NATIONAL

Why did so many trust this man?

How Karlheinz Schreiber charmed—and spooked— politicians in two countries

JONATHON GATEHOUSE,COLIN CAMPBELL December 17 2007
NATIONAL

Why did so many trust this man?

How Karlheinz Schreiber charmed—and spooked— politicians in two countries

JONATHON GATEHOUSE,COLIN CAMPBELL December 17 2007

Why did so many trust this man?

NATIONAL

How Karlheinz Schreiber charmed—and spooked— politicians in two countries

JONATHON GATEHOUSE

COLIN CAMPBELL

Endless questions and no real answers. Karlheinz Schreiber’s first appearances before a parliamentary committee probing his relationship with former prime minister Brian Mulroney offered little relief to those hoping for a resolution to a real, or imagined, scandal that has made headlines for almost 13 years. If the truth indeed sets you free, indications are that the Germanborn businessman, lobbyist and fugitive intends to keep Canadians captive for the foreseeable future.

Schreiber arrived on Parliament Hill in handcuffs this week, but he was all smiles and elfin charm as he appeared before the ethics committee promising to deliver “fireworks.” He didn’t entirely disappoint, handing over, amidst laughter from gleeful MPs, thick black binders containing what he said was all of his correspondence with Brian Mulroney, and with Prime Minister Stephen Harper. “This is a wonderful Christmas gift to us,” gushed commitee chair Paul Szabo, who minutes earlier gave a long apology to Schreiber for the way he was shown on television with police escorts, barely holding up his beltless pants as they led him to his Ottawa home this week to retrieve documents. “The shaming of one Canadian has shamed all Canadians,” said Szabo.

Some fireworks, then, but as it turned out, no bombshells. Under questioning, Schreiber continued to fine-tune his story about the $300,000 in cash payments he made to Mulroney in 1993 and 1994. The money, he insisted, was intended for Mulroney’s help after he left government to push a project in Bear Head, Cape Breton, where the German company Thyssen Industrie AG wanted to build light armoured military vehicles. It had nothing to do with Airbus, he said, and was not meant for any service provided during his tenure as prime minister. The two had merely met and agreed to do business together on June 23,1993, two days before Mulroney stepped down as PM, but money wasn’t discussed at that time, said Schreiber. Schreiber will be back before the commitee,

but he is in no rush to deliver more than a trickle of information now. While testifying on Tuesday he was informed that he had been granted a $1.31-million bail after eight weeks spent in detention. And so he left Parliament Hill a new man, free to stay in Canada until at least January, when the Supreme Court of Canada will decide whether to hear his appeal to halt his extradition to Germany.

There’s good reason to believe he’ll be here awhile yet. Much remains unanswered—what, for instance, happened to the $20 million in commissions he received from the sale of Airbus planes to Air Canada in 1988, or the millions more he received for helping sell helicopters to the Coast Guard and for pushing the Bear Head deal—and, as tacticians, Schreiber and his various lawyers have few peers. After all, it has now been more than a decade since an investigating judge in Augsburg, Germany, swore out a warrant for the businessman’s arrest on charges of evading

tax on 64 million Deutschmarks of commission earned brokering international helicopter, aircraft and arms deals. (Schreiber has not set foot in his homeland since shortly after police raided his Kaufering home in October 1995, fleeing first to Switzerland, and then in May 1999 on to Canada, accompanied by his friend and former Mulroney minister Elmer MacKay.) And since his arrest by the RCMP on Aug. 31,1999, acting on a request of the German government, efforts to extradite him have been stymied at every turn. Led by Eddie Greenspan, his legal team has opposed the request through all conceivable means including constitutional challenges, emergency injunctions and multiple appeals. Schreiber’s

current application to the Supreme Court marks the third attempt to interest Canada’s top judges in the case. In addition, three different federal justice ministers have now reviewed the file, on a total of six occasions.

German officials have complained repeatedly about the lengthy delay. And although Schreiber was reportedly within hours of being put on a plane this past Oct. 4, when the Supreme Court rejected his second appeal bid, few in his homeland are holding their breath. John Goetz, a journalist for Der Spiegel who has followed the saga for more than a decade, says the public is tired of the story, “ft will be a big deal when he returns, but until then, no one cares.”

For those who are paying attention, Schreiber’s allegations of Canadian corruption and their parliamentary fallout must have a certain déjà vu quality. The German police probe into the arms dealer’s finances morphed into a full-fledged domestic political scandal there in 1999, when it was revealed that Walther Leisler Kiep, the treasurer for former chancellor Helmut Kohl’s Christian Democratic Union, received one million DM in cash from Schreiber during a 1991 meeting in a restaurant parking lot in Switzerland. The “donation” was never declared to German election officials, and questions emerged whether the money

was some kind of kickback from Thyssen related to its sale of tanks to Saudi Arabia.

More revelations—pieced together by prosecutors who matched Schreiber’s Swiss bank records with his meticulously kept diaries—followed. Although Schreiber was an active lobbyist in Canada at the time, his connections to European companies kept him very busy in his native land. (He kept homes in both Europe and Canada, and his business dealings were rooted in Liechtenstein-based shell companies.) In early 2000, Wolfgang Schäuble, Kohl’s successor as leader of the CDU, admitted that he had accepted an undeclared 100,000 DM cash contribution from Schreiber in 1994 (Schreiber bluntly called it a bribe

tied to Bear Head), and was forced to resign. Kohl himself admitted to taking illicit funds and paid a huge fine. In the end, “Kohlgate,” as it was called, spawned a wide-reaching parliamentary inquiry, charges against several prominent figures from German politics and business, and is said to have triggered the suicide of one CDU official.

The affair also raised new questions about Schreiber, who was by then a fugitive. In August 2000, another Augsburg judge ordered him to stand trial on accusations of fraud, bribery and breach of trust in connection with the 1991 deal he brokered to sell 36 Thyssen AG tanks to Saudi Arabia. The total value of the contract was 446 million DM, of which almost half, or some 220 million DM, reportedly went to bribes and secret commissions. (Schreiber is specifically accused of defrauding the Saudis of 24-4 million DM, and passing on undisclosed amounts to two Thyssen executives and Ludwig Pfahls, a former German deputy minister of defence.)

From his self-imposed exile, Schreiber has done his best to keep the pot boiling in Germany too by offering up tidbits of information over the years, but Der Spiegel’s Goetz says the public eventually tired of his revelations. “People kind of got sick of someone from the outside throwing bombs into our domestic politics,” he says. The country has clearly moved on—in November 2005, Schäuble returned from the political wilderness to become interior minister in Chancellor Angela Merkel’s cabinet.

So just how did Karlheinz Schreiber manage to become the centre of scandal in two countries at once? His place in the spotlight is particularly remarkable given his modest start in life. He was born in rural Germany in 1934, the year after Adolf Hitler rose to power. His mother was a cook and his father, who served in the German army during the war, was absent for a good chunk of his childhood. Brought up in war-torn Germany, he didn’t have much of an education, but he did display a keen interest in business. Schreiber found his first success as an adult importing carpets from Iran into Bavaria. From there, he took a job in Landsberg, a city near Munich, with a road-marking company, selling a new way to put lines on roads (not with paint but by inserting reflective material into asphalt). When the owner died in a car crash, the up-and-comer took over. A young man

in his 30s with visions of grander things, Schreiber set up a shell company in Liechtenstein, and went about making the right connections with politicians who could help his growing company.

While Schreiber wasn’t blessed with athletic talent or good looks (“born ugly, not stupid,” he quipped during his first appearance before the parliamentary committee last week), he displayed a true gift for making friends with powerful, ambitious people. By the 1960s, that included Bavarian politician Franz Josef Strauss (someone with business ties to Canada who would help pique Schreiber’s interest in the country, and later pave the way for his introduction to a young Canadian lawyer named Brian Mulroney).

