Sponsorship scandal

The sponsorship scandal, AdScam or Sponsorgate, was a scandal in Canada that came as a result of a federal government "sponsorship program" in the province of Quebec involving the Liberal Party of Canada, which was in power from 1993 to 2006.

The program was originally established as an effort to raise awareness of the Government of Canada's (then led by Prime Minister Jean Chrétien) contributions to Quebec industries and other activities in order to counter the actions of the Parti Québécois government of the province that worked to promote Quebec independence. The program ran from 1996 until 2004, when broad corruption was discovered in its operations and it was discontinued.. Illicit and even illegal activities within the administration of the program were revealed, involving misuse and misdirection of public funds intended for government advertising in Quebec. Such misdirections included sponsorship money awarded to Liberal Party-linked ad firms in return for little or no work, in which firms maintained Liberal organizers or fundraisers on their payrolls or donated back part of the money to the Liberal Party. The resulting investigations and scandal affected the Liberal Party and the then-government of Prime Minister Paul Martin.

Though an ongoing affair for years, it rose to national prominence in early 2004 after the program was examined by Auditor General Sheila Fraser, who found significant concerns. Her revelations led to the Martin government establishing the Gomery Commission, formally the Commission of Inquiry into the Sponsorship Program and Advertising Activities, headed by Justice John Gomery for the purpose of conducting a public inquiry and filing a report on the matter The Commission concluded that $2 million was awarded in contracts without a proper bidding system, $250,000 was added to one contract price for no additional work, and $1.5 million was awarded for work that was never done, of which $1.14 million was repaid. The Commission found that a number of rules in the Financial Administration Act were broken. The overall operating cost of the commission was $14 million.

In the national spotlight, the scandal became a significant factor in the lead-up to the 2006 federal election when, after more than 12 years in power, the Liberals were defeated by the Conservatives, who formed a minority government that was sworn in February 2006.

Notable people involved

Jean Chrétien — Prime Minister of Canada (1993-2003) at the time that the Sponsorship Program was established and operated. The Gomery Commission's First Phase Report, which assigned blame for the Sponsorship scandal, cast most of the indemnity for misspent public funds and fraud on Chrétien and the Prime Minister's Office (PMO) staff, though it cleared Chrétien himself of direct wrongdoing. On 26 June 2008, the Federal Court quashed the Gomery Inquiry's conclusions that Chrétien and Pelletier bore responsibility for the sponsorship scandal. This decision was later upheld by the Federal Court of Appeal.
Jean Pelletier — Chrétien's Chief of Staff (1990-2001; 1993-2001 for the PMO) and chairman of Via Rail (2001-2004). Guité testified that he regularly received instructions from Pelletier during his time at the PMO about what programs to spend sponsorship money on and how much, a claim that Justice Gomery found to be truthful. Via Rail was accused of mishandling sponsorship deals, though mostly not under Pelletier's tenure.
Alfonso Gagliano — Minister of Public Works (1997-2002) who was in charge of the program. He was also the Quebec lieutenant between 1999 and 2002, making him in charge of Liberal Party operations in Quebec.
André Ouellet — member of Prime Minister Chrétien's Cabinet, longtime Liberal politician and later head of Canada Post, who was also accused of violating sponsorship rules.
Jean Carle — long-time close associate of Chrétien's, going back to the 1980s, and generally viewed as Chrétien's "surrogate son." Carle served as the chief of operations at the PMO between 1993-1998 and as a senior executive at the Crown-owned Business Development Bank of Canada (BDC) between 1998 and 2001. Guité testified that besides for Pelletier that he sometimes also received his orders from Carle during his time at the PMO.
Jean Brault — head of Groupaction Marketing, one of the companies to which deals were directed. He was arrested for fraud by the RCMP, pleading guilty to five counts of fraud and on May 5, 2006, was sentenced to 30 months in prison.
Jacques Corriveau — Liberal organizer and head of Pluridesign to which millions in sponsorship dollars were directed.
Paul Martin — Minister of Finance and Senior Minister from Quebec during most of the years the program occurred. Martin later became Prime Minister of Canada (2003-2006); when he became Prime Minister in December 2003, he claimed that he put a halt to it. He also set up the Gomery Commission which later cleared him of formal responsibility in the "First Phase Report". The Gomery findings found that Martin, as finance minister, established a "fiscal framework" but he did not have oversight as to the dispersal of the funds once they were apportioned to Chrétien's PMO. A report on the issue by the Auditor General's Office of Sheila Fraser came to the same conclusion. Nonetheless, Martin was accused of tying Gomery's hands and using the sponsorship scandal as an excuse to purge the Liberals of members who supported Chrétien. The scandal played a factor in the federal election of 2006 and the fall of the Liberal Government. Shortly thereafter, Martin resigned from the liberal party leadership.
Joe Morselli — Liberal Party fundraiser. Jean Brault testified that the money exchanges were with Morselli.
Jean Lafleur — former CEO of Lafleur Communication Marketing Inc. One of the advertising executives that accepted money from the federal government. Pleaded guilty to 28 counts of fraud.
Allan Cutler — former civil servant and whistleblower who reported anomalies in the Canadian sponsorship program, triggering the scandal.

