In four great political scandals, Globe scoops helped Canadians get to the bottom of things

This is an excerpt from A Nation’s Paper: The Globe and Mail in the Life of Canada, a collection of history essays from Globe writers past and present, coming this fall from Signal/McClelland & Stewart.

It was the first and, to date, the only time the front page of The Globe has brought down a federal government. Readers who spent three cents for a copy on Friday, July 18, 1873, were greeted with 17 small headlines running down the right-hand column of the front page, topped with the phrase: “THE PACIFIC SCANDAL!”

Inside was the sort of journalistic dynamite that six-year-old Canada, and the almost 30-year-old Globe, had never seen. The paper had obtained a trove of correspondence between Conservative prime minister Sir John A. Macdonald and his cabinet, and the secret U.S. backers of a Montreal company that had recently won a $30-million contract to build the Canadian Pacific Railway. Macdonald had assured voters the railroad was a purely Canadian venture.

The correspondence proved, after months of reporting and parliamentary accusations, that the CPR, nominally headed by Montreal transportation tycoon Hugh Allan, was a front for the U.S.-based Northern Pacific Railway Company. In exchange for the mammoth railway-building contract, the Americans provided a staggering $350,000 in secret campaign funds to Macdonald and his senior ministers to help them buy votes and win the 1872 election.

Among the documents The Globe reprinted were the prime minister’s telegram to Allan reassuring him that he and his cohorts will get the railway but “the whole matter [was] to be kept quiet until after the elections,” and Macdonald’s urgent wire to Allan’s lawyer as election eve approached: “I must have another ten thousand. Will be the last time of calling. Do not fail me.”

The Globe’s 1873 revelations weren’t exactly what we’d today call investigative journalism. Those telegrams had been stolen from the lawyer for Allan by the lawyer’s personal assistant, who then sold them to the opposition Liberal Party, which was then tightly linked to The Globe.

Macdonald and his wife look out at the Stave River near Mission, B.C., as a CPR train takes them west in 1886, when the Pacific Scandal was long behind them.Canadian Railway Museum

The Pacific Scandal had begun in earnest on April 2, when Liberal MP Lucius Seth Huntington rose in Parliament and declared, in The Globe’s summary, “that the Prime Minister of Canada had granted the Pacific Railway in return for a bribe.” He demanded an inquiry. Only after The Globe’s revelation broke did Parliament strike a full-fledged royal commission. That fall, Macdonald gamely cross-examined all its witnesses, frequently concluding by declaring, “These hands are clean!” By early November, many of his own party’s MPs had turned against him, and on Nov. 5 he reluctantly gave up his government.

If that sequence of events sounds familiar, it’s because this sort of scandal – involving prime ministers, big public infrastructure projects and behind-the-scenes payments from the private companies that want to build them – has exploded onto the front page of The Globe on four notable occasions.

There have been other big federal scandals, including the customs scandal of 1926 and the sponsorship scandal of 1999 to 2005. But these four are united in several ways: Each prime minister initially denied any wrongdoing, and only after a front-page Globe story appeared did the public become fully aware of the scandal’s scope. And these controversies temporarily bruised the reputation and electoral standing of the governing party, although none has permanently ousted a party or its leader.

After Macdonald’s resignation, the Liberals won the 1874 election and governed for four years amid a global economic depression, but the Conservatives returned in 1878 with a majority, and would govern until 1896. The railway’s last spike was driven in 1885, during the fourth of Macdonald’s six terms.

The Pacific Scandal was in many ways the template of prime ministerial scandal: It established a pattern of executive misconduct involving infrastructure money that would recur throughout the generations.

Mackenzie King sits for a portrait in 1926, two years before he would be embroiled in another infrastructure-related scandal.Library and Archives Canada

Half a century later, another long-serving prime minister faced another enormous infrastructure project, and another expensive election.

In 1928, when prime minister William Lyon Mackenzie King was presented with a plan to build a hydroelectric dam across the St. Lawrence River at Beauharnois, west of Montreal, many Canadians, especially in Ontario, felt its cost and scale far exceeded Canada’s fiscal capacity and energy needs. “The preferable plan would be to build the entire seaway in conjunction with the United States, as necessary, and reserve Canada’s share of the power for public ownership and distribution,” The Globe editorialized that year.

Instead, King’s government became interested in a private firm run by Montreal businessman R.O. Sweezey: the Beauharnois Light, Heat and Power Corporation. As historians S.J. Donovan and R.B. Winmill put it in the 1976 book Political Corruption in Canada, Sweezey “set out to appropriate all the political influence he could summon,” making an astonishing $700,000 in donations to King’s Liberals.

The company also made a deal with Liberal senator Wilfrid Laurier McDougald, a close friend of King’s, and senior civil servant Robert Henry. The two men set up a dummy company that was theoretically in competition for the contract; that company was then bought out by Beauharnois, making McDougald and Henry its chairman and vice-president. King then appointed Henry the minister of railways and canals, which made him responsible for giving Beauharnois its charter – which it got in 1929.

Globe reporters had been hearing rumours, and, in April, 1928, Ottawa correspondent William Marchington wrote that McDougald “is reputed to be connected with the Beauharnois Power Company.” The next day, the senator rose angrily in Parliament to deliver what he called “an immediate, unequivocal and absolute denial to the implication of the Globe dispatch,” claiming: “I have no interest in or association with that company in any way, shape or form.”

In May, 1930, as a summer election loomed, MPs from the left-leaning Labour and Progressive parties obtained documents that proved McDougald was on the board of Beauharnois. MPs rose to denounce the Beauharnois deal as “fraud,” “financial brigandage,” a “gigantic steal” and a “menace to Canada,” The Globe reported. The paper’s editorials argued the project would largely benefit American customers at the expense of Canadians, noting that Beauharnois was going to charge Ontario Hydro twice the cost of producing electricity.

The Globe's edition from July 22, 1931, sheds more light on the Beauharnois affair and King's claims of what he knew and didn't know.

Despite the huge donation from Beauharnois, King’s Liberals lost the 1930 election, during the Depression, to R.B. Bennett’s Conservatives. Bennett didn’t hesitate to launch an inquiry into the Beauharnois affair. Despite being a famously detail-oriented micromanager, King claimed he was unaware of the source of most of the party’s campaign funds.

That claim was blown apart by The Globe’s front page of July 22, 1931: “Mr. King’s Holiday Bills Paid by Beauharnois; Ex-Premier Didn’t Know, Declares McDougald,” said Marchington’s story, which drew on documents released by a parliamentary committee.

That included a receipt proving King had enjoyed a lavish vacation in Bermuda and New York, shortly before the election was called in April, 1930, paid for by Beauharnois, in the company of McDougald and another Liberal senator, Andrew Haydon.

The Globe’s editorial described the findings as “an indictment of political wrongdoing, a condemnation of prostitution of public office for private gain, the like of which probably never has been heard in the legislative halls of Canada.”

To the end, King claimed he had known nothing. “The Liberal Party has not been disgraced but it is in the valley of humiliation,” he told Parliament during a three-hour speech in 1931. “But we are going to come out of that valley.”

His escape from it happened with surprising speed. The Liberals were re-elected in 1935 with a majority. King would remain prime minister until 1948, and the Liberals would stay in office until 1957. In the 1950s, the Beauharnois would become one of the major sections of the St. Lawrence Seaway. The scandal’s only lasting legacy may have been the 1944 decision to establish the publicly owned Hydro-Québec.

Brian Mulroney and Karlheinz Schreiber testify to the House ethics committee in December, 2007. Mr. Schreiber is holding an article by The Globe’s Greg McArthur from nine months earlier. Fred Chartrand and Sean Kilpatrick/The Canadian Press

The next big prime ministerial scandal took place a couple generations later and unfolded over two decades of reporting. In the early 1990s, after he’d left office, Brian Mulroney accepted envelopes containing cash totalling about $275,000, during three private meetings in hotel rooms in the U.S. and Canada with Karlheinz Schreiber, a businessman of German and Canadian citizenship.

Schreiber had a contract with the European consortium Airbus Industries to persuade the Canadian federal government to renew the fleet of Air Canada, then a Crown corporation, with Airbus rather than Boeing jets. Airbus paid Schreiber an estimated $20-million, deposited in his Swiss account, to sell politicians and bureaucrats on this huge transportation-infrastructure deal.

