Lisa Peryman
Odious Debts Online
February 20, 2004
Canada’s auditor general dropped a bombshell on the country’s ruling Liberal government last week in a report roundly condemning it for the misuse of at least CDN$100 million in public funds.

In a sweeping 34-page audit delivered last Tuesday, Sheila Fraser revealed the Liberals mishandled money intended for a program to boost the federal government’s profile in the French-speaking province of Quebec, after Quebec almost voted to succeed from Canada in 1995. Established in 1997 by then prime minister Jean Chrétien, the CDN$250-million program was charged with fostering national unity in Quebec through the promotion of Canadian flags and banners (coined “love-for-logos” by critics) at sporting and cultural events. Instead, Fraser found the Public Works Department’s Communications Co-ordination Services Branch (CCSB) – the department responsible for running the program – had funnelled $CDN100 million of the sponsorship fund to Liberal-friendly Quebec advertising and communication agencies in the form of fees and commissions for little or no work.

Fraser’s investigation uncovered double-billing, false invoices and payments for fictional work, and implicated five Crown corporations in faulty money handling, including the Royal Canadian Mounted Police, VIA Rail, Canada Post and the Old Port of Montreal.

“I think this is such a blatant misuse of public funds that it is shocking. I am actually appalled by what we’ve found. I am deeply disturbed that such practices were allowed to happen in the first place. I don’t think anybody can take this lightly,” said Fraser who, as an “Officer of Parliament,” reports directly to the Canadian parliament in order to provide members with unbiased information to help them examine the activities of the government and hold it accountable.

Having spent the past week on a cross-country damage control tour, current Liberal Prime Minister Paul Martin has scrambled to distance himself from the scandal, vowing to get to the bottom of the sponsorship fiasco and resign if a public inquiry links him to it. “Anybody who is found to have known that people are kiting cheques, that people are falsifying invoices – me or anybody else – should resign,” Martin said in a television interview earlier this week. “I’ve made that very, very clear. I don’t think we have to debate that . . . Anybody who knew that kind of thing was going on and let it happen, they don’t belong in public life.”

Martin has repeatedly denied all knowledge of the scandal, a claim many question given his nine-year stint as finance minister for Chrétien’s government – an office he held during the life of the disgraced sponsorship program.

In the wake of Fraser’s exposé, Martin immediately fired former public works minister Alfonso Gagliano (who was serving as Canada’s ambassador to Denmark), ordered an independent judicial inquiry into the scandal, hired a special counsel to hunt down public funds inappropriately attained (a task Sheila Fraser describes as “difficult” owing to the lack of documentation she found in the files of the government departments and Crown corporations she examined for her report), asked a parliamentary committee to investigate accountability breakdown, and promised to make relevant cabinet documents available for review.

As a result of the scandal, the government has promised to move to enact new whistleblower legislation. Unlike the United States, Great Britain and Australia, there is no equivalent Canadian law protecting federal public servants from reprisals if they report wrongdoing. The government is planning to introduce a draft bill by late March.

This week, Canada’s House of Commons debated a motion that accused the Liberals of nurturing “a culture of corruption through the abuse of its influence and the use of public funds for personal benefit and to benefit friends, family and the Liberal Party of Canada.” The motion was later defeated 143-88. A similar debate on Liberal “corruption” will soon take place in the upper chamber after the Senate speaker ruled that opposition Conservative senators were allowed to use the word corruption to describe the Liberals, despite the objections of Liberal senators. According to one newspaper article, the Canadian parliamentary rule book lists “corrupt” as one of dozens of words that have been banned as “unparliamentary” over the years, but opposition MPs have used it without consequence since the release of Sheila Fraser’s report.

Meanwhile, the country’s financial markets are braced for a possible backlash. The scandal, which has made headlines in business centres around the world, is catching the eye of global investors who are more and more concerned about corruption in Canada, says global watchdog Transparency International.

A predicament international news agencies have been quick to savour, as this report by the Financial Times (U.K.) makes clear, “Canadian officials at international summits are fond of lecturing their counterparts from poorer countries on the debilitating effects of corruption. Now . . . 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.”

This latest corruption scandal follows on the heels of another to touch the Canadian government. In 2002, Acres International, a Canadian engineering multinational, was convicted of bribing an official in charge of a US$8 billion World Bank funded dam scheme in the southern African country of Lesotho. Acres made payments through the Swiss bank account of its agent, Zalisiwonga Bam, who also served as Canada’s honorary consul in Lesotho – a Cabinet-appointed position. The conduit for Acres’ bribes was thus an official of Canada’s federal government.

Once a role model, Canada is in danger of becoming a lament. Even Canada’s almost respectable fifth place ranking on Transparency International’s anti-corruption index has dropped to 11th in the last four years.