A German helicopter firm overrode angry protests from its Canadian executives and paid illegal commissions in the hopes of landing a lucrative federal government contract, according to RCMP allegations made public Thursday.
The accusations are contained in a trove of information made public when Mr. Justice Edward Then of Ontario Superior Court lifted a controversial sealing order and publication ban on a three-year secret proceeding.
The material forms the backbone of what the RCMP used in 1999 to request search warrants it used to raid Eurocopter Canada, a subsidiary of Messerschmidt-Bolkow-Blohm.
The order to unseal the material - a significant triumph for The Globe and Mail and CBC - took effect Thursday when the parties said they will not appeal it.
The remaining item under seal in file #SM 132/00 is the identity of a mysterious confidential informant the RCMP relied heavily upon when launching their investigation almost a decade ago.
The identity of the informant took on added importance Thursday when Edward Greenspan, the lawyer for businessman Karlheinz Schreiber, said it looms as the most important aspect of the entire case.
In a session of the secret hearing last winter, the Crown said the informant was willing to come forward to testify in public under one condition - only if former prime minister Brian Mulroney was charged in connection with the case.
(Judge Then emphasized that Mr. Mulroney is innocent of any wrongdoing. Several years ago, the Department of Justice erroneously described him as a suspect in an official document. It later apologized and paid Mr. Mulroney $2-million to settle a lawsuit.)
Mr. Greenspan said he fervently wished Judge Then had refused Crown and RCMP entreaties to suppress the informant's identity, "which, I believe, is an explosive and vitally important issue."
Mr. Greenspan vowed to find a way to discover and unmask the informant.
Thousands of pages of documents, letters and transcripts made public Thursday outline a vast, international investigation aimed at proving that Eurocopter paid more than a million dollars in commissions to help land a $26.8-million deal to supply 12 coast guard helicopters.
This sort of commission is not illegal in many other countries. But in Canada, they are viewed as an inducement to underhanded dealing and possible corruption in the procurement of government contracts.
The untendered 1986 helicopter contract had a specific provision prohibiting commission fees that, if violated, meant that the coast guard unwittingly signed a contract it likely would not have otherwise entered into.
In late 2002, fraud charges were laid in the case against Eurocopter and two top executives: Kurt Pfleiderer and Heinz Pluckthun. The charges allege that Eurocopter paid commission fees through a shell company controlled by Mr. Schreiber, international deal-maker and friend of the politically mighty.
No accusations of corruption or misconduct have been made against any Canadian official.
Eurocopter lawyer Paul Schabas lashed out at authorities Thursday. "We have been incredibly frustrated at the fact that it has gone on so long and that for a year and a half, we couldn't even be told why we had been searched," he said in an interview.
Mr. Schabas said the charges date back 17 years to a different corporate regime under different management. "We think the charges are unfounded."
The court documents reveal a riveting power struggle within Eurocopter between those favouring commission fees and those who saw the legal risks as greatly outweighing any possible advantage.
This cleavage was dramatically illustrated one day in 1987, as lobbyist Frank Moores silently steered the highway from Ottawa to Montreal as Mr. Pfleiderer - head of MBB - argued heatedly in German with Helge Wittholz, the CEO of the company's Canadian branch.
Unbeknown to the former Newfoundland premier, their violent disagreement involved paying commission fees to Mr. Moores himself for his lobbying services.
The RCMP documents quote Mr. Pfleiderer as chastising Mr. Wittholz for naively believing that a modern-day aircraft supplier can survive without greasing government wheels.
"Wake up!" he told his Canadian colleague.
In another startling incident around the same period, a member of Eurocopter Canada's corporate board - James Grant - scolded executives of the parent company for treating Canada like a Third World country.
"This is not the way to do business in Canada," Mr. Grant said. "You're crazy. It's not a corrupt country. The politicians aren't crooked. The civil servants aren't crooked. It's a waste of money, a waste of time."
Mr. Grant resigned a year later. In a final letter to David Smith, president of the company's U.S. branch, he issued a doomsday warning.
"Behind the scenes, as you are aware, are a number of political factors that are extremely significant, but necessarily totally ignored in any presentations that come from lower level management," he wrote. "They are serious and provide the basis to bring down a government or cause a major international problem. I need say no more."
Why would a company risk so much for such questionable gain?
The answer, in Mr. Wittholz's words, was that the German directors of MBB believed Mr. Schreiber had "very good connections" in Canada capable of opening doors to a company that was hungry for contracts.
The Dec. 13, 1999, raid on Eurocopter's Fort Erie, Ont., premises was swift and impeccably organized. RCMP Inspector Allan Mathews and 18 officers set up a command centre in the Eurocopter boardroom. They culled through mountains of paper searching for anything involving the pricing, sale or purchase of MBB BO 105 or MBB BK 117 helicopters between 1984 and 1993.
Their warrant specified documents created by:
•Eurocopter Canada and its predecessor, Messerschmidt Canada Ltd.;
•GCI and its predecessor, Alta Nova Ltd.;
•Bitucan Holdings, a Calgary-based company controlled by Mr. Schreiber;
•International Aircraft Leasing, a Schreiber-controlled company based in Liechtenstein.
Eurocopter lawyer Paul Schabas's frustration mounted as efforts to learn what lay behind the search warrants were met with an official wall of silence. Desperate, he finally asked for help from Ontario Court Judge James Fontana - who had issued the search warrants.
"Your letter to me this morning was unorthodox and inappropriate," Judge Fontana wrote back coldly. "If you are not content, you have remedies."
Mr. Schabas was finally able to appear before Judge Fontana a month later to challenge the sealing order; