National Post
March 24, 2001

Chrétien's conflict

In 1988, Jean Chrétien was in private life, and all was right with his world. He was pulling down big money as a special advisor for Gordon Capital. He was a director of several companies. And he had plenty of time for golf.

It occurred to him then to buy a golf course -- in Grand-Mè re, Quebec, not far from his boyhood home in Shawinigan, in the St. Maurice riding he had represented in Parliament for more than 20 years. The golf course, as it happened, was owned by Consolidated-Bathurst Corp., one of those companies of which Mr. Chrétien was a director. So the purchase was arranged. Together with two partners in a company called 161341 Canada Inc., Mr. Chrétien, the director of Consolidated-Bathurst, bought the golf course from Consolidated-Bathurst, with the help of a $625,000 loan from Consolidated-Bathurst.

The golf course: In this cozy little deal lie the origins of a controversy that has consumed Parliament for months -- concerning not only a number of questionable grants to businesses in the Prime Minister's riding, but the whole matter of the notorious Transitional Jobs Fund, and the misuse of public funds for political ends.

The immediate questions -- whether the Prime Minister stood to personally benefit from the provision of a loan to the inn adjoining the golf course, and whether he acted improperly in lobbying the president of the federal Business Development Bank to make the loan -- are significant enough in their own right. But what is equally important is whether the Prime Minister's own dealings, with their promiscuous mingling of business, personal and political relations, set a pattern for what went on elsewhere.

So let us return to Grand-Mere....

The golf course was a money-pit from the start. There was a fire in the men's locker room. There were problems with the sewage system. The grounds were in severe disrepair. Over seven years, the course may have lost as much as $2-million.

In 1990, Mr. Chrétien returned to politics as leader of the Liberal party, with fair prospects of becoming Prime Minister in the next election. For both reasons -- the heavy losses, and the impending changes in his career -- Mr. Chrétien and his partners began looking to unload some assets.

In April of 1993, they sold the adjoining Auberge Grand-Mè re (actually, just the business -- the building itself was still leased from Consolidated-Bathurst) to Yvon Duhaime, the son of a prominent local Liberal and a man well known to Mr. Chrétien. The inn, like the golf course, was a chronic sinkhole: it sold for $225,000.

Six months later, on Oct. 25, 1993, the Liberals were elected. The following week, Mr. Chrétien arranged to sell his one-third share in 161341 Canada Inc. to Jonas Prince, a Toronto real estate tycoon (and Liberal party donor), with payments to be made in three instalments over the next three years.

And that might have been that, but for two inconvenient facts. One, Mr. Chrétien did not disclose the arrangement, with its continuing financial ties to Mr. Prince. And two, the deal was never completed.

There are conflicting versions of why this is so, or whether Mr. Prince actually returned the share certificates to Mr. Chrétien's possession. What seems beyond dispute, however, is that Mr. Chrétien was never paid for his shares. If Mr. Chrétien did not exactly own them, he had not exactly sold them, either.

It was not until early 1996 that Mr. Chrétien informed his "ethics counsellor," Howard Wilson, that the deal had fallen through. Mr. Wilson, for his part, neither informed the public of Mr. Chrétien's continuing financial interest in the golf course nor of Mr. Chrétien's failure to disclose the same information himself. But that need not concern us here.

The point is that from 1993 on, and certainly from 1996 on, Mr. Chrétien had a continuing interest in the fortunes of the Grand-Mè re golf course. Whether or not he was the legal owner of the shares, he was owed money on the deal. If Mr. Prince would not pay, then another buyer would have to be found -- a task to which the executor of his investment trust diligently applied herself, with Mr. Chrétien's full knowledge.

Obviously, anything that enhanced the value of the Auberge, which effectively served as the course's "19th hole," would also make the course a more attractive proposition. But what made the matter truly urgent was the prospect -- imminent, by all accounts -- of the inn going bankrupt.

So Mr. Chrétien's interest is clear. It was at just this time, moreover, that he began pressuring the president of the Business Development Bank, François Beaudoin, to help the failing inn finance its ambitious expansion plans with a $615,000 loan, in at least two phone calls and a meeting at 24 Sussex Drive. In addition, his special assistant met with BDC staff to discuss the loan. Whether as a result or not, the loan was eventually approved.

The inn continued to struggle even then; not until 1999 was Mr. Chrétien paid for his shares, and then only with the intercession of Louis Michaud, Mr. Chrétien's friend and one of the original partners in the golf course. It can be argued, therefore, whether Mr. Chrétien actually benefited from the infusion of federal funds, though it's a fair supposition that he did: without it, he might never have received payment at all. But for a conflict of interest to occur, it is enough that a public office-holder places himself in a position to potentially benefit from his office.

