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Industry Canada has frozen federal financing for research projects by an Ontario biotechnology firm pending the outcome of an investigation into the company's agreement to pay $350,000 in lobbying fees to former Liberal cabinet minister David Dingwall, government sources say.

The move is part of a much broader probe of about 22 high-tech companies that may have hired unregistered lobbyists, or allegedly paid improper contingency fees to lobbyists to help secure federal financing under Ottawa's controversial Technology Partnership Canada program.

Bioniche, based in Belleville, Ont., recently admitted to Industry Canada that it agreed in May of 2000 to pay Mr. Dingwall a "success fee" of $350,000, the government sources said.

The agreement said the fee was to be paid to Mr. Dingwall's lobbying firm, Wallding International, if Bioniche was successful in obtaining federal financing worth at least $15-million under the TPC program.

Bioniche in fact secured TPC financing totalling $17.2-million in 2001.

The investigation centres on whether Mr. Dingwall actually received any or all of the "success fee."

It violates the terms of TPC contracts if companies pay contingency fees to lobbyists to help them obtain TPC financing.

Mr. Dingwall, who is now the president of the Royal Canadian Mint, a patronage appointment made by former prime minister Jean Chrétien in 2003, said in a brief written statement yesterday that he has not violated the Lobbyist Registration Act and has not contravened post-employment codes of conduct for public office holders.

Mr. Dingwall is travelling and does not want to be interviewed, said Gloria McArter, his executive assistant.

The former Nova Scotia MP was Mr. Chrétien's public works minister and then health minister before being defeated in the 1997 election.

Bioniche officials said their original written agreement to pay lobbying fees to Mr. Dingwall was amended by a verbal agreement after the biotech company learned that contingency fees to lobbyists were forbidden.

Mr. Dingwall, in lobbyist registration documents he filed with Industry Canada in 2003, said specifically he had a contingency fee agreement as Bioniche's advocate to secure TPC financing. The company was developing a bladder-cancer treatment for humans and a food-safety vaccine.

Bioniche officials said yesterday that they could not talk about the lobbying issue because of the investigation. But in an interview last month, Patrick Montpetit, the company's chief financial officer, suggested that Bioniche had been blindsided by the lobbyist registration documents Mr. Dingwall filed.

"Yes, there is this registration issue with Mr. Dingwall that caught us with our pants down," Mr. Montpetit said.

Meanwhile, Industry Canada has stopped making payments to Bioniche for research and development work that the company has already carried out under the terms of the TPC financing agreements.

The multiyear agreements normally would have the company receiving federal cheques as it reached milestones. The federal government would recover its investment with profit in the future if and when innovative products are brought to market.

Industry Minister David Emerson said yesterday that forensic audits discovered that four companies had violated TPC contract provisions related to the hiring of lobbyists. One of the four has agreed to pay back to the government the equivalent of the contingency fee that was paid to the lobbyist. The other three have been given 30 days to rectify matters.

Mr. Emerson did not identify the four companies, but said "the fact that these companies breached the terms of their signed contracts is unacceptable and will not be tolerated."

He also said 22 other companies require additional audit work.

Mr. Emerson said in a telephone interview TPC's problem with lobbyists being paid contingency fees can be traced back largely to a small number of lobbyists lacking "acceptable ethics."

The minister said he's harsher on the lobbyists than the companies. "I'm guessing that a lot of companies didn't even know they were in violation . . . I'd be less generous in terms of the lobbyists because it was their job to know."

When asked about the involvement of any former cabinet ministers or any specific lobbyists, Mr. Emerson said he wouldn't comment. "I don't want to comment on any specific names."

Mr. Emerson said he expects the government will be able to collect all or most of the money that was paid in commissions to TPC clients. He said he couldn't estimate how much that would be.

The problem of high-tech firms using unregistered lobbyists and paying contingency fees for TPC contracts is not new. Industry Canada froze payments to four British Columbia companies last year after The Globe and Mail reported they had paid more than $2-million in contingency fees to one particular unregistered lobbyist. The department eventually worked out agreements with the companies to reduce their TPC financing by sums equal to the contingency fees.

Industry Canada used two outside audit teams -- Kroll Lindquist Avey and Raymond Chabot Grant Thornton -- to take a broad look at TPC projects and the lobbying issue.

However, a government source says the outside audit teams found it difficult to determine from the TPC files how decisions were made as to which companies and projects would receive federal financing and which would be rejected.

One document was found, however, that candidly said: "little or no documentation is kept regarding the decision process."

TPC has an annual budget of about $300-million. Critics have called it little more than a subsidy program because the rate of repayment has been so low.

The Office of the Auditor-General hopes to complete its own examination of the program next year to determine what benefit it has been to Canadians over the years.

Mr. Emerson announced Tuesday that TPC will be replaced by a new program next April, to be called the Transformative Technologies Program, or TTP.

TTP will take over the TPC budget and do much the same thing in terms of financing innovative technologies, but there will be less emphasis on repayments, federal officials say.

With a report from Simon Tuck