The big payoffs: good business? Or bad?

IAN URQUHART December 13 1976

The big payoffs: good business? Or bad?

IAN URQUHART December 13 1976

The big payoffs: good business? Or bad?


The dollar was falling, René Lévesque was assuming power in Quebec, and the postal workers were threatening to strike again. But throughout late November and early December, the country’s attention was focused not on these domestic issues but on a series of bizarre payments to questionable characters in far-off places by a Crown corporation, Atomic Energy of Canada Ltd. (AECL). On November 22, auditor-general James Macdonell reported to parliament that AECL, the government’s marketing arm for the Canadian-designed CANDU nuclear reactor, had paid out nearly $18 million in fees to “agents” in connection with the sale of reactors to South Korea and Argentina.

Some $15.4 million went to United Development Inc. of Tel Aviv, a worldwide sales corporation headed by Shaul Eisenberg, and $2.4 million to a firm called Intercontinental General Trading Establishment of Liechtenstein. Macdonell said that more than $10 million of these payments—about eight million dollars to United Development and the whole $2.4 million to Intercontinental—was inadequately accounted for. He did not say it, but the implication was clear to most people: the payments may well have been bribes to South Korean and Argentinian officials to persuade them to buy CANDU.

Suddenly, Canada had its own Lockheed scandal and, even though it was much

smaller in scale, it was compounded by the fact that AECL, unlike Lockheed, is government-owned.

It all started back in 1968 when AECL assumed responsibility for marketing CANDU. AECL decided it needed help. In 1972, it signed on Eisenberg and United Development as “exclusive agents” to sell CANDU to South Korea and joined in a partnership with Italimpianti, a stateowned Italian engineering firm based in Genoa, to sell the Canadian reactor to Argentina. Presto! Within a year, AECL had sold its first two reactors abroad and had promises of more sales to come.

Then the bills started to come in. First, Italimpianti (one of whose top officers,

Camillo Crociani, now is on the run because police want to talk to him about his part in Italy’s burgeoning Lockheed scandal) asked AECL to pay $2.4 million to Intercontinental. Later, in January of this year, Eisenberg submitted a bill for $20 million—$17.5 million down and $2.5 million in installments. AECL president John Foster, whose predecessor, J. Lome Gray, had hired Eisenberg, expected the bill. But when it arrived, he had “second thoughts” about it and took it to newly appointed AECL chairman Ross Campbell. In February, Campbell reported to Energy Minister Alastair Gillespie, the first time he had heard of the Eisenberg deal. According to the minutes of an AECL board meeting. Gray told a cabinet committee in June, 1973, that “substantial” agent’s fees had to be paid to secure the South Korean contract and, since Gray was not informed of any disapproval at the cabinet level, he went ahead with the Eisenberg deal. Prime Minister Trudeau told the Commons that minutes of the cabinet committee meeting show the agent’s fee was indeed discussed. Furthermore, said Trudeau, the absence of

any disapproval by cabinet should not be construed as a sign of consent to bribery. “We take the view that any Crown corporation . . . will abide by all the laws and practices which are commendable to Canadian people.”

After meeting Eisenberg last March, Campbell returned with a renegotiated contract calling for a payment of about $18.4 million and some accounting of Eisenberg’s expenditures. But the accounting was not good enough for the auditor-general. As Macdonell tells it, when he first informed Campbell in August that there were still some problems with the Eisenberg bill, the AECL chairman audibly groaned. What, Campbell asked, would it take to satisfy the auditor-general? Says Macdonell: “I said canceled cheques and vouchers are a good start, and I haven’t got those yet.”

In looking into the Eisenberg deal, the auditor-general also stumbled over the payment to Intercontinental, which had been overlooked in previous audits. He said he would like some documentation for that payment, too. AECL and govern-

ment spokesmen now concede privately that it is logical to infer that some of the money was used to bribe people. From Buenos Aires came supporting evidence in the state-controlled press that payments were made to former economics minister Jose Ber Gelbard and former defense minister Adolfo Mario Savino, both now living in exile, AECL would like to confirm or deny such reports but cannot, because only its Italian partner, Italimpianti, knows for sure.

According to a Buenos Aires newspaper, La Razón, Savino was a representative of Italimpianti during his term in office and Gelbard was deeply involved in the Mafiastyle graft that swirled around the old Peronist regime. Gelbard is also believed to have been a top contender for leadership of a massive criminal syndicate in Argentina which used its grip on government to advance what its members called La Cosa, meaning “the thing,” as in Cosa Nostra. While it lasted La Cosa was a multipleracketeering outfit, with tentacles extending into large-scale smuggling, illegal gambling, prostitution, extortion and fraud.

