CANADA/COVER

MULRONEY VS. THE MOUNTIES

The former prime minister's Airbus lawsuit raises a series of new questions

STEVIE CAMERON December 4 1995
CANADA/COVER

MULRONEY VS. THE MOUNTIES

The former prime minister's Airbus lawsuit raises a series of new questions

STEVIE CAMERON December 4 1995

MULRONEY VS. THE MOUNTIES

CANADA/COVER

STEVIE CAMERON

The spectacle of a man who was the prime minister of Canada for almost nine years declaring legal war on his own government and the Royal Canadian Mounted Police in a $50-million libel suit is so extraordinary that it could put to rest, once and forever, the international myth that Canadian politics are dull. But just as extraordinary are the RCMP’s allegations of bribery against him, which state that he and two other men, former Newfoundland premier and Ottawa lobbyist Frank Moores and Munich businessman Karlheinz Schreiber, may have been paid millions of dollars in connection with the sale of $1.8

billion worth of aircraft to Air Canada during Mulroney’s tenure as prime minister. In documents that Mulroney’s own lawyers made public last week as part of their legal offensive, RCMP investigators allege that as much as $20 million from Airbus Industrie was moved from a Paris bank to a Liechtenstein shell company called International Aircraft Leasing Ltd., controlled by Schreiber, and then funnelled into two accounts at the Swiss Bank Corp. in Zurich. The investigators maintain that their confidential sources say that a quarter of that money, or about $5 million, went to Mulroney himself.

Mulroney’s decision to launch his suit amid intense publicity last week in Quebec Superior Court was a bold preemptive strike apparently designed as a bid to control the agenda and put his detractors on the defensive. In 65 pages of documents filed with the court, Mulroney’s lawyers say that their client, “a lawyer of international stature,” has been seriously damaged by “false” and “reckless” police allegations in a letter sent on Sept. 29 by the federal justice department to Swiss authorities, requesting assistance with their inquiries. It is that document that contains the explosive charge that there was a “persisting plot/conspiracy by Mr. Mulroney, Mr. Moores and Mr.

Schreiber, who defrauded the Canadian government in the amount of millions of dollars during the time when Mr. Mulroney was in office until his resignation in June, 1993.” The lawsuit claims that the RCMP and justice department officials based their request on allegations “solely generated by media speculation, knowing they were totally incapable of proving any of them, but made them nevertheless with utter disregard for the disastrous impact which they were bound to have on [Mulroney’s] reputation.”

In their letter to the Swiss, RCMP investigators alleged that Schreiber and Moores had a secret agreement with Mulroney to make sure that Air Canada, then a Crown corporation, bought 34 Airbus A-320 aircraft. In 1986 or 1987, the RCMP says, Moores set up the two accounts at the Swiss Bank Corp.—one of which, code-named “Devon,” was set up to

receive money for Mulroney. For his part, the former prime minister has flatly denied ever having any foreign bank account. The lawsuit further states that the RCMP maintained, as part of its evidence, that the CBC news program the fifth estate established a connection between Mulroney and the Airbus payments—even though neither the fifth estate nor the German newsmagazine Der Spiegel, which carried an article also cited in the government’s letter, made any such link. As a result, the former prime minister sued the justice department in the person of its minister, Allan Rock; Kimberley Prost, the justice department lawyer who signed the letter to the

Swiss; RCMP Commissioner Philip Murray; and Sgt. Fraser Fiegenwald, the RCMP officer investigating the allegations.

Those allegations amounted to a political bombshell, but Rock insisted last week that politics played no role in his department’s decision to seek help from the Swiss in their investigation of the Airbus scandal. Rock said the letter signed by Prost was just one of 100 to 150 similar requests for assistance that the justice department handles each year from police forces seeking help from authorities in other countries. He said such requests are routinely handled without getting the minister’s office involved—even when it touches on a former prime minister. “I think there should be the same approach for all Canadians, no matter who they are,” Rock said.