In 1973, after meeting a group of Albertans on a trade mission to Germany, Schreiber was convinced that Canada was a promising

Mulroney's election win suddenly gave Schreiber ready access to Ottawa insiders

place to expand his road-marking company. Within a year, he had set up shop in Alberta, and with his business partner, Giorgio Pelossi, set off on a tour of the country. After settling in Calgary, Schreiber quickly made inroads with politicians in Peter Lougheed’s government. But his overeager advances didn’t go over with the premier himself, who according to Stevie Cameron and Harvey Cashore’s book The Last Amigo told his most senior officials that he would not put up with any of them doing business with Schreiber.

In the fast-growing city of Edmonton, Schreiber soon got involved in much more than road-marking, including some complicated and suspicious land deals that in 1982 turned soured, costing his investors millions

of dollars. With a recession looming and his fortunes sinking, Schreiber’s romance with the province was over.

But Schreiber, who had become a Canadian citizen in 1981 (Mulroney sent him a congratulatory telex), had already turned his attention toward Montreal and a cadre of federal Conservatives, including Fred Doucet and Frank Moores, who were working to dethrone party leader Joe Clark and replace him with the boy from Baie Comeau. In 1983, Schreiber poured money into the dump Clark campaign, paying as much as $30,000 to fly anti-Clark delegates to a party convention in Winnipeg. Clark received a lacklustre vote of confidence and was forced to call the leadership convention that would see Mulroney take over the party. Schreiber’s future in Canada suddenly looked a whole lot brighter.

When the young, dynamic Tory leader

swept to power with a crushing majority in the fall of 1984, those backroom connections gave the German immigrant ready access to Ottawa’s new power brokers. Working with Moores and his firm Government Consultants International, Schreiber started to lobby the government on behalf of German manufacturers. (A dual citizen, Schreiber still had powerful ties and connections in Germany, including to his old friend Franz Josef Strauss.) There was plenty of business. Airbus wanted to sell its passenger jets to the soon-to-be-privatized Air Canada. Messerschmitt-Bolkow Blohm (MBB) was seeking a contract with the Coast Guard for searchand-rescue helicopters. Thyssen AG was looking for government subsidies to help establish a light armoured vehicle factory in Bear Head, Cape Breton. And Schreiber, with his extensive connections, promised value for money. By the late 1980s Schreiber had even hedged his bet on the Conservatives by seek-

ing out ties with influential Liberals. He was a lobbyist with enough juice to fly into the capital on short notice, and as The Last Amigo details, have dinner with a former Liberal cabinet minister the first night, brunch with the Conservative prime minister the next morning, and dinner with a Supreme Court justice the following evening.

The climate in Ottawa in those days was freewheeling, recalls Allan Gregg, an adviser and pollster for the Mulroney Tories. After decades in the political wilderness, many in the party had become firm believers in the concept of victor’s spoils. “These malingerers, miscreants and bad apples who were part and parcel of the dump Clark team revolving around Mulroney were kind of in the wings believing their just reward was now due,” he says. The new prime minister set the tone, says Gregg, often invoking one of his favourite aphorisms:

“The boys have to earn a living.” Gregg stresses that he doesn’t believe Mulroney himself was corrupt, “but there was a certain tolerance of corruption around him, among these people who had worked for him, and continued to earn a fairly significant living off their relationship with him.”

he good times did not last. Nowadays, even Schreiber’s once loyal friends seem to have abandoned him. One of the few to speak publicly in support of him in recent weeks is Marc Lalonde, the former Liberal finance minister who helped post bail for Schreiber after he was arrested in 1999. Earlier this month, he told the Canadian Press he would act as a surety all over again, and true to his word, he did so this week. “He’s a Canadian citizen who has never been convicted of anything in this country. He was entitled to bail.” Lalonde described Schreiber as “a pretty able businessperson. He’s certainly a guy who mixes extremely well, and knows his way around. It’s quite remarkable.” But Lalonde wouldn’t talk about Schreiber’s involvement with Mulroney. “I don’t know anything about their relationship,” he said. Nor was he willing to say anything more about Schreiber to Macleans. “Frankly, I have nothing to add to what I said at that time,” he wrote in an email last week.

In 2000, another of Schreiber’s long-time friends and supporters, Elmer MacKay, told

the New York Times that “Karlheinz is basically an honest and decent person.” But MacKay, a solicitor general under Mulroney who in 1999 helped Schreiber get ahead of a German arrest warrant when he flew with him from Switzerland to Toronto, has been conspicuously quiet lately. He was dragged deeper into the Schreiber morass when he admitted this week that he had a hand in writing a letter of apology that Schreiber

The unanswered question: where are the millions Schreiber spent as a lobbyist?

sent to Mulroney in 2006. The letter said there was nothing improper about the controversial cash payments he made to the former prime minister in 1993 and 1994. In recent weeks, Schreiber has claimed that Mulroney asked for the letter to show to Prime Minister Stephen Harper, and that in return it would somehow help halt his extradition. Mulroney’s camp says the letter came as a surprise.

Amidst the tangled controversy, even Elmer MacKay’s son, current Defence Minister Peter MacKay, has sought to distance himself from his father. “I don’t really talk to my father in depth about his friendships,” he told reporters last week. “But I can tell you this: it was my opinion for a number of years that he should not associate with Mr. Schreiber, and I voiced that opinion.”

The unanswered question that has hung over Schreiber for well over a decade now is where the millions of dollars he spread around Canada as a lobbyist and collected in secret commissions ended up, and how much of it,

if any, wound up lining the pockets of highranking Ottawa politicians. The long-standing allegation has always been that Schreiber used money to somehow influence Air Canada’s decision in 1988 to buy 34 planes from Airbus worth $1.8 billion. All that’s known at this point is that Mulroney accepted three $100,000 cash payments from Schreiber in 1993 and 1994 for help on the Bear Head project, according to Schreiber. The plant was never built and Schreiber has sued to try and recoup the money. This week, he told the parliamentary committee that he would have paid Mulroney as much as $500,000 if the deal had worked out.

There may have been nothing improper about the $300,000 Mulroney received, but Mulroney has been evasive about the nature

of his relationship with Schreiber. In 1996, he testified that he only met Schreiber once or twice since leaving office. He did not mention the cash payments—they became public only in 2003 in a report in the Globe and Mail. And Mulroney, through a spokesman, has since called accepting the money “the silliest thing I have ever done.”

The Bear Head deal still raises concerns among some who were close to Mulroney in the early 1990s. Norman Spector, a former Mulroney chief of staff, has said that Mulroney told him the deal was off after he told the prime minister that it would cost taxpayers $100 million. But that wasn’t the end of it. Spector says he was surprised to later find his successor still dealing with the proposal. “What struck me as abnormal was that this dead project had risen from the ashes,” says Spector. “There were a bunch of strange things happening during my two years in the PMO that in retrospect seem even stranger,” he adds. “I thought it was a bit strange that this project had such backing and the way it

was going.” Not every project proposed in Canada, after all, ends up in the Prime Minister’s Office, notes Spector.

There’s no doubt that Schreiber had a gift at making friends in high places, particularly well-placed politicians in both Canada and Germany. Sinclair Stevens, the minister of industry at the time the Bear Head plant was initially proposed, says he always believed the project had merit as a way to spur development in a have-not region, but never had much time for its chief salesman. “Schreiber was very aggressive,” says Stevens, recalling their first encounter during an official visit to Germany. Schreiber seemed to “pop up” everywhere, including at a private party held at the home of then-Bavarian premier—and eventual chairman of Airbus—Franz Josef Strauss. “He was certainly a man about town. You sensed he was very well-connected.” Within a short time, Schreiber was similarly wellensconced in Ottawa, says the former minister. “He cultivated personal relationships with all the senior people in power,” says Stevens, who was forced to resign from cabinet in 1986 and faced a public inquiry into conflict of interest allegations. (In 2004, a Federal Court judge overturned the inquiry’s findings, ruling that the investigation had held the minister to too strict a standard.) “He went out of his way to be a friend.”

