THIS LIFETIME IN CANADA

THE YEAR THE GOVERNMENT SOLD THE ST. LAWRENCE RIVER

To the Beauharnois power company, rights to harness the white water on the St. Lawrence River were almost priceless—but not quite. The exact price, in fact, was $700,000 for the Liberal war chest, a raft of personal bribes to senators and fixers and a couple of fat partnerships. It was “the most barefaced public steal in more than fifty years”

Ralph Allen September 9 1961
THIS LIFETIME IN CANADA

THE YEAR THE GOVERNMENT SOLD THE ST. LAWRENCE RIVER

To the Beauharnois power company, rights to harness the white water on the St. Lawrence River were almost priceless—but not quite. The exact price, in fact, was $700,000 for the Liberal war chest, a raft of personal bribes to senators and fixers and a couple of fat partnerships. It was “the most barefaced public steal in more than fifty years”

Ralph Allen September 9 1961

THE YEAR THE GOVERNMENT SOLD THE ST. LAWRENCE RIVER

To the Beauharnois power company, rights to harness the white water on the St. Lawrence River were almost priceless—but not quite. The exact price, in fact, was $700,000 for the Liberal war chest, a raft of personal bribes to senators and fixers and a couple of fat partnerships. It was “the most barefaced public steal in more than fifty years”

Ralph Allen

IN ALL OF Canada's long clattering parade of triumph, disaster and dispute, there has never been anything quite like the Beauharnois scandal of 1930.

When parliament dissolved for the 1930 election the first fumes of the scandal already lingered behind in the silent green chamber of the House of Commons.

A private concern, the Beauharnois Power Corporation Limited, had for some years held important power rights on a section of the St. Lawrence River near Montreal. To make it possible to use them, Ottawa’s approval of a diversion canal had been needed and granted. The promoters thereupon began putting more water into their stock than into their canal.

A week before the last session under the Liberal government of the day, Robert Gardiner of the United Farmers of Alberta charged in the House of Commons that through a false prospectus the Beauharnois company was well on the way to defrauding the investing public of some thirty million dollars. Moreover, during the preparations necessary to so ambitious an enterprise, the president of the company, R. O. Sweezey, had written an indiscreet letter to J. Alderic Raymond, hôtelier and businessman, of Montreal. Alderic Raymond was a brother of Senator Donat Raymond, the Liberal party treasurer for Quebec.

THIS LIFETIME IN CANADA

The best of Ralph Allen’s remarkable new book,

ORDEAL BY FIRE

Sweezey, the promoter, instructed the Senator’s brother: "Enlist with our syndicate two or three individuals, who in addition to paying some cash as their fair share can assist us in getting our rights extended or enlarged so as to develop the entire available flow of the St. Lawrence at this point. As the whole situation is within the Province of Quebec, our influence has to be exerted only in political circles.”

The next chapter had to wait a full year. During his last few days in opposition, R. B. Bennett, the leader of the opposition and soon-tobe prime minister, had been demanding a full investigation of the Beauharnois company. When he returned to the House of Commons as prime minister, he had more urgent things on his mind, among them the knowledge that his own party had taken thirty thousand dollars from the Sweezey interests before he himself ordered it to take no more. He was, at any rate, no longer in a hurry to ventilate the subject. Mackenzie King, the departing Liberal prime minister, was in even less hurry, for reasons that soon became clear.

Except for the persistence of the little United Farmers of Alberta group, the matter might have remained dormant indefinitely. But in May, 1931, the Alberta farmers concluded they had been stalled off

The plot and the cast: the politicians who played football with

long enough. They looked the massed and silent phalanx of city slickers square in the eye and demanded a recorded vote to decide whether Beauharnois should be debated immediately or not.

King and Bennett eyed each other across the floor of the House, each wondering whether he dared lead his followers into a “nay” vote, each afraid to do so lest the other might then reap an advantage by voting virtuously "aye.” Bennett at last made the first move and suddenly the whole House, Tory and Grit alike, was milling toward the banner of the farmers like a yeoman army mustering against the barons. “The scene.” J. S. Woodsworth reflected later with un-Woodsworthian malice, "was one of the most ludicrous 1 have ever seen in this House." When the astonished tellers had finished counting, they announced the verdict: 147 in favor of ventilating the Beauharnois affair, 21 against.