Indeed, it doesn't even have to involve a personal benefit: as the federal Conflict of Interest code puts it, public servants "shall not step out of their official roles to assist private entities or persons in their dealings with the government where this would result in preferential treatment to any person." Mr. Chrétien's activities hardly amount to the "normal" representation that any MP offers a constituent. As Prime Minister, he was effectively Mr. Beaudoin's employer. And the "constituent" in this case, Mr. Duhaime, was not only an associate of Mr. Chrétien, but the man who had taken the Auberge Grand-Mè re off his hands.

He was, moreover, singularly unfit for any such assistance, with a number of criminal convictions, from drunk driving to uttering threats, and a history of business, tax and debt troubles. A previous venture, L'H™tel des Chutes, had gone up in flames, taking with it $150,000 in unpaid tax and utility bills. The Grand-Mè re inn itself had amassed more than $300,000 in debts under his management and was near bankruptcy. Yet somehow he was able to collect $665,000 in loans from the Business Development Bank, plus another $189,000 in TJF grants.

How? It helped that he did not disclose his criminal record, as required. It surely helped, too, that he had friends in high places. Though Mr. Duhaime was clearly ineligible under BDC guidelines, and though his application was initially turned down, in the end he got the money. It's hard to escape the impression of "preferential treatment."

What's not so clear is where the money went. The loan was known to be in default more than two years after it was made. The BDC did not receive payments for months on end. Neither did city, provincial and federal tax collectors. A construction company that built the addition had to go to court before it was finally paid. Mr. Beaudoin, after recommending foreclosing on Mr. Duhaime, was suddenly relieved of most of his responsibilities, according to a wrongful dismissal suit he has filed in a Quebec court. (Mr. Duhaime says he has since reached an agreement with the bank over his arrears, but won't disclose any details.)

Nor have the discrepancies in Mr. Chrétien's accounts been explained. Mr. Chrétien initially told reporters he barely knew Mr. Duhaime, then denied (or at least strongly suggested as much) having any personal involvement in the case, until the phone calls were revealed. A similar mystery surrounds the role played by Jean Carle, the Prime Minister's former director of operations, who was named vice-president of the bank in 1999. Though Mr. Chrétien denied in Parliament that Mr. Carle had had any involvement in the Grand-Mè re file in either position, documents showed he had passed on "talking points" the Prime Minister's office had prepared for bank officials, coaching them in how to evade reporters' questions about the Prime Minister's involvement in the bank's affairs.

But the Auberge Grand-Mè re was not the only business in St. Maurice to attract Mr. Chrétien's attention, nor were his investment troubles the only thing on his mind in those days. The 1997 election was also looming. The Bloc Québécois, a threat in most parts of Quebec, had mounted a particularly strong challenge in St. Maurice; Mr. Chrétien would eventually win the riding by just 1,500 votes. He would thus have been more than usually anxious to impress his constituents, on the traditional yardstick for measuring such things in that part of the world: according to how much federal money he brought to the riding.

Fortunately, there was plenty of money to be had, and from several sources -- not only the TJF, hastily launched the previous year to mollify regions hit by cutbacks in unemployment insurance, but regional development programs, targeted wage subsidies, youth employment grants, and of course the BDC.

So the preconditions for scandal were all there: a close election; a multitude of overlapping and poorly managed programs; and a Prime Minister with lots of reasons to want federal money directed to the area and, as it turned out, few hangups about who it went to. And the money flowed: since 1996, $8.5-million in TJF grants alone have poured into St. Maurice.

That in itself would be enough to raise eyebrows. But a good part of the money went to support failing or even bankrupt companies. Worse, some of these were the property of swindlers and other shady characters. Worse yet, several of them turned out to be friends of, or political donors to, or had had business dealings with the Prime Minister. Still worse, in some cases the Prime Minister or his subordinates took a direct hand in steering the money their way, in contravention of established procedures and criteria. And in at least one other case, there were ties to the Grand-Mè re golf course. Mr. Duhaime was hardly alone.

Consider the following cast of characters:

¥ Claude Gauthier. In 1996, Mr. Gauthier, a long-time friend of the Prime Minister's, bought a parcel of land adjoining the golf course for $525,000, enabling it to retire a $300,000 debt. (He also contributed $10,000 to Mr. Chrétien's re-election campaign in 1997, the largest single contribution it received.) Not long before he agreed to buy the land, one of Mr. Gauthier's companies, Transelec, was told it would be awarded a $6-million contract to build an electricity network in Mali for the Canadian International Development Agency. The Auditor General has since found the company was ineligible to bid on the contract.

That was not the only federal money Mr. Gauthier received. In 1998, Mr. Gauthier bought a plastics manufacturer called Placeteco Inc., with the help of a loan from the National Bank. The company was then in bankruptcy proceedings. Yet not long after, the struggling company received a $1.2-million TJF grant. Once again, the Prime Minister's office had intervened, urging bureaucrats in charge of the file, who had expressed reservations about the company's eligibility for assistance, to do "everything legally possible" to see the grant went through.