But he was far from universally liked. In fact, he was hated by many Ottawa bureaucrats. Spector ended up dealing with Schreiber only after Paul Tellier, Canada’s top public servant at the time, had thrown the man out of his office. “Schreiber was essentially doing character assassination on a number of public servants. He was convinced there was a conspiracy against him by public servants being paid by GM, who were building light armoured vehicles in Ontario,” says Spector. “He was operating purely at the political level. He had no support at the bureaucratic level.”

Even among some Mulroney-era politicians, Schreiber had a bad reputation. John Crosbie, a transport minister under Mulroney, wasn’t sold on Schreiber’s charms. “I don’t know why it was, but from the beginning I felt uneasy about him,” said Crosbie in a telephone interview from his law office in St. John’s. “I just didn’t feel comfortable with him as somebody who I wanted to see around trying to persuade me to do something one way or the other.” Crosbie didn’t have a relationship with Schreiber, but it wasn’t for lack of effort on Schreiber’s part. In their one meeting, Schreiber seemed very interested in talking not about Airbus, but about the Bear Head project, recalls Crosbie.

Crosbie is still a loyal supporter of Mulroney. And he maintains that his initial investigation in the 1980s into the so-called Airbus

Affair should have closed the book on the subject. Although there was a lot of money being spent on lobbying by rivals Airbus and Boeing, there was nothing wrong with Air Canada’s decision to purchase planes from Airbus and there was no improper influence from any government officials, he says. Another public investigation would be a waste of time, he says.

That may be true, but Schreiber’s past dealings in Canada continue to tantalize the country. In 1997, Mulroney sued the government of Canada for naming him, Schreiber and Moores in a 1995 letter sent to Swiss authorities asking for help investigating “criminal activity” surrounding Air Canada’s purchase

This is an issue that invites partisanship, Crosbie says. 'Ottawa politicians are in heat.’

of Airbus jets. Mulroney won, but Schreiber haunts him still. Questions about Mulroney’s role in the Airbus and Bear Head affairs simply refuse to die. And the prospect that Schreiber will start talking—and perhaps start spilling the names of politicians on the takein order to forestall extradition has Ottawa in a frenzy. “Unfortunately, this is an issue that invites political partisanship,” says Cros-

bie. “The politicians are in heat in Ottawa. When this kind of political heat strikes it’s not controllable. It’s an unedifying spectacle.” And few people who have had close connections with Schreiber have been able to shake the implication that there was something nefarious in their dealings. “My son has suggested to me recently that he’s like the tar baby,” Crosbie says about Schreiber. “Have anything to do with him, he sticks.”

Tom McMillan, Mulroney’s former minister of the environment, expresses similar doubts about the allegations swirling around his former boss. “I just find it all out of character for him. Not so much on moral grounds, but politically,” he says from his Boston home. “Mulroney had a very healthy sense of paranoia, and operated on the principle that everything you did in the dark of night would eventually find the light of day.”

Those competing—and frequently contradictory-visions of Mulroney, Schreiber, and their odd relationship are what the House ethics committee, pending a public inquiry, and ultimately the Canadian people will have to unravel over the coming months. And the fugitive businessman, who doesn’t take pains to hide his delight at the fuss he has created, is unlikely to make things easy. He has already suggested he will need a significant amount of time to go over his stash of 35,000 documents in Toronto, Ottawa and Switzerland. (Schreiber is, if nothing else, a pack rat and meticulous record-keeper. When German authorities raided his house in October 1995, The Last Amigo recounts, they found eight boxes of bank statements in a storage room, four years of appointment diaries in the bedroom, three address books, a box of cards and letters in the attic, company records and microcassettes in the workshop, and contracts in the safe.) For more than 15 years now, Schreiber has been gleefully throwing monkey wrenches into the political machinery of both his homeland and his adopted home, his seemingly endless supply of revelations able to find the front pages even from his seat behind bars. Now, assured the spotlight and a nation’s rapt attention, it’s hard to imagine that the curtain will be descending on the Karlheinz Schreiber show anytime soon. M