Within a month Beauharnois w'as before a parliamentary committee. It took only a few' sittings to establish the outlines of the most barefaced public steal in more than fifty years. The company had paid at least $700,000 into the Liberal party’s campaign funds. Three of the party’s leading members — all respected senators, one the party’s national treasurer, one its Quebec treasurer — had also accepted or extorted huge profits for themselves. While this was going on the Liberal government was handing over to the company almost priceless rights on the St. Lawrence along with a heaven-sent opportunity to fleece the inve$tor. ;

On the Beauharnois side of these transactions the chief factor was Robert Oliver Sweezey, a forty - seven - year - old Montreal engineer, broker and businessman. As early as 1912, when he w'as working for Lord Beaverbröok, Sweezey had studied the St. Lawrence’s untapped power resources and concluded, as had others before him. that the fifteen turbulent miles between Lake St. Francis and Lake St. Louis constituted one of Canada’s most valuable unused natural resources. Beaverbrook lost interest in the St. Lawrence as he became drawn more

and more toward England, but in the early 1920s Sweezey decided to form a syndicate to build a power plant on his favorite stretch of the river.

Quebec controlled the power rights and Ottawa the navigation rights. Without Ottawa’s clearance the canal needed for a power plant could not be built. On the government side of the seedy drama now unfolding the protagonists were Raymond and his fellow senators, Andrew' Haydon and Wilfrid Laurier McDougald. Raymond joined the syndicate early and made halt a million dollars on his own account besides collecting $200,000 for the party.

The parliamentary committee soon learned that Haydon, the national treasurer and organizer, had collected half a million dollars oí Sweezey and Beauharnois money for the Liberal party. In addition he virtually forced Sweezey to pay his law firm $50,000 for helping to arrange the needed permissions from Ottawa, and in addition to that he had his firm placed on a retainer of $15,000 a year.

McDOUGALD—"A HABERDASHERS TOTEM ”—COLLECTED A FORTUNE

Senator McDougald collected no money for the Liberal party, but he collected a very large amount for himself. No one was in a better position to do so, for he was a big man in both politics and high finance. He had begun life as a country doctor in Northern Ontario, made some fast money in mining and given up the healing arts forever. He took up business in Montreal, continued to prosper and began to make the right friends. He soon became as familiar a figure in the lobby of the Chateau Laurier as in the St. James’s Club in Montreal. In either place he w'as recognized by his field marks: a virile shock of black wavy hair surmounting a haberdasher's totem of patent-leather button shoes, dove-gray spats, silk gloves and morning clothes, often with a small orchid in the lapel.

Before McDougald was forty-five Mackenzie King appointed him to the Senate. Other honors had preceded CONTINUED ON PAGE 74

CONTINUED ON PAGE 74

power rights worth millions—and the first MP to tackle them

THE BEAUHARNOIS SCANDAL continued from page 15

“It was a very distasteful thing to me,” said Sweezey —millionaire buyer of men and government

this, and others followed. In the year of decision on the Beauharnois application he held four distinct public offices in which he could influence the decision. He was chairman of the Montreal Harbor Commission. He was a member of the National Advisory Council on the St. Lawrence Waterway. Besides being an ordinary member of the Senate, he was a member of the Senate’s special committee on the St Lawrence. He was also — although this, understandably, was a secret known only to a very few — one of the largest shareholders in Beauharnois.

He acquired his first million dollars worth of stock as an outright gouge and split it down the middle with Robert A. C. Henry, an influential civil servant who helped him extract it. In this mere prelude the powerful senator and the powerful bureaucrat set up a dummy company of their own and made a dummy application for the same water rights they knew Sweezey and other promoters would be seeking later on. Then they informed Sweezey that if he wanted fast action on his own application he had better buy out their own worthless corporation. Sweezey did, for two thousand shares in his own syndicate — wi>rth about five hundred dollars each. Once the deal was made, events moved swiftly. Henry, through a lucky coincidence, was promoted to the petition of deputy minister of Railways and Canals. This made him the top administrative officer of the government department that could, and almost immediately did, push through the order-incouncil granting Beauharnois its franchise.

Up to this crucial point, the point of the government’s decision to give the company what it wanted. McDougald and Henry had kept their Beauharnois interests hidden behind a series of false fronts. But once the Beauharnois franchise was granted and no i>ne could accuse them, as brand-new stockholders, of influencing an action already taken, they felt free to come above ground. With the help of options and stock splits they soon had Robert Sweezey where the camel had the Arab — halfway out of the tent. McDougald became chairman of the board. Henry resigned from his federal government post to become vice-president and general manager. Sweezey hung on as president.

