Mulroney Launches Suit

This article was originally published in Maclean’s magazine on November 27, 1995. Partner content is not updated.

Political circles had been buzzing for weeks about a major police investigation into the biggest civil aviation contract ever given by a Canadian government - the 1988 purchase of 34 Airbus A-320 passenger planes from a European consortium for $1.8 billion.

Mulroney Launches Suit

Political circles had been buzzing for weeks about a major police investigation into the biggest civil aviation contract ever given by a Canadian government - the 1988 purchase of 34 Airbus A-320 passenger planes from a European consortium for $1.8 billion. Soon after the deal went through, it triggered serious questions about impropriety for the government of former prime minister Brian Mulroney and set off investigations by the Royal Canadian Mounted Police and the U.S. Federal Bureau of Investigation. Those inquiries went nowhere. But last week, when the RCMP and Swiss authorities finally confirmed that they were working together on a new investigation, it became clear that their trail was leading directly to the door of Mulroney himself. After two newspapers reported that an RCMP document sent to Switzerland on Sept. 29 alleged that the former prime minister was directly involved in conspiracy to defraud taxpayers, Mulroney struck back. In an astonishing and unprecedented move, he told his lawyers to file a $50-million action against the federal government and the RCMP. Said Gérald Tremblay, one of Mulroney's lawyers: "The damage is absolutely incalculable."

Through his lawyers, the former prime minister accused the government and RCMP officials of making "false and reckless" allegations against him - and for leaking accounts of the case to news media throughout the world. Mulroney's lawyers told reporters in Montreal on Saturday afternoon that they had met with justice department officials last week in an attempt to persuade them to withdraw or amend parts of their request to the Swiss authorities dealing with him. However, they said, the officials refused to do that, or to apologize to Mulroney. As a result, Mulroney decided to sue the government, RCMP Commissioner Philip Murray, justice department lawyer Kimberley Prost and RCMP chief investigator Sgt. Fraser Fiegenwald. They said they will seek $25 million in actual damages to Mulroney's reputation, and $25 million in punitive damages (which they said the former prime minister will donate to charity if he wins the case). "The issue is fairness and decency," said Harvey Yarosky, another of Mulroney's lawyers. "The rights of Mr. Mulroney and his family have been gravely violated."

Mulroney's dramatic action followed a series of media inquiries and reports last week. First, on Thursday, Maclean's sent a letter containing detailed questions about Mulroney's alleged involvement in the Airbus scandal to his Montreal law office. The next day, his lawyer, Fred Kaufman, issued a statement to the magazine saying that the former prime minister flatly denied any wrongdoing. "Mr. Mulroney states unequivocally that he did not in any way influence or try to influence Air Canada's decision to purchase aircraft made by Airbus," Kaufman wrote. "Nor was he ever a party to any agreement to influence this decision or to receive any consideration, directly or indirectly, for so doing." The statement went on: "Mr. Mulroney states unequivocally that he does not now have, nor did he ever have, directly or indirectly, a bank account in any foreign country."

Then on Saturday, The Financial Post and The Toronto Sun reported that Canada's formal request to the Swiss authorities for assistance in the Airbus investigation alleges a criminal conspiracy between Mulroney, former Newfoundland premier Frank Moores and others, including German-Canadian businessman Karl Heinz Schreiber, to receive illegal commissions on the sale of the aircraft to Air Canada. In its 13-page request, written in German to Swiss federal prosecutors in Berne, the federal justice department also alleges that there was a "persisting plot/conspiracy by Mr. Mulroney [and others] ... who defrauded the Canadian government in the amount of millions of dollars."

Last week, Mulroney engaged a team of lawyers and public relations consultants to defend him. In addition to Kaufman, Tremblay and Yarosky, the former prime minister also asked a onetime deputy minister of justice, Roger Tassé, to obtain an English version of the government's request to the Swiss. Tassé, deputy minister from 1977 to 1985 and a former law partner of Prime Minister Jean Chrétien, met recently with officials from both the justice department and the RCMP to ask for a copy of the request.

In her letter to the Swiss government, justice department lawyer Kimberly Prost, who signed the request on Sept. 29, noted other federal deals under RCMP investigation. These include the payment of $1.2 million in commissions on a contract to the German firm Messerschmitt-Bölkow-Blöhm (MBB) for 12 helicopters sold to the Canadian Coast Guard, and another $5 million paid by Thyssen AG, based in Munich, for help in planning a military vehicle plant in Nova Scotia. That plant, to be built in Port Hawkesbury with tens of millions of dollars in federal government assistance, did not go ahead. Schreiber, who met Mulroney several times in Canada and was close to several senior Conservative politicians, represented both Thyssen and MBB in Canada, while Moores was their registered lobbyist.

Folco Galli, a spokesman for the federal attorney general's office in Berne, confirmed that the Canadian request was sent on Oct. 3. He said that Swiss authorities agreed on Oct. 24 to act on it, and he also confirmed that the Canadians asked his government to freeze two bank accounts.