In fact, they did more than that: the money was placed in a secret trust fund, in violation of federal spending rules. The trust fund was managed by Gille Champagne, a fundraiser for Mr. Chrétien. Mr. Champagne then signed the money over to Mr. Gauthier -- who used it to pay back the bank. Indeed, documents revealed that had been the condition on which the loan was made. Yet the condition on which the grant was made was that it be used to "create jobs." When, a short while later, the company went bankrupt, other creditors were aggrieved to learn the bank had been bailed out ahead of them, with public funds. They were perhaps more aggrieved when, thus relieved of its debts, the company was repurchased by Mr. Gauthier.

¥ Pierre Thibault. Unlike Mr. Duhaime and Mr. Gauthier, Mr. Thibault, a native of Belgium, had no personal connections to the Prime Minister. Nor had he done business with him, or contributed to his campaign. Like the first two, however, he was a) willing to invest in Shawinigan, b) the recipient of a sizeable federal grant in aid of that endeavour, though c) plainly ineligible for such assistance.

And, like the others, he was the beneficiary of much bureaucratic intervention by the prime minister or his staff. Having admitted in writing to misappropriating close to $1-million from his partners in a Belgian fireplace manufacturer -- he is currently under police investigation there on suspicion of fraud -- Mr. Thibault came to Canada, eventually buying a majority stake in the Auberge des Gouverneurs, a hotel and convention centre in Shawinigan. Despite his checkered past, Mr. Thibault was given a $600,000 TJF grant in April 1997, not long after meeting with the Prime Minister. Indeed, it was Mr. Chrétien himself who announced the grant, three weeks before it was approved -- before it had even filed a business plan. Only later did an HRD project officer recommend approval, advising other departmental officials: "This project has been announced by the PM. Its approval by the Minister is URGENT." Mr. Thibault later received another $100,000 grant, plus $925,000 in federal government loans.

Other cases involve men known to the prime minister, but without any suggestion that he was personally involved or even knew of their activities. These include:

¥ Rene Fugè re. Mr. Fugè re is described as an unpaid aide to Mr. Chrétien, who often stands in for him at local events. He is also a lobbyist, who has been investigated by police -- though no charges were laid -- for failing to register his dealings with federal authorities. In recent years, he has helped a dozen companies obtain more than $1-million in grants, mostly for projects in Mr. Chrétien's riding. In exchange, he received a fee of 5% to 10% of the value of the grant. Among his clients: Mr. Duhaime, Mr. Thibault, and a company called Earth (Canada) Corp. The money-losing company received a $96,000 interest-free loan from the federal government shortly after Mr. Fugè re was given a seat on the board of directors, together with 150,000 stock options. The chairman of the company at that time, interestingly enough, was Gilles Champagne.

¥ Paul Lemire and Mario Pépin. Mr. Pépin is a veteran Liberal organizer and supporter of Mr. Chrétien in St. Maurice. Mr. Lemire, a millionaire, is likewise a long-time supporter of the Prime Minister. He is also a convicted tax cheat, having admitted to forging signatures on cheques as part of a three-year scheme to evade taxes on a company he owned.

The two men were placed in charge of Groupe Forces, an umbrella federal agency promoting business development in the area. According to Crown prosecutors, they have been systematically diverting federal money -- since 1996, Group Forces has received more than $4-million from various federal programs -- into their own pockets, whether through their involvement in Groupe Forces, or through the companies they spun off from it. One of these, the Canadian Institute of Tourism and Electronic Commerce (CITEC) has received grants totalling close to $7-million since 1996. The two have pleaded not guilty to charges of theft and fraud.

The list does not end there. But these were the cases that first alerted Parliament and the public that something funny was going on at HRDC. From there the issue broadened, from the Prime Minister and his riding to the Transitional Jobs Fund and a range of other federal programs, worth at least $1-billion annually. At first the problem seemed to be one of calamitous bungling within the department. But as evidence came to light of widespread political interference in these programs -- particularly the existence of a secret network of Liberal party officials empowered to vet bureaucratic decisions on job creation grants -- it became more obvious why the bureaucrats were disinclined to ask too many questions about where the money went.

But the most serious questions surround the Prime Minister. Is it proper, for starters, for MPs to lobby public officials to dish out money to projects in their ridings -- the basis of Mr. Chrétien's defence? Why was the Prime Minister so anxious that Mr. Duhaime, of all people, should receive a loan? Why was such a poor business risk eventually given one? If the Prime Minister has done nothing wrong, if he was "just doing his job," why did he feel the need to conceal his intervention?

Why were so many other individuals of questionable backgrounds able to procure so much in the way of federal loans and grants, even where Mr. Chrétien did not intervene on their behalf? And why does the Prime Minister number so many sharpies, crooks and bankrupts among his acquaintance?