Martin Confronts Sponsorship Scandal

This article was originally published in Maclean’s magazine on February 23, 2004. Partner content is not updated.

PRIME MINISTER Paul MARTIN, to his credit, doesn't have much experience in coping with scandal. It shows. He and his close-knit team of advisers had months to plot strategy for the release last week of auditor general Sheila Fraser's explosive report into the federal sponsorship program in Quebec.
This article was originally published in Maclean’s magazine on February 23, 2004. Partner content is not updated. PRIME MINISTER Paul MARTIN, to his credit, doesn't have much experience in coping with scandal. It shows. He and his close-knit team of advisers had months to plot strategy for the release last week of auditor general Sheila Fraser's explosive report into the federal sponsorship program in Quebec.

Martin Confronts Sponsorship Scandal

PRIME MINISTER Paul MARTIN, to his credit, doesn't have much experience in coping with scandal. It shows. He and his close-knit team of advisers had months to plot strategy for the release last week of auditor general Sheila Fraser's explosive report into the federal sponsorship program in Quebec. Yet Martin's carefully prepared answer to what was bound to be the first media question on the report was a misstep. Asked what he knew, back when he was Jean CHRÉTIEN's finance minister, about the corrupt misuse of millions in sponsorship funds, Martin categorically denied he had any inkling of what was happening. "I didn't know anything about it," he said, first in French and then in English, adding later for good measure, "I have no idea what was going on here."

Martin clearly hoped to shift attention from how much he knew then to what he was doing about it now. There's no doubt that his response to Fraser's report was his strong suit: a judicial inquiry into the whole mess, a "special counsel" to recover taxpayers' money improperly given away, and new whistle-blower protection for bureaucrats who expose future wrongdoing. It gave him plenty to say when asked, "What are you going to do about this?" But, as Martin soon learned, that's not the question at the heart of a political scandal. The one that matters is always the double-barrelled query that brought down Richard Nixon - what did he know and when did he know it?

By categorically claiming he knew nothing, the Prime Minister did the opposite of putting that classic question to rest. A blanket assertion of ignorance just wasn't going to wash. After all, Martin had not only been finance minister during the sponsorship skulduggery between 1997 and 2001 uncovered by Fraser, but also a senior Quebec Liberal. Could such an extensive abuse of the public purse in his own backyard escape his notice entirely? The opposition line of attack started from the premise that Martin must have known more than he was letting on - and failed to speak up at the time. "Was that stony silence a result of the fact that he was so anxious to be prime minister that he turned a blind eye to the CORRUPTION that the government was involved in?" asked Conservative MP Peter MacKay in one salvo of many lobbed Martin's way in the House.

After two days under such heavy fire, Martin called a news conference to clarify his position. This time, he patiently explained that he had suspected merely that there were administrative problems in the program - until May 2002, when the auditor general issued an earlier damning report on three sponsorship contracts. "That is when I began to understand that what had occurred went far beyond administrative failures and involved possible criminal conduct," Martin said. More important, though, was his new explanation for why he knew so little until so late: Martin said he was kept in the dark by the Chrétien regime, which regarded him as a rival and a threat.

By framing the issue as an extension of his long-standing feud with Chrétien, Martin made this a scandal unlike any other. Past corruption controversies have pitted the governing party against those in opposition. This one now has the additional dimension of a rancorous split between Liberals. "I can't recall anything like it," said John Wright, senior vice-president of the polling firm Ipsos-Reid Corp. "It's the current regime verses the ancien régime. This could be a very messy affair."

And its outcome is all the more difficult to predict. The Martin Liberals are trying to cast themselves as a new guard, sweeping away the more dubious aspects of the Chrétien era. Treasury Board President Reg Alcock, one of the key cabinet ministers assigned to forge policies in response to Fraser's findings, told Maclean's that Martin has made it clear he wants an open, no-nonsense approach to finding out what went wrong and fixing it. "It was not," Alcock added pointedly, "the instinct of the former administration."

Putting distance between Martin and Chrétien will not be difficult. That gap has been, in many respects, the leitmotif of federal politics ever since the two Liberal alpha males clashed in the 1989-1990 leadership race won handily by Chrétien. They went on to share power, a partnership built on tension rather than real trust, until friction between them got too hot, and Martin exited cabinet in June 2002. But while Martin has an airtight case for saying he wasn't part of Chrétien's Quebec inner circle, that's not the same as establishing that he didn't have enough information to act. In fact, on the very day after Martin said he only began to suspect the worst when Fraser tabled her May 2002 report, a letter surfaced from a Liberal official who wrote to him on Feb. 7, 2002, pleading with him to get to the bottom of "growing rumours" about the program.