Timeline of events

Prior to AG report

{| class="wikitable"

!Year

!Event

|1996

|Ernst & Young conducts an audit of contracting and tendering practices. The initial draft, which identified recurring problems and the risk of legal action, was altered in the final report. Ernst & Young representative Deanne Monaghan later indicated that she did not recall why the report had been changed to remove those references.

May 8 – Fraser issues a report accusing "senior public servants" of having broken "just about every rule in the book" in awarding contracts worth $1.6 million to the Groupaction ad firm. Fraser promises a follow-up report on the sponsorship program due in early 2004.

|2003

|December – Paul Martin becomes Prime Minister of Canada. He sets out to distance himself from the scandal: he cancels the sponsorship program, establishes new controls on government spending, and decides that the government will sue various individuals and corporations that had over-billed the government.

|February 24

|Martin suspends Business Development Bank of Canada president Michel Vennat, Via Rail president Marc LeFrançois and Canada Post president André Ouellet giving each an ultimatum to defend themselves or face further disciplinary action.

|February 27

|Former Olympic gold medallist Myriam Bédard reveals she was pushed from her job at Via Rail for questioning billing practices. Via Rail chairman Jean Pelletier publicly belittles Bédard and calls her pitiful.

|March 1

|Pelletier is fired.

|March 3

|Jean Carle, a close confidant of Chrétien and his former director of operations, surfaces in close connection to the sponsorship initiative.

|March 5

|LeFrançois is fired.

|March 11

|Allan Cutler, former public works accountant, testifies before the Commission of Inquiry. He places responsibility for the program and its irregularities with Chuck Guité.

|March 12

|Vennat is fired.

|March 13

|An unidentified whistle-blower reveals that high-ranking government officials, including Jean Pelletier, Alfonso Gagliano, Don Boudria, Denis Coderre, and Marc LeFrançois, had frequent confidential conversations with Pierre Tremblay, head of the Communications Coordination Services Branch of Public Works from 1999 until 2001. The claim is the first direct link between the scandal and the Prime Minister's Office. Coderre and LeFrançois denied the allegation.

|March 18

|Gagliano testifies in front of the Public Accounts Committee, a committee of the House of Commons chaired by a member from the Official Opposition. Gagliano denies any involvement by himself or any other politician; he points blame at bureaucrat Chuck Guité.

|March 24

|Myriam Bédard testifies at the Public Accounts Committee. In addition to repeating her earlier assertions, she also claims that Formula One driver Jacques Villeneuve was given a secret $12 million payoff to wear a Canadian flag logo on his racing suit (however, Villeneuve sharply denies this allegation, calling it "ludicrous"). Bédard also testifies that she once heard that Groupaction was involved in drug trafficking.

|April 2

|Previously confidential testimony from a 2002 inquiry into suspicious Groupaction contracts is made public. In it, Guité admits to having bent the rules in his handling of the advertising contracts but defends his actions as excusable given the circumstances, saying, "We were basically at war trying to save the country... When you're at war, you drop the book and the rules and you don't give your plan to the opposition."