When he took the witness stand to explain his vast scale of bribery, Sweezey — the buyer of men and government — made a not altogether convincing effort to depict himself as an innocent who had fallen among thieves. When his memory flagged at one point he fingered his pincenez and pleaded fastidiously: "It w-as a very distasteful thing to me and I personally preferred not to know or remember anything about it.” He paid nearly half a million dollars in "legal fees,” a large percentage of which actually went, according to the gossip of the parliamentary press gallery, for everything from cases of the best Scotch to bevies of the best ladies from Hull. He cheerfully settled individual expense accounts for up to $50.000 without asking for itemized statements.

Sweezey once pressed $125,000 on a casual acquaintance on the strength of a knowing nudge in the ribs. John Aird Jr., son of fhe eminent Toronto banker, heard of the delay Sweezey was having in his plans for Beauharnois, went to see him and mentioned discreetly that he thought a donation to the Ontario Conservative party might be appreciated. Theoretically, Sweezey had nothing to ask of the Ontario government, but he was well aware that if it chose it could seriously delay his plans in Quebec. “Gratefulness,” Aird reminded him gently, "is always regarded as an important factor in dealing with democratic governments.”

The promoter, certain that he was speaking to an official emissary, promptly forked over $125,000. Aird as promptly put it in his personal bank account and left it there. When it came his turn to testify before the parliamentary interrogators he said he'd never had any connection with the Ontario Conservative party and never pretended to have. The money was a fee for some advice that Aird. a nonpractising engineer and a failure in half a dozen fields, said he had given Sweezey on how to procure a contract with the Ontario Hydro-Electric Power Commission.

Aird was unable to remember the nature of the "advice,” and Sweezey stuck stubbornly to his story that he had been led to believe his company was buying the gotxl will of the Ontario Tories.

R. B. Bennett was so shaken by this

public exchange that he put in a transAtlantic telephone call to Howard Ferguson. the former premier of Ontario, recently appointed Canadian High Commissioner in London. Back through three thousand miles of Atlantic static came Ferguson’s rasping guarantee: ‘They can dig right through to China; they wjll get nothing on me.’’ (They never did, either; nor did this first committee or a followup investigation in Ontario ever gej anything from young John Aird except his blandly reiterated claim that Sweezey, in efTect, gave him $125.000 for nothing.)

Most of the witnesses at the Beauhjarnois investigation were co-operative and reasonably frank. Once a member of the committee asked Bob Henry, the former civil servant and now' general manager of Beauharnois, a blunt question: was it true that he and Senator McDougald had filed their original St. Lawrence application in order to force anyone who might thereafter undertake to develop that part of the river “to take care of McDougald and Henry”? . .

“I guess you can put it that way,” Henry said pleasantly.

Senator Raymond appeared before the committee and admitted both the huge party donation and the huge personal profit he had acquired from Beauharnois. Senator Haydon was too ill to testify in person, but consented to be examined at his home. He confirmed the Beauharnois donations to the Liberal party and his private dealings with the company. Neither senator would acknowledge the slightest feeling of wrong-doing: they both appeared convinced that they had acted in a perfectly normal and ethical manner.

McDougald was by all odds the least outgiving of the principals. When the committee summoned him to appear he refused, falling back on his immunity as a senator from the commands of the Commons. For a day or two the press was full of rumors that the committee would, send the sergeant-of-arms to ftftch him and. if he still refused to come,|lock him up in the tower of the House of Commons. This delightfully medieval prospect was not nearly so impossible as.it sounded. As recently as 1913 an earjicr utilities promoter had gone to the tower in Ottawa for refusing to answer a subpoena from the House. The papers recalled that he had slept on a davenport with a uniformed policeman on an adjoining one and had

lamb chops and hash-brown potatoes for breakfast. The vision of McDougald. the multimillionaire fashion plate, in similar surroundings added to the sense of public excitement that had already kept the enquiry on the front pages through most of July.

When McDougald still refused to communicate with the committee except through his lawyer, Bennett threatened either to call a royal commission or to rush through a constitutional amendment abolishing Senate immunity. At last, on the second last day of the hearings, the senator presented himself for examination. Except that he was dressed much more conservatively than usual in a plain blue business suit, there was no visible change in his usual demeanor. As he entered the historic Railway Committee room, the scene not so long before of the explosive Customs investigation, it was jammed to its rafters. At least five hundred people crowded the corridors outside. From afar the bell summoning ordinary MPs to the regular sittings of the House clanged and scolded for a full five minutes. It was mostly in vain. Nobody was missing this if he could help it.