In the eruption of gleeful opposition outrage and huge headlines last week, Martin's political future was repeatedly said to be at stake. But that could turn out to be an overstatement. Even the biggest scandals - in the eyes of pundits and political insiders - often fail to register the same way with the public. On Aug. 17, 1998, Bill Clinton's agonies over the Monica Lewinsky affair seemed to reach their worst point when the U.S. president gave an equivocal apology speech that commentators quickly judged hopelessly inadequate. Americans saw things differently; Clinton's strong approval ratings held, even ticking up.

In his fall 2000 election campaign, Chrétien was dogged by reports of his involvement with tainted financial dealings around his hometown of Shawinigan, Que. With the revelation that he had repeatedly lobbied the federal Business Development Bank of Canada's president to lend money to a hotel owner in his riding, the affair threatened to take on the odour of a full-blown scandal. But, of course, voters handed Chrétien a comfortable majority anyway, and his personal popularity remained high until his retirement late last year. "If a government is already weak, scandal has the potential to knock it off," said University of British Columbia political science professor Allan Tupper. "But if a government is strong, the vote won't revolve exclusively around it."

What's the lesson from politicians like Clinton and Chrétien, who successfully ride out the storms of scandal? One key is clearly to be well enough regarded on other fronts that the controversy doesn't become the factor that defines the politician in the popular imagination. Chrétien's reputation as an honest patriot, summed up neatly in the title of his autobiography, Straight From the Heart, was firmly embedded long before the coinage "Shawinigate" entered the political lexicon. Clinton's unparalleled skills as a political communicator made him a tough target, combined with the fact that Americans - long acclimatized to reports of his personal foibles - found the Lewinsky revelations less than shocking.

Martin, of course, is in a very different situation. But, like Clinton and Chrétien, he has the advantage of an established reputation that may be hard to dislodge. His long tenure as finance minister was marked by little scandal, with the exception of an embarrassing episode in March 2002 when a Martin fundraiser in Calgary was revealed to also be a paid adviser to the Finance Department on tax policy for the oil and gas industry. With only that relatively minor blemish on a clean record, Martin may be able to go into an election, which he is still widely expected to call this spring, asking Canadian voters to view him as the solution to the sort of corruption behind the sponsorship scandal, not part of the cause. "This could in other circumstances sink a government," said Wright. "But people will be asked one key ballot question: do you believe Paul Martin didn't have anything to do with it, and has taken the steps to make sure it doesn't happen again? It's an opportunity for him to build himself a platform."

UBC's Tupper says the strength of Martin's position lies in the inquiry and reforms he announced to address Fraser's findings. "Nobody is talking about the inadequacy of his response," he said. In fact, the package hasn't been the subject of much opposition attention. Liberal strategists close to the Prime Minister are staking a lot on their expectation that eventually Martin will get credit for launching a judicial inquiry and agreeing to testify before it. In so doing, they hope he'll ease those what-did-he-know-when suspicions. "It may well be that this thing stays in the news for a long time; it may be that the inquiry turns over a lot of uncomfortable facts," said one senior Martin adviser. "But at least we haven't put ourselves in a position of anyone saying we're not prepared to deal with the truth." Especially if that truth turns out to be most damaging not to them, but to their old enemies in the Chrétien camp.


The Fraser Factor

What's behind it all?

In November 1997, a program was set up in Public Works and Government Services Canada to make the federal government more visible, especially in Quebec, by sponsoring festivals, fairs and other events.

What did the auditor general uncover?

Sheila Fraser studied the $250 million spent on sponsorships from 1997 to March 31, 2003. Perhaps her most shocking finding was that over $100 million of that was paid to Liberal-connected communications agencies in fees and commissions - which they did little or nothing to earn. She said the arrangements made with the firms that got huge payments were designed to hide "the source of the funding and the true substance of the transactions." As well, several Crown corporations, including Via Rail and Canada Post, were found to have gotten sponsorship money in ways the auditor general's report calls "highly complicated and questionable."

What's the government doing about it?

Prime Minister Paul Martin cancelled the sponsorship program on the day he took power - knowing then that Fraser's damning report was on the way. Last week, he announced an independent commission of public inquiry into the matter, under Justice John Gomery of the Quebec Superior Court. The MPs on the House public accounts committee have already begun their own hearings into the matter. As well, Martin has hired an outside lawyer to pursue firms and individuals who improperly got money in the sponsorship scam, threatening to perhaps sue them. Martin has also promised new whistle-blower protection for public servants, reforms to the way Crown corporations are run, and a review of the system of cabinet responsibility for the actions of public servants, which broke down so spectacularly in this scandal.


A Breakdown in Cabinet

ONE OF THE KEY QUESTIONS left unanswered by the auditor general's report is how cabinet ministers in Jean Chrétien's government, including then-finance minister Paul Martin, failed to figure out what was going on and take action to stop it. Maclean's asked government officials last week to explain why the two cabinet committees that appear to have been in the best position to take stock of the emerging scandal - and limit the damage - did nothing.