In 1988, Airbus won a $1.8-billion contract from Air Canada for 34 A320 jets. Schreiber provided a similar service for the German corporation Thyssen AG, also involving millions in fees, to persuade Ottawa to build an armoured-vehicle factory in Nova Scotia. (It was never built.)

After the deal was announced, Schreiber’s cozy relationships with prominent Tories, such as former Newfoundland premier Frank Moores – who briefly served on the board of Air Canada – were chronicled by Globe columnist Stevie Cameron. Then, in 1995, the revelation of Airbus payments to Schreiber for political influence was aired by the CBC’s The Fifth Estate. Later that year, news broke that the RCMP was investigating whether Mulroney received some of that Airbus money. The former prime minister then sued Ottawa for defamation, winning a settlement in 1996 that included an apology and $2.1-million in costs. He told the court he “had never had any dealings” with Schreiber while he was prime minister.

In 2003, Globe editor-in-chief Edward Greenspon commissioned lawyer William Kaplan, who had published a book defending Mulroney and criticizing Cameron’s work, to write a series of articles on the two. In the third article, with the shocking front-page headline “Schreiber hired Mulroney,” Kaplan revealed that, years after his exculpatory book about Mulroney was released, he learned that Schreiber did in fact make cash payments to the former prime minister – news that undermined what Mulroney had previously told him about their relationship. Kaplan later said he felt “duped.”

At first, spokespeople for Mulroney insisted the payments had been in support of a putative pasta business. Later, Schreiber and Mulroney would say the payments were for help with the Thyssen armoured-vehicle contract – which, if true, would suggest they were not payoffs for deals made while Mulroney was prime minister, but advance fees for future work.

Greenspon later wrote that Mulroney had phoned him and urged him not to publish the story, adding that Mulroney “said he could give us a better story if we suppressed the one about the $300,000 dealing.” Greenspon did not play ball.

'This is my last warning,' reads a letter from Mr. Schreiber to Mr. Mulroney dated May 8, 2007.The Canadian Press

In 2007, articles by Globe reporter Greg McArthur blew a hole in many of Mulroney’s claims. They showed that there was a previously undisclosed fourth meeting between Schreiber and Mulroney, at a luxury hotel in Switzerland in 1998, in which, according to Schreiber, the former prime minister wanted to know if there “was any evidence that he received any money.” They showed that Mulroney had not claimed the cash payments as taxable income until 2000, around the time the CBC was preparing to air a report on Schreiber’s bank records from Switzerland. Other reporting showed that Mulroney had not only known and met with Schreiber multiple times while prime minister, but that Schreiber had funded Mulroney’s 1976 and 1983 Progressive Conservative leadership campaigns.

These stories led prime minister Stephen Harper’s government to launch an inquiry into the Mulroney-Schreiber dealings, chaired by Manitoba judge Jeffrey Oliphant, beginning in 2008. Mulroney made multiple appearances and insisted on his innocence, on more than one occasion breaking into tears.

In the end, Oliphant concluded that the payments to Mulroney were “not appropriate.” However, the inquiry could not prove that Mulroney was aware of the source of the money, and Oliphant’s terms of reference prevented him from examining the other millions Schreiber paid out. Notably, Oliphant also concluded, based on a forensic audit, that “the source of the funds paid by Mr. Schreiber to Mr. Mulroney was Airbus,” not Thyssen.

Schreiber was deported to Germany, where he was sentenced to eight years in prison for having evaded about $10-million in taxes on many tens of millions he’d disbursed in “black money” – bribes and kickbacks – including those mysterious Canadian millions. He is the only Canadian figure to have faced legal repercussions.

Once again, a prime minister managed to dodge responsibility for a scandal until it appeared on The Globe’s front page – this time long after the fact.