To some McDougald was disappointingly unruffled. He took approximately the same basic position as his fellow senators had done. There was nothing to deny, nothing to defend, nothing to apologize for. He had made money from Beauharnois, certainly — hut only as an honest businessman. He had never used the slightest influence in any of his public offices to advance his private interests or the interests of the power firm of which he w'as now the chairman.

An outraged MP read back to him a declaration he had made in the Senate in 1928, when he was acquiring shares in the company through one of his blinds: "I want to say here." the senator had declaimed. “and to say it with emphasis, that I do not own a dollar’s worth of stock in this enterprise, and have no interest in or association with that company in any way, shape or form.” McDougald, confronted with evidence to the contrary, now ran to cover behind a thicket of his front men and the fine print in his original statement.

As the senator alternately swaggered and slithered through his cross-examination, the bitter story of Beauharnois appeared to be nearing a merciful end. The

thing had at last come down to the dregs. There could be no more shame to taste, no more good, respected names to soil.

But there urn one more name: William Lyon Mackenzie King. The exhibit that contained it had been uncovered first by the committee’s shocked auditors. The members saw it privately and for a week could not quite bring themselves to make it public. But now, with McDougald on the stand, they put it on the table. There, as suddenly, unbelievably and theatrically as an apparition from Shakespeare, lay a slip of paper to show that, only a year be fore, the company that had been busy suborning a Canadian government had paid a rather large hotel and travel bill for the head of that government.

Just before plunging into the election campaign of the previous spring King had gone to Bermuda for a short holiday in company with Andrew Haydon, the party treasurer. Before they left King urged McDougald to join them; the prime minister and the senator had been enjoying Faster together off and on for years. When they checked out of their hotel, McDougald picked up the bill for all three. Later a voucher went from McDougald’s office to the treasurer’s office at Beauharnois. It was paid and, according to the stamp on the voucher, the proceeds were credited to McDougald’s private account.

The voucher read: Expenses of trip to Bermuda, Hon. W. L. Mackenzie King and self: Hotel, Bermuda $288.53. Fares, Montreal to Bermuda and return, $395.04. Hotel. New York. $168.75. Total, $852.32.

McDougald, who had been warned the voucher might come up and therefore had time to prepare an explanation, produced a story of bookkeeping so muddled and accounting so confused that he himself was still amending it when the subject arose again seven months later in the Senate. It boiled down to two main points; He had, indeed, paid part of King’s hotel bill in Bermuda, as a friend but not as an officer of his company; he had not intended to recover the money from Beauharnois; the voucher that said he had went forward through an error of his secretary.

The next day King, gray and trembling, rose in the House of Commons on a point

of privilege to say substantially the same things. When he had gone to pay his own bill in Bermuda he found McDougald had paid it already, but he considered the matter a personal one and was sure McDougald would do the same. Therefore he forgot it. He had not traveled with McDougald either to Bermuda or back to Canada. McDougald had not paid his hotel bill in New' York. He was “horrified” when he learned the Bermuda bill had gone back to Beauharnois.

It may or may not have occurred to King that if it was improper for the prime minister to accept expensive entertainment from a large company doing business with his government, it might also be improper to accept the same kind of entertainment from the chief officer of the same company. He appeared to believe quite earnestly that the only point at stake was which of McDougald’s pockets the money came from. No one in parliament argued the question with him, then or later. Bennett himself nodded sympathetically throughout King’s painful statement on the matter and at the end there was moderate applause from both sides of the floor.

The committee lost little time i n bringing down its report, which ‘‘strongly condemned” Senators McDougald and Haydon; chided but did not condemn Raymond; suggested that John Aird and anyone else who had extracted campaign funds “improperly” return them to the company at once; charged Sweezey with the misuse of company funds but nothing more serious; suggested Henry be fired; and urged refinancing of the whole development “in such a manner as will best serve the people of Canada.”

Under the stock-w'atering schemes carried through thus far, the inquiry disclosed that the promoters already had all their own money back, plus a cash profit of more than two million dollars, plus common shares once worth seventeen million dollars but now' down to four million. The next step they had been planning would have left them still owning 1,600,000 of a total of 1.800,000 shares, with an additional $46.000,000 of public money invested in the company, all their own money back, and full voting control for

the next ten years even if the/ sold all

their common stock.