|April 22

|Guité testifies, claiming Auditor-General Fraser is misguided in delivering the report, as it distorts what actually went on; he claims the office of then-Finance Minister Paul Martin lobbied for input in the choice of firms given contracts; and he denies that any political interference occurred, because his bureaucratic office made all final decisions. Opposition MPs decry his comments as "nonsense" and claim he is covering up for the government. The French language press gives a very different account of Guité's testimony; a La Presse headline states that Guité is involving the Cabinet office of Paul Martin.

|May 6

|An official announces the inquiry deadline is set for December 2005.

|May 10

|Jean Brault, president of Groupaction, and Charles Guité are arrested by the RCMP for fraud in connection with the sponsorship scandal.

|May 23

|Paul Martin requests that the Governor General dissolve Parliament and call a federal election.

|May 28

|Alfonso Gagliano launches a lawsuit for $4.5 million against Prime Minister Paul Martin and the federal government for defamation and wrongful dismissal claiming that he has been unfairly made to pay for the sponsorship scandal.

|June 28

|The Liberals win 135 of 308 seats in the 2004 election, forming the first minority government in almost 25 years. discloses information about Brault's testimony, countervening the Canadian publication ban. Until the revocation of the ban five days later, the publication itself was a news event in Canada, with Canadian news media struggling to report on the disclosure without putting themselves at risk of legal action.

|April 7

|The publication ban on Jean Brault's testimony is lifted by the Gomery commission. Brault's testimony triggers a rapid shift in the public opinion of the Liberal Party. Whether or not the government is defeated in the imminent confidence vote, most political pundits predict an election call this year—many predicting by this summer.

|April 20

|The official opposition party, the Conservatives, puts forward a non-confidence motion in the government. Due to procedural rules, this vote, which was to be held May 3, was postponed. If a non-confidence motion passes, the government will be dissolved and a new election will be held.

|April 21

|In an effort to prevent the defeat of his government, Prime Minister Paul Martin appears on national television to discuss the scandal. (This was highly unusual in Canadian politics.) The Prime Minister announces that a general election will be called within 30 days of Gomery's final report.

|May 11

|The government tells the House that it will consider a vote to be held on May 19 on the budget, including the concessions which the Liberal party ceded to the NDP in turn for their support on it, to be a matter of confidence. The government refuses to directly seek the confidence of the House and blocks the Opposition from putting any vote to the House; in consequence the Opposition continues a policy of non-cooperation and disruption of the other business of the House.

|May 17

|Conservative MP Belinda Stronach crosses the floor to the Liberals and is simultaneously given the Cabinet position of Minister of Human Resources and Skills Development as well as made Minister responsible for Democratic Renewal. Prime Minister Paul Martin states that Stronach will be responsible for implementing the recommendations of the Gomery commission, a statement that Opposition critics claim casts doubt on the sincerity of the Prime Minister's promise for an election within 30 days of the tabling of Justice Gomery's report. For some time afterwards, media attention is focused away from Gomery testimony onto Stronach's move and its implications on the budget vote.

|May 19

|The government passes the first of two budget bills easily after the Conservatives promise support, but the second bill with the NDP concessions ends as a cliffhanger. Speaker Peter Milliken breaks a 152–152 tie in favour of the bill, keeping the government alive.

|June 17

|The Gomery Commission holds its final public hearings

|June 6

|Chuck Guité was convicted on five counts of defrauding the Government of Canada; on June 19, he was sentenced to 42 months in prison.

! colspan="2" |2007

|April 27

|Jean Lafleur, after returning from two years in Belize, pleaded guilty to 28 counts of fraud. He was sentenced to 42 months in prison, and was ordered to repay $1.6 million to the federal government.

! colspan="2" |2008

|June 26

|The Federal Court rules that Gomery had displayed bias in several comments made before the hearings had closed and that his remarks showed that he had prejudged the issues. According to the court, Gomery had insulted Chrétien when he described the distribution of golf balls bearing the prime minister's signature as "small-town cheap." The court voided those sections of Gomery's report dealing with Chrétien and Pelletier. on the scandal on 1 November 2005 and Phase II Report on 1 February 2006.

In 2008, Federal Court of Canada Judge Max M. Teitelbaum set aside Gomery's conclusion that Jean Chrétien and Jean Pelletier shared blame for the mismanagement of the program to boost the federal government's profile in Quebec. Teitelbaum's decision was appealed to the Federal Court of Appeal where it was upheld.

