that the new processes will change much in the current export regime.

Getting to real solutions

The OAG report raises concerns about the way in which export contracts are secured and their details hidden from Canadians. The consequences of such a process include huge legal penalties for Canada and violations of human rights abroad.

While the Canadian Commercial Corporation is taking steps to alter the way in which it does business, the fact remains that the process it uses to negotiate arms contracts does not facilitate the serious and timely assessment of human rights that is required by Canadian law and the ATT.

Chris Earle was a Project Ploughshares Peace Research Intern this summer.

Photo: A screen grab from Al Masirah TV/Al Jazeera appears to show a Canadian-made Saudi light armored vehicle captured by Houthi forces in September 2019. The Canadian Commerical Corporation secured a $14-billion deal for light armoured vehicles between General Dynamics Land Systems-Canada and Saudi Arabia.

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