Canadian finance scandal taints upcoming election

Ken Warn
Financial Times (U.K.)
February 17, 2004

Canadian officials at international summits are fond of lecturing their counterparts from poorer countries on the debilitating effects of corruption.

Now opposition politicians say Canada has produced a corruption scandal to call its own – one that has undermined the credibility of government, the bureaucracy and several key national institutions.

From the prime minister downwards, leading Liberals deny the government is corrupt. But they have ordered a full public inquiry and acknowledged clear misuse of public funds.

The controversy comes as Paul Martin, who took office as prime minister in December determined to create a fresh image for the Liberals, is preparing for an election, possibly in May. Formerly seen as unstoppable, Mr Martin now faces a sharp drop in Liberal support and relentless opposition efforts to tie him to the scandal.

An Ipsos-Reid opinion poll in The Globe and Mail newspaper on Tuesday showed Liberal support had slumped from 48 per cent in mid-January to 35 per cent – a level at which the Liberals’ parliamentary majority would be in danger.

Mr Martin finds himself struggling to dissociate himself from a scandal generated in the mid-1990s under Jean Chrétien, the previous prime minister, whom Mr Martin served as finance minister for nine years before the two men publicly fell out. In an aggressive effort to regain control of the political agenda, Mr Martin has said he will root out the facts of the scandal and resign if evidence emerges that links him to it.

The Liberal government stands accused of funnelling C$100m (US$76m, £40m) of taxpayers’ money to Liberal-friendly advertising agencies in Quebec under a series of dubious sponsorship deals from 1997-2002. Last week Sheila Fraser, the auditor-general, detailed how money had been channelled from the public works ministry to the agencies, often using phoney invoices and contracts – and sometimes without any contracts at all.

Her investigations implicated five government corporations and agencies in the money transfers, including Canada Post and the police.

The money was paid out in fees and commissions as part of a C$250 million scheme to promote the cause of national unity in Quebec. The predominantly French-speaking province voted narrowly to remain part of Canada in a 1995 referendum, causing near-panic in Mr Chrétien’s government.

The auditor-general’s report does not speculate on the ultimate destination of the C$100m, which is still under investigation, and falls short of labelling the scheme as corruption. But it said rules were broken at every stage of the process for more than four years.

Canada’s opposition parties have not been so restrained. “This was a simple money-laundering scheme,” said John Williams, a Conservative MP and head of the House of Commons public accounts committee, which is investigating the money transfers. “No political party in Canada, still less a provincial branch, can spend C$100m. People have got rich on this. The credibility of government institutions has been rocked to the foundations.”

The scandal has derailed Mr Martin’s efforts to portray himself as a social activist and a fiscally responsible leader with a fresh vision for the country. The opposition has sought to link the scandal to previous spending controversies, charging that the Liberals have grown habitually careless with taxpayers’ money since they came to power in 1993.

The Conservative party, formed last year from the merger of the Progressive Conservatives and the Canadian Alliance, has called for a delay in the election while investigations continue.

If Liberal support continues to slide, Mr Martin may decide that going to the country early has become too risky.

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