The former prime minister's Airbus lawsuit raises a series of new questions

l But the identity of the chief suspect made the \case anything but routine. Far from settling the E questions that had been swirling around him, the \ aggressive stance of the Mulroney team and their ] actions throughout last week raised many new I questions. Among them was the way that RCMP I investigators handled their request to the Swiss government. After one of Mulroney’s lawyers,

Gérald Tremblay, declared, for example, that the RCMP and the justice department had acted on “unsubstantiated reports in the media and [on] an unidentified source ... to make scurrilous suggestions that are unfounded and that have caused incalculable damage to Mr. Mulroney and his family,” Swiss police quickly jumped to the defence of the officials and the Mounties. Pierre Schmid, an assistant commissioner at Swiss federal police headquarters in Bern, said that Canada had acted correctly in outlining, in no uncertain terms, its allegations against Mulroney and others. “That’s right, they have to do that,” he said firmly. “If they don’t do that, we certainly have to ask for additional information.” Schmid said he needed this information to make a decision about whether or not to ask the Swiss Bank Corp. to freeze two bank accounts allegedly set up to receive Airbus money, and turn over any documents relating to those accounts. And he said the information was detailed enough for his department to pass it on quickly to the Swiss attorney general—and that if the allegations were proven it would constitute a violation of Swiss law. “We look at the facts to determine if it would also be punishable by the criminal law [of Switzerland],” Schmid said in an interview with Maclean’s. The investigation now under way in Bern, he added, was very “similar to a criminal investigation.” Given

‘There should be the same approach for all Canadians’

the detail in the Canadian request, the Swiss quickly froze the two accounts and gathered the relevant documents, which could be in the hands of the Mounties within weeks.

Another aggressive measure by the former prime minister, which may have backfired, is the unprecedented libel suit itself—in part, at least, because of the way in which the allegations against Mulroney first became public. According to Mulroney’s claim, Prost “admitted to never having bothered to verify the truth of the allegations” before sending on the request to Switzerland. Presenting the letter to the Swiss, Mulroney’s lawyers contend, set in motion “a process of publication which further exacerbated the original damage caused to [Mulroney’s] reputation.” (Neither Murray nor Prost made any public comment on the case last week.)

But who exactly set the process of publication in motion? Conflicting reports circulated all last week how copies of documents prepared for Mulroney’s case found their way into the hands of Philip Mathias, The Financial Post reporter who broke the story that the former prime minister was under police investigation just hours before his lawyers announced the suit on Nov. 18. The Post itself is not being sued and Mathias, an experienced investigative reporter who had not previously worked on the Airbus affair, based his story on documents that appeared to match the copies included in the Mulroney lawsuit. But Mathias vehemently denied that he was leaked the documents by anyone in the Mulroney camp, and he also said the versions were not the same.

Another question arose: how did Mulroney get the documents in the first place? The answer seemed to lie in the process itself. The Swiss

prosecutors sent the edited request to the Swiss Bank Corp. and because the bank and the account holders had the right to appeal, the account holders would have received copies as well. That means that both Moores and Schreiber would have received them, as well as the person who has signing authority for the mysterious Devon account. If that person is not Mulroney, his copy could have come only from the bank itself, from Schreiber or from Moores.

However Mulroney laid his hands on Ottawa’s request to Switzerland, it is clear that it was in his possession by Nov. 4. That is the day that another one of his lawyers, former deputy justice minister Roger Tassé, called Justice Minister Rock at home to ask for a meeting on the Airbus case. Rock refused because, as he later said, he thought it would be inappropriate to meet privately with a lawyer acting for someone under police investigation. Just a day or two before the story broke, Tassé also called RCMP Commissioner Murray, but the answer was the same—no meeting. Tassé told reporters in Montreal that he had asked the Mounties to withdraw their request, draft a new one leaving out Mulroney’s name and to apologize to his client. The RCMP refused that request as well. If the force had agreed, the Swiss would have had to lift the freeze on the accounts until they received a new request.

Mulroney’s loyalists in Ottawa last week also attacked the credibility of a key RCMP source, stating that the source was a disgruntled former employee of Schreiber. They leaked a name and some personal background of a source to reporters, claiming that the person had a criminal record. But a contract between that man and International Aircraft Leasing obtained by Maclean’s describes him as an “administrative member” of the company who has “sole signing authority” for the company. In other words, he was responsible for the company’s finances—and familiar with all aspects of Schreiber’s business.