The cabinet committee on communications was the most obvious place for ministers to discuss swirling rumours about the sponsorship program. The committee was established in the spring of 1998, first as the ad hoc cabinet committee on government communications, and was chaired by Alfonso Gagliano, who was then public works minister and may be the central figure in the affair. Martin was not a member. Despite the fact that the committee was responsible for improving the government's image - the official aim of the sponsorships - senior Liberal sources insist Gagliano never put the controversial program on the agenda of any of its meetings. One senior Martin adviser said that omission now looks unusual and suspicious, part of a pattern of trying to prevent scrutiny of the program.

The Treasury Board ministers, a small cabinet committee that Martin served on as finance minister, was supposed to receive regular reports on follow-up actions after an internal audit of the sponsorships, conducted by the Public Works Department in the spring of 2000, first revealed serious administrative lapses. In fact, a document entitled "Management Response: Audit of Sponsorship Process Action Plan," lists three separate reports on remedial actions that were supposedly delivered to the ministers between late 2000 and the spring of 2002.

Asked about the three reports by Maclean's, government officials were able to find only one that was actually delivered to the ministers. It is a table itemizing steps to clean up administration of the program, accompanied by a three-paragraph letter dated Jan. 31, 2001, and signed by Gagliano, declaring that "the required corrective measures have been completed." Treasury Board President Reg Alcock said he doubted Martin and other members of the committee took much notice at the time. "You're a minister deeply involved with your own stuff and you get a report saying, 'problem identified, we've got it fixed, don't worry about it,' " he said. "Fundamentally, the people who were doing this didn't want to reveal it." And it seems they succeeded in avoiding attention.


It's Tough to Be a B.C. Liberal

IT'S NO SURPRISE the Liberal sponsorship scandal rated only fleeting front-page mention in Vancouver's newspapers. News is supposed to be about the unexpected: about men biting dogs, or planes that don't land safely. "Liberals Bribe Quebec With Your Tax Dollars" is not news, from a B.C. point of view. As Vancouver Sun columnist Pete McMartin put it: "Excuse me while I yawn."

Many are heartened that the auditor general condemns such profligate pandering. And it's safe to say the next time Prime Minister Paul Martin muses about "Western alienation," the $250-million sponsorship program will be raised as a root cause. One of many similar escapades, is the prevailing view. That said, Martinites should not interpret B.C.'s cynical indifference for forgiveness.

Political scandal is a B.C. speciality. Three of the past five elected B.C. premiers - Bill Bennett, Bill Vander Zalm, Glen Clark - ended up in protracted court cases after political life. A fourth, Mike Harcourt, was hounded from office by a charity bingo scandal not of his making. The current office-holder, Liberal Premier Gordon Campbell, infamously spent a night in a Hawaiian jail for drunk driving. More damaging are the police raids in December on the legislative offices of two senior aides.

Those raids should worry Martin, too. The aides, David Basi and Robert Virk, worked for provincial ministers, but they moonlighted for Martin's Liberals, helping stack ridings with instant Indo-Canadian Liberals. When details of the police investigation are finally revealed - say in the midst of a spring federal election - Team Martin could take a hit. And with the Quebec sponsorship scandal, how many of the star candidates Martin has been courting are likely to sign on to sell that mess to an alienated electorate? It just got tougher to be a federal Liberal in B.C., but, hey, no news in that.


Railways, Rifles and More

Some past scandals that rocked Ottawa:

THE PACIFIC RAILWAY: To fight the 1872 election, Prime Minister John A. Macdonald solicited $360,000 from railway promoters such as Sir Hugh Allan, later rewarded with the contract to build the Pacific railway. The scandal broke the next year when the Liberal opposition exposed the deal through damning letters and telegrams. One was from Macdonald to railway lawyer and politician J.J.C. Abbott, pleading that he "must have another $10,000." In October 1873, his government resigned, although Macdonald later came back to win the 1878 election.

THE ROSS RIFLE: During the First World War, Sam Hughes, the minister of the militia, was a great proponent of the Canadian-made Ross rifle. Soldiers, however, hated it because of its heavy weight, size and constant jamming problems. The government also faced corruption accusations over the awarding of munitions contracts, as well as complaints of rotten rations and other substandard equipment. In 1916, Ottawa bowed to pressure and replaced the Ross with the British-made Lee-Enfield. A few months later, Prime Minister Robert Borden fired Hughes.

SINCLAIR STEVENS: Amid charges he used his public office to further personal business interests, Brian Mulroney's minister of regional industrial expansion resigned in 1986. A subsequent judicial inquiry heard about dealings between Stevens' "blind trust" company and firms that had received millions in development grants from his department. In December 1987, Stevens was found to have violated conflict of interest guidelines on 14 occasions. The drama was only one in a series of Mulroney government scandals.

Maclean's February 23, 2004