The RCMP has been investigating the Airbus affair for seven years, but during the first few years they made little progress. Now, they have an extensive paper trail showing agreements between Airbus Industrie, MBB and Thyssen AG with Schreiber, who controls a shell company called International Aircraft Leasing Ltd. (IAL) in the tiny tax haven of Liechtenstein. Documents obtained by Maclean's show that the commissions paid for the Airbus deal and for two other federal deals amounted to at least $20 million, while the German newsmagazine Der Spiegel, in a story published last March, estimated the total commissions that could be paid would add up to $46 million.

In the case of Airbus, the documents show that the European consortium that sold the Airbus A-320 to Air Canada paid $650,000 for each plane to IAL. The flow of payments from the three companies moved to ial's account in a bank in Vaduz, the capital of Liechtenstein, and from there much of the money was directed to an account in the Swiss Bank Corp.'s (SBC) branch on Paradeplatz in Zurich. Some of the money was disbursed in cash payments, but documents show that $11 million was paid by Airbus to Schreiber's company IAL, and was then transferred to the Swiss bank between 1988 and 1991. And a former business partner of Schreiber's has told the RCMP that he accompanied Schreiber and Moores when they opened two new bank accounts in the SBC's Paradeplatz branch in 1986, one for Moores in his own name and another, the former partner said, for a Canadian politician. That account was code-named "Devon."

However, documentation obtained by Maclean's contains no evidence that Moores received any money from Schreiber in the aircraft deal. Nor does it show any proof that Mulroney might have a Swiss bank account or that he received any money himself.

After Switzerland's attorney general approved the request from the Canadian authorities, the federal prosecutor's office in Berne took on the case instead of a lower-level provincial, or cantonal, prosecutor who would normally handle such a request. The Airbus affair is the first time that a Canadian case has ever required a Swiss federal prosecutor, because of the serious nature of the case.

Neither Moores, who lives in Jupiter, Fla., nor Schreiber, who owns a large estate outside Munich, returned calls for comment. However, Moores told The Toronto Star last week that he had hired a lawyer to represent him in the affair. Moores also denied that he ever lobbied for Airbus, a statement he has made several times since 1988. "There is not a darn thing that I can say at this time except to say what I've said for - what, two or three years now - that is, that it is totally inaccurate," he said.

In early November, Schreiber's house in Kaufering, a wealthy suburb of Munich, and his office were raided by German police who are investigating him for possible tax evasion. "In Germany, it is not illegal for businessmen to pay bribes to foreign officials," said Mathias Blumencron, a reporter for Der Spiegel who has been following the story for several months. "But it is illegal not to pay taxes."

Swiss authorities have always ferociously guarded banking secrets of their powerful international clientele and still will not help governments bring tax evaders to heel. But over the last few years, they have changed their policies about helping police bring criminals to justice when the cases involve such activities as drug cartels laundering money or politicians taking bribes. The most notorious example is that of the estimated $500 million stashed in Switzerland by the late Philippines dictator Ferdinand Marcos: after years of wrangling with U.S. officials, the Swiss government finally agreed to allow American officials access to the Marcos banking records, a historic decision that set the precedent for the Canadian request in the Airbus case. Bank-account holders are allowed to appeal the decision of the Swiss authorities, but the appeals are usually denied when criminal activity is suspected. In the Airbus case, the appeal process could take months. Once they are allowed to look at the banking records, Swiss prosecutors will trace the transactions and turn over the results to the RCMP.

Schreiber's extensive business interests in Canada include several holding companies in Alberta that he set up for wealthy Germans in the late 1970s. His most important client was the late Franz-Josef Strauss, the premier of Bavaria, who was also the chairman of Airbus Industrie. Strauss, one of the most powerful politicians in Germany during the postwar period, died in 1988, but today his political legacy is marred by scandal. In the spring of 1994, a leading German businessman admitted, during a tax-evasion investigation, that Strauss had helped him with his tax problems and that he had given Strauss generous financial assistance for many years. The admission was damaging to the political fortunes of the Strauss children, whose business interests in Canada are still represented by Schreiber. And Schreiber himself is no stranger to controversy: in 1981, he and two former Tory cabinet ministers in Alberta were involved in a land scandal in Edmonton but were never charged.

In March, 1985, Mulroney fired the entire Air Canada board of directors and replaced them with a group that contained many of his political associates, including Moores. When news reports revealed in July, 1985, that Moores was lobbying for other airlines, he was forced to drop them as clients. But a few weeks later, he was also forced to leave the Air Canada board because of his involvement with the Airbus consortium, which was then seeking the Air Canada contract. It was that same year that Airbus signed the contract with IAL. Then, in 1986, with the deal done between Airbus and IAL, Schreiber and Moores opened the two bank accounts in Zurich.

Officials at Airbus Industrie have denied paying commissions on the Air Canada deal, but as one former vice-president of an international aircraft company noted, "they call the payments consulting fees. We call them commissions." Today, the Airbus consortium is made up of four companies, including the Bavarian company Daimler-Benz Aerospace Airbus GmbH, which owns 37.9 per cent; France's Aerospatiale SA, which owns 37.9 per cent; British Aerospace PLC, with 20 per cent; and Constructionnes Aeronauticas SA, a Spanish company with 4.2 per cent. Air Canada officials have acknowledged that they were interviewed by the RCMP several months ago and co-operated fully with the police. Last week, spokeswoman Nicole Couture-Simard said no Air Canada employee is under investigation.

Maclean's November 27, 1995