Given all the questions that surfaced about the documents and the leaks last week, Mulroney’s libel case may be a difficult one to win. Still, the former prime minister assembled a legal dream team from top firms in Ottawa and Montreal that includes Tassé, a partner at Gowling Strathy and Henderson of Ottawa; Yarosky and Fred Kaufman of Montreal’s Yarosky, Daviault, La Haye, Stober and Isaacs; plus Tremblay and one of his partners, Jacques Jeansonne, from McCarthy Tétrault in Montreal. Former Mulroney aide Luc Lavoie, an official of National Public Relations in Ottawa, is the spokesman for the group, while Tory Senator Marjory LeBreton, once deputy chief of staff in Mulroney’s office, took on the role of his most energetic public defender. It was a lonely task: most of

Mulroney’s former cabinet colleagues conspicuously failed to come to his defence last week. One who did was also the most surprising. That was Bloc Québécois Leader Lucien Bouchard, who told reporters that despite their political differences, he believed that Mulroney was “totally honest.”

But Bouchard, himself, is no stranger to the Airbus deal. Airbus Industrie’s headquarters are in Toulouse, France, and Bouchard was the Canadian ambassador to France when Air Canada, then a Crown corporation, chose the Airbus A-320 over a rival plane from Boeing. Bouchard attended a meeting in the Prime Minister’s Office in 1986 with a number of people, including Moores and Gary Ouellet, Moores’s partner in the Ottawa lobbying firm Government Consultants International, to plan strategy on acquiring the aircraft. In those days, it was not an easy sell: Boeing had contracts with nearly all North American airlines and when senior Boeing executives discovered that Airbus seemed to have the inside track with Air Canada they recruited senior officials from the U.S. state department for help. One of those officials said in a confidential interview that after a thorough investigation by U.S. authorities, including the Federal Bureau of Investigation, “there is no question in my mind that large commissions were paid.” While accepting such commissions is not illegal, Moores has repeatedly denied that he ever lobbied for Airbus, and Ouellet, a Quebec City lawyer and professional magician who was not named in the justice department’s documents,

THE MEN AT THE CENTRE

FRANK MOORES

Until the Airbus scandal broke, Frank Duff Moores, 62, spent his winters in prosperous obscurity on the edge of an exclusive golf course in Jupiter, Fla. For the son of a wealthy Newfoundland fish packer, Old Boy of St. Andrew’s College in Aurora, Ont., husband of three (with two divorces before his marriage to Beth Champion in 1982) and father of eight, life in Florida has been a far cry from the hurly-burly of a tempestuous political and business career that began when he was elected Tory

MP for Trinity-Bonavista-Conception in 1968, and became party president a year later. In 1970, Moores left Ottawa to assume the Conservative leadership in Newfoundland; he became premier in 1972. A close friend of Brian Mulroney over the years, Moores nominated him for the federal Tory leadership at the 1976 convention, won by Joe Clark. When Mulroney became president of Iron Ore of Canada in 1977, he frequently visited Newfoundland because his company was the province’s largest private employer—and he and Moores grew even closer. Moores also worked on Mulroney’s 1983 leadership campaign; after Mulroney’s victory, he bought an Ottawa lobbying company, renamed it Government Consultants International (GCl) and turned himself into the city’s most powerful lobbyist. Towards the end of the Mulroney era, Moores became less visible in Ottawa, while members of his staff formed their own company. GCl finally folded in 1994. Today, Moores divides his year between golfing in Florida and summers at his luxurious cottage in eastern Ontario.

FRANZ JOSEF STRAUSS

The “Bull of Bavaria” continues to cast his shadow over German politics. Franz Josef Strauss’s place in history is assured: holding various portfolios in the West German government between 1953 and 1969, and as premier of Bavaria from 1978 until he died in 1988, he was instrumental in shaping a wealthy, high-tech society out of the ruins of the Second World War, not only in Bavaria but in the country as a whole. From 1971 on,

Strauss was also active in Airbus Industrie, the aircraft consortiur partly owned by Bavaria’s industrial giant, Messerschmitt-Bölkow Blöhm, holding the chairmanship at the time of his death at age 7Í But last year, Germany was rocked by revelations that Strauss, the for KARLHEINZ SCHREIBER

Short, dapper and gregarious, a lavish entertainer who loves to tell jokes and belt out Frank Sinatra oldies—that is one side of Bavarian-born Karlheinz Schreiber, 61. But Schreiber, an arch-conservative international entrepre-

neur, has also used his social skills to cultivate politicians—especially Canadian Tories. One of his best friends is former Mulroney cabinet minister Elmer MacKay, who often visits Schreiber at his luxurious country estate near Kaufering, about 50 km west of the Bavarian capital of Munich. (The house reportedly boasts a basement bowling alley and a restaurant-style dining room.) Schreiber has even hosted MacKay’s children on trips to Germany. In the late 1970s and early 1980s, when Schreiber was living in Calgary and investing German money in land development, road building and the oil industry, his close associates included such men as William Dickie, Hugh Horner and Horst Schmidt, all onetime cabinet ministers in Peter Lougheed’s Tory government. Through his Tory connections, Schreiber also met Frank Moores and Brian Mulroney and supported Mulroney’s 1983 leadership bid. In Germany, Schreiber is currently experiencing some difficulties: following the recent stories about his possible involvement in alleged Airbus kickbacks, German tax authorities have been on his trail and, three weeks ago, police raided his house and office.

mer leader of Bavaria’s right-wing Christian Social Union (CSU), had not only used his influence to help a wealthy friend, Edward Zwick, evade about $20 million in income taxes in 1983, but that he had also accepted rich benefits such as the free use of an aircraft from Zwick. The scandal damaged the CSU—which is part of Chancellor Helmut Kohl’s ruling federal coalition—it also put a damper on the oolitical ambitions of Strauss’s daughter Monika and his two sons, Max Josef and Franz Georg. Like many wealthy Germans in the early 1980s, Strauss lad invested in the Alberta oil patch with the help af his close friend, Karlheinz Schreiber. Today, Schreiber is still registered as a director for the Strauss family’s investments in Alberta.

went bankrupt in September, 1994. At the time, he said he had debts of $335,746, “didn’t have a cent in the bank” and that his only asset was a Jeep Cherokee.

Paying politicians millions of dollars in commissions for help in landing contracts may sound shocking in North America— but in Europe and elsewhere it is common practice. In Spain, France and Italy, politicians have been long embroiled in scandals involving kickbacks and political payoffs. And on Oct. 19, for example, former Belgian politician Willy Claes resigned as secretary general of the North Atlantic Treaty Organization when the Belgian parliament lifted his immunity from prosecution on corruption charges involving a government helicopter purchase. Most European countries do not have laws forbidding companies from paying bribes to obtain contracts, and American politicians have complained that gives European companies an unfair advantage in bidding on international deals. Sir Geoffrey Owen, director of the business policy program at the London School of Economics, says that the defence and aerospace sectors are particularly susceptible to bribery and political payoffs. “In the arms business, side payments do get made,” he told Maclean’s. “And the aerospace industry is incredibly competitive, with just a few manufacturers and tremendous pressure on prices.”

The Airbus affair featured an international cast of characters, including another former political leader. That was Franz Josef Strauss, the premier of Bavaria from 1978 until his death in 1988, at which time he was also the chairman of Airbus Industrie. Although the planes are built in Toulouse, the Bavarian company Messerschmitt Bölkow Blöhm (MBB) was a senior partner in the consortium, which included French, British and Spanish firms. Schreiber was not only Strauss’s personal representative in Canada for his family investments, but also lobbied hard for the Airbus consortium and for its partner, MBB, which sought a contract to sell helicopters to the Canadian Coast Guard. Canadian taxpayers poured at least $30 million into a new MBB plant in Fort Erie, Ont., in a 1983 agreement with the Ontario and federal governments, and in 1988, the Mulroney government agreed to pay $24.5 million for 12 new helicopters, which were later delivered. Documents show that MBB has paid at least $1.2 million into Schreiber’s Liechtenstein holding company for the Coast Guard deal, which was sharply criticized in a 1990 federal transport department audit.

Schreiber also represented Munich-based arms maker Thyssen AG in Canada, and worked tirelessly for the federal government’s help to build a $58-million light armored vehicle plant in Port Hawkesbury, N.S. The Thyssen subsidiary that planned to build the plant, called Bear Head Industries Ltd., also wanted a $400-million National Defence contract for new vehicles, and Thyssen paid Schreiber $5 million to make sure it

CHRONOLOGY

MARCH, 1985: The Canadian government appoints a new board of directors for Air Canada, which is to oversee the impending purchase of new aircraft. Three competitors for the contract emerge: U.S.-based Boeing Co., McDonnell Douglas Corp., and Airbus, a European consortium made up of German, French, British and Spanish interests.