The Globe's investigation of SNC-Lavalin, whose Montreal headquarters is shown in 2019, revealed that the firm had paid sizeable bribes to win contracts from the Gadhafi regime in Libya.JULIEN BESSET/AFP/Getty Images

Just after that scandal died down, at the height of the Libyan uprising against dictator Moammar Gadhafi in 2011, Globe reporter Graeme Smith found thousands of documents scattered in the bombed and looted remains of a Tripoli building belonging to the Montreal-based engineering corporation SNC-Lavalin Group Inc. They showed that the company had spent years developing a close relationship with Gadhafi and his family. It soon emerged that SNC-Lavalin had paid tens of millions in bribes and other payments to win contracts for major infrastructure projects, including a huge prison.

Weeks later, the RCMP raided SNC-Lavalin’s Montreal offices. Canadian prosecutors would eventually charge the company and its executives with bribery and fraud – and SNC-Lavalin, if convicted, faced a ban from bidding on federal contracts for up to 10 years. To prevent that outcome, SNC-Lavalin began aggressively lobbying Ottawa to introduce a deferred prosecution agreement law, which would allow mediation and fines rather than criminal trials for such corporate offences.

The lobbying also drew attention to SNC-Lavalin’s outsized political contributions. In 2018, one of its executives pleaded guilty to having channelled $110,000 in illegal campaign donations to the federal Liberals (and $8,000 to the Conservatives) from 2004 to 2011.

Also in 2018, the Trudeau government passed legislation allowing deferred prosecution agreements; SNC-Lavalin was the first applicant for relief under the act. But federal prosecutors concluded the company was ineligible, because of the gravity of the allegations and when they took place, before the law existed.

On Feb. 7, 2019, Globe readers were greeted with another explosive front page: A story by Robert Fife, Steven Chase and Sean Fine reported that Prime Minister Justin Trudeau and his staff had put pressure on the justice minister and attorney-general at the time, Jody Wilson-Raybould, to order prosecutors to grant SNC-Lavalin a deferred prosecution.

That morning, Trudeau appeared at a snow-swept podium outside a Vaughan, Ont., event and declared, “The allegations in The Globe story this morning are false.” Neither he nor his staff ever “directed” the attorney-general to drop the prosecution of SNC-Lavalin, he maintained.

Jody Wilson-Raybould testifies to the House justice committee in February, 2019.Blair Gable/The Globe and Mail

But on Feb. 25, Wilson-Raybould told the Commons justice committee that Trudeau, his top aides and 11 senior civil servants and party officials had aggressively put pressure on her to drop the prosecution. Trudeau himself, in a tense meeting with the minister, had told her of the political importance of SNC-Lavalin to the Liberal Party’s fortunes. At one point, she said, “The Prime Minister jumped in stressing that there is an election in Quebec and that ‘I am an MP in Quebec – the MP for Papineau’ [a riding near SNC-Lavalin’s head office] … I was quite taken aback.”

Trudeau then demoted Wilson-Raybould in a cabinet shuffle. She quit the cabinet on Feb. 12, later joined by fellow minister Jane Philpott. In late March, Wilson-Raybould released a recorded phone call in which Trudeau’s Privy Council clerk Michael Wernick had warned her that the Prime Minister “is gonna find a way to get it done one way or another … he is in that kind of mood.” On April 2, Trudeau expelled her and Philpott from the Liberal caucus.

SNC-Lavalin pleaded guilty to one charge of fraud in December, 2019, in a plea deal that imposed a $280-million fine but meant the company could continue to bid on federal contracts. Four months earlier, the federal ethics commissioner had concluded that “the authority of the Prime Minister and his office was used to circumvent, undermine and ultimately attempt to discredit the decision of the Director of Public Prosecutions as well as the authority of Ms. Wilson-Raybould.”

Trudeau would face no formal penalties and his Liberals would go on to win the election that October and another in 2021. But those would be minority governments – a shift, some believe, precipitated by a public sense of impropriety and not-so-sunny ways.

It resembled the shift in voter sentiments that had pummelled Macdonald’s Conservatives in 1874, King’s Liberals in 1930 and the Tories in 1993 after Mulroney stepped down. And it followed a uniquely Canadian pattern, one that combined big infrastructure, private and foreign money, and the ever-shifting relationship between prime ministers and an inquisitive newspaper.

Doug Saunders is international affairs columnist at The Globe and Mail.