Mandate

The commission had a broader mandate, more power and greater resources than the Auditor General, and most importantly could look beyond government to the advertising agencies that had received the Sponsorship dollars. The terms of reference allowed the commissioner to question witnesses, hire experts and adopt any procedures or methods that he considers expedient for the proper conduct of the inquiry. The purpose given was to "investigate and report on questions raised, directly or indirectly" by the Auditor General's report. However, as is typically the case in commissions of inquiry, he was specifically directed not to make any conclusions or recommendations on criminal charges or civil liability.

Commissioner Gomery was given a two part mandate with power issued to him under the Inquiries Act. The first part of the mandate was investigate and report on questions and concerns addressed in the "2003 Report of the Auditor General of Canada" relating to the sponsorship program and advertising activities of the Government of Canada. These concerns included the program's creation, the selection of agencies, the program's management and activities, the receiving and use of funds and disbursement of commissions, and anything else that Gomery feels relevant.

The second part of the mandate was for Gomery to make any recommendations that he considers advisable, based on his findings. Specifically requested of Gomery were the following: to prevent mismanagement of sponsorship or advertising programs in the future, taking into account legislation to protect "whistleblowers"; to recommend changes to legislation to change the governance of Crown corporations to ensure that audit committees are strengthened, that public access to information is increased, that there is a consistent application of the provisions for each organization, that compliance and enforcement be enhanced, and finally that respective responsibilities and accountabilities of Ministers and public servants as recommended by the Auditor General of Canada.

Proceedings and testimonies

The Gomery Commission began holding public hearings on 7 September 2004 in Ottawa, meeting in the Old City Hall. The first to testify was Auditor General Sheila Fraser who reported the findings of her earlier investigations. The first part of its investigation was of the political direction of the project. Most of the top officials involved were called to testify.

Testimony confirmed the Auditor General's conclusion that advertising firms submitted invoices for work that had not been done. Witnesses also reported that companies were asked to make cash contributions to the Liberal Party of Canada's Québec wing and to put Liberal workers on company payrolls.

Gomery was accused by some as being friendly to Paul Martin, and hostile toward Chrétien. In the spring of 2005, Chrétien's lawyers attempted unsuccessfully to have Gomery removed due to his alleged bias. Subsequent to the release of the first report, Chrétien took action in Federal Court to review the commission report on the grounds that Gomery displayed a "reasonable apprehension of bias," and that some conclusions did not have an "evidentiary" basis.

On 26 June 2008, Federal Court ruled that Gomery had in fact displayed bias in several comments made before the hearings had closed and that his remarks showed that he had prejudged the issues. According to the Court, Gomery had insulted Chrétien when he described the distribution of golf balls bearing the prime minister's signature as "small-town cheap." The court voided those sections of Gomery's report dealing with Chrétien and Pelletier. Brian Mulroney and Jean Chrétien have had an adversarial personal relationship in recent years since the Airbus affair. The choice of counsel may account for the failure to call some Chrétien friendly witnesses.

Conservative leader Stephen Harper was sympathetic to Chrétien's complaints of bias, stating that the main problem was that the commission's terms of reference did not allow it to investigate Paul Martin's contracting habits as finance minister. Other criticisms concern the lack of powers the commission had to investigate criminal matters, which were being investigated by the RCMP.

Chrétien's lawyers have indicated they are concerned about conclusions which are not based on evidence, but mere extrapolation. Chrétien, on the day the report was tabled in the House of Commons, objected to the findings of the commission, commenting that Gomery believed the wrong witnesses. "Personally, I believe Jean Pelletier, a man who dedicated his life to the service of his city, his province and his country," said the former Prime Minister, dismissing Chuck Guité's testimony. Chrétien believes that Gomery's conclusion that the programme was run out of the Prime Minister's Office is wrong.

Appeal to Federal Court

Subsequent to the release of the first report, Chrétien's lawyers took action in Federal Court to invalidate the report and clear his name. They want the court to review the commission report on the grounds that Gomery showed a "reasonable apprehension of bias", and that some conclusions didn't have an "evidentiary" basis.

The federal government was ordered to pay Chrétien's legal costs. Chrétien and his aides have described it as vindication. Teitelbaum's decision was appealed to the Federal Court of Appeal where it was upheld.