JULY, 1988: Air Canada announces that it will buy 34 Airbus A-320 medium-range passenger jets. At $1.8 billion, the purchase is the largest in Canadian civil aviation history and is loudly decried by opposition politicians who say that U.S.-built planes would have been cheaper.

AUGUST-SEPTEMBER, 1988: Spurred by complaints from Boeing, the RCMP begins an investigation into the purchase. The case is soon put on hold because, according to Supt. Tim Quigley, “it didn’t develop into anything substantive at all.”

MARCH, 1995: CBC TV’s the fifth estate and the German newsmagazine Der Spiegel suggest that Airbus may have paid secret commissions to Canadians. Among the other allegations: Karlheinz Schreiber, a German-born businessman with ties to Airbus and Canada’s Progressive Conservative party, helped lobbyist and former Newfoundland premier Frank Moores as well as an unidentified Canadian politician open Swiss bank accounts. All parties deny the allegations, but the RCMP reopens the case.

OCTOBER, 1995: A letter dated Sept. 29 and signed by justice department lawyer Kimberly Prost is couriered to Switzerland, asking authorities for help in the investigation. The Swiss subsequently agree— and freeze bank accounts allegedly linked to the Airbus purchase.

NOVEMBER, 1995: Former prime minister Brian Mulroney discovers that he has been named in the letter and, through his lawyers, contacts the justice department. On Nov. 10, meanwhile, Swiss television breaks the story that Swiss and Canadian authorities are co-operating; on Nov. 18, The Financial Post reveals that Mulroney has been singled out in the letter as a suspect in a criminal conspiracy. On Nov. 20, he launches a $50-million lawsuit against Ottawa and the RCMP.

happened. That money also went through Schreiber’s Liechtenstein shell company International Aircraft Leasing.

Bear Head was the one deal that fell through. Ontario MPs who wanted the defence department contract given to a General Motors factory in London, Ont., opposed Thyssen. GM eventually won, and Thyssen was so outraged that Schreiber told friends in Canada that the company might sue the federal government, which had signed a letter of agreement in principle on the deal. Today, Schreiber is fighting demands from German tax authorities that he turn over all his records to them; in early November, they raided his house and office in Germany. Schreiber spends little time in Canada now, but he remains close to former Tory cabinet minister Elmer MacKay, who backed him on the Bear Head deal.

MacKay declined to comment on the affair when contacted by Maclean’s last week.

Moores was the other key player in this high-stakes group. The flamboyant Newfoundlander was the registered Ottawa lobbyist for both MBB and Thyssen and his former executive assistant, Greg Alford, becam^Bear Head’s Canadian vice-president. Former business colleagues at Moores’s firm, Government Consultants International, estimate that Moores earned at least $8 million from the firm over the years. Certainly, he became prosperous enough to buy a fishing camp on 12 miles of the Cascapédia River in Quebec, one of the finest salmon fishing rivers in the world. He built a $500,000 country home near Elgin,

Ont., and lives in a condominium worth at least $250,000 adjacent to a golf course in Jupiter, Fla. The condominium is owned by a Liechtenstein shell company called Ticinella Anstalt controlled by Schreiber, but Moores says he only rents it. Still, title documents show that all the property tax bills are sent to Moores at his Elgin house. Moores declined to talk to reporters last week. But like Mulroney, he, too, has secured top legal talent—Edgar Sexton, chairman of the Toronto law firm Osler Hoskin & Harcourt—to represent him in the Airbus case.

For both parties to the Mulroney lawsuit, the legal challenges ahead are daunting. Swiss bank officials say they will have the information requested by the RCMP ready by Christmas—but anyone named in the documents could begin a lengthy appeal against its release, thereby delaying the police investigation. And many legal experts argue that in order to win their lawsuit, Mulroney’s lawyers will have to prove not only that investigators falsely accused the former prime minister, but that they acted “maliciously.” Still, Mulroney did accomplish one important goal last week: putting his case squarely before the court of public opinion and the government on the defensive.

BRUCE WALLACE

TOM FENNELL