As R. B. Bennett, the efficient lawyer of

big business, strode into thr scene of corporate blight and rapine, .orne semblance of order began to emerge. McDougald resigned his Senate ^.eat, but Raymond and Haydon stubbornly clung to theirs. Sweezey and Henry were allowed to quit the company. But for many years Beauharnois was to be a white elephant not unlike the old Canadian Northern Railway — too useful to allow to die, and almost too expensive to feed.

With the Tory government fisted to r».Yi the gantlet of four more years .of dep^sswn. the Liberals’ responsibility Jor Jfeauharnois was almost forgotten beyfore the voters had a chance to pass their verdict on it. The result was no verdict at all; it might never have happened.

King's instinct seemed to tell him this was how it would be. For after the brief humiliation of the Bermuda disclosures, he recovered his composure and within ten days was attempting to plant the suggestion that whatever had gone wrong with the country’s political morals, it was mostly the fault of the Conservatives.

For his part, he did not condone party donations of the size just made known, although he was pleased that the committee had found no evidence they had influenced the conduct of his recent government. It was really, to come right down to it. none of his affair anyway. He made it a rule never to know where the party’s funds were coming from. If he did know, it might unconsciously prejudice his judgment.

Now as for the present prime minister — at this point the effortless, hydromatic shift of gears, a device he practised on Bennett as maddeningly as he ever practised it on Arthur Meighen — now as for the present prime minister. King was sure he must take the same attitude. Why. of course Bennett couldn't allow himself to know who was supporting the Conservative party and with what sums. He elaborated in his friendliest tone: “If it be true that my right honorable friend had knowledge of all who were contributors to his party fund, what will the country be thinking today of the changes which have been made in the tariff in connection with cottons, in connection with woollens,'in connection with rayon and silk? What about iron and steel, boots and shoes, gasoline, magazines, sugar refining; what about income taxes, what about agricultural manufacturers, what about motor-car manufacturers and what about, electrical - goods manufacturers?"

Bennett burst in, enraged but almost helpless: “This is disgraceful!”

King went on piling his honorable friend elbow-deep in red herrings. What was needed was a special inquiry into the whole question of campaign funds. If Liberals had been abusing the traditional right of political parties to seek financial help of their sympathizers, let them be exposed. If Liberals had allowed their political decisions to be affected by party donations, seek them out. If Conservatives had been guilty of similar transgressions, let them answer for it too.

It was regrettably true that the Tories, with their greater appeal to big business, probably had ten dollars to spend on elections to the Liberals' one. Let an impartial commission be asked to get at all the facts. “In addition,” King went on, offering the country still one more thing to think about besides Beauharnois, "there should be a measure to make it the law of the land that voting shall be compulsory."

The crowning affront to Bennett, who somehow was now being called to account for the sins of his enemy, was a sermon in which King managed both to repudiate and embrace his erring friends and to make his

Cjwn part in the affair appear not only exemplary but rather noble.

“We all have our friendships.” he declaimed. “Are we to understand that every n»hn is responsible for every act of his friends? ... 1 ask this honorable House: Is there any relationship closer than that Cf father and son? Will honorable members opposite, or will any member of this parliament or anyone in this country say that because a son commits indiscretions and does things which will not bear the light of day his father is responsible for those acts, that as a result of them his

father has been corrupted? He may break his father's heart, hut he will not break his father's character. He may even help to reveal something of the beauty and the strength of a father's character, and what is true of that very intimate relationship of life is also true of the less intimate but hardly less sacred relationship of human friendship." In the same address he spoke favorably of Canadian unity, the Diamond Jubilee of Confederation. Dominion-provincial harmony and the BriandKellogg peace pact.

Bennett, the champion nonstop orator

of his time, circled King's reef of syllogisms for two days, but only really pierced it once. "I have always held," he growled during one of King's acrobatic feats of self - justification, “that the receiver of stolen goods was a criminal."

Without turning a hair King replied with a lecture on the necessity of sticking to the point. And there the Beauharnois scandal ended. ★

NEXT: HOW THE CRISIS OVER CONSCRIPTION MADE I A CRIER A MAN WITHOUT A COUNTRY.

Ralph Allen’s book. Ordeal by Fire, will be published ibis fall by Doubleday Canada Ltd.