Meanwhile, in Ottawa, the Commons Public Accounts committee, assigned to look into the matter, was moving at a snail’s pace with just three hours of hearings in its first week. But reporters chasing

the story did manage to turn up some new information that seemed to indicate AECL was not an isolated example, including the following:

• Polymer Corp., a Crown corporation

that was taken over in 1973 by the Canada Development Corporation and renamed Polysar, paid $1.9 million into Swiss bank accounts for persons unknown in 1972. Former auditor-general Maxwell Henderson pointed out the practice to Prime Minister Pierre Trudeau in a letter in March, 1973. Trudeau passed it off to then treasury board president Bud Drury, who called CDC president Tony Hampson and was satisfied with his explanation that the payments were merely “volume discounts.” The fact that the recipients of the money may have insisted on payments being made to Swiss bank accounts in order to avoid taxes “is not a question in which we should be involved,” says Polysar spokesman John Silver. “If the customer said, ‘Pour gasoline over the money and burn it,’ we would.” The practice continues unchanged.

• The Canadian Commercial Corporation, a government-owned sales firm, paid $872,000 in 1971 to Canadair Ltd. of Montreal, now government owned but then privately owned, to promote the sale of 18 mothballed CF-5 jet fighters from the Canadian Armed Forces to Venezuela.

Canadair passed some or all of the money on to Dismatica, a Caracas-based agent, but denies any wrongdoing. Of the total payment, however, $500,000 was listed simply as “marketing expenses,” and the auditor-general was suspicious. Says former deputy auditor-general George Long, now retired: “It could well have been a payoff, because that’s what you would call a payoff: a marketing expense.

Some wondered why there was so much fuss because, after all, no Canadian official had been bribed and nothing illegal had happened here. (It is not illegal for a Canadian to bribe a foreign official. He may even deduct the expense from his taxable income, provided he gets a receipt, according to a statement issued earlier this year by the revenue department.)

While no one in the government was suggesting Canadians have a right to bribe people in foreign countries if they want to, there seemed to be a lack of commitment to take any steps, whether through the United Nations or some other forum, to clean up the situation. Said Trade Minister Jean Chrétien: “Commercial practices in other countries sometimes are different from ours. I am not about to condemn the morals of anybody. It would be very presumptuous for Canadians to tell other people how to conduct their morals.” Chrétien was not condoning bribery. But he did urge Canadians not to put their “head in the sand” and pass up overseas sales by being rigidly moralistic. “I think it is important to tell the business community, despite all the innuendos, that it is invited by the government, and I hope by the people of Canada, to try to sell abroad as much as it can.”

Compare that to the following statement by U.S. Treasury Secretary William Simon during the Lockheed scandal: “Practices such as bribes made to secure foreign business can only increase the distrust and suspicion that is straining our national institutions. To argue that bribes to foreign officials are necessary for effective competition is contrary to every principle under the free-market system.” On the other hand, an overly self-righteous stance by Canadians might shut Canada out of many foreign markets and kill any chance to cut its trade deficit and reduce its dependence on the sale of raw materials. It is the same dilemma that the United States faced earlier this year during the Lockheed scandal, but for Canada the problem is even more difficult because most Canadian companies do not have the clout of their American counterparts to say simply that they will do business their way or not at all.

The impact of this debate is difficult to gauge. One casualty may be the nuclearexport program, which was already under heavy fire from Conservatives and New Democrats because each reactor carries with it the seeds of an atom bomb, AECL was hoping to sell more reactors to Argentina and South Korea and was also work-

ing on sales to Japan, Italy, Romania and Mexico. But those plans now are under review and may be scrapped entirely as a result of the current furor.

But it is the political impact of the AECL affair that could be most serious. It came at the worst possible time for the Liberals, who were just beginning to reverse their long slide in the polls. (A November Gallup poll showed 35% of the respondents supported the Liberals, their highest standing since Joe Clark was chosen Conservative leader.) The government attempted to drown the bad publicity in a sea of its own public relations, including the appointment of a royal commission to investigate the control of government spending. But the move bombed and even such positive government measures as new legislation on immigration and human rights got pushed aside by the adverse reaction over Atomic Energy of Canada and the auditor-general’s report. Said Liberal MP Robert Kaplan to Macdonell in a committee meeting: “A report like yours, of course, to me as a government member, really hurts like hell. And the job of all of us, as MPS, is to make sure that if possible next year’s report congratulates the government for measures that it has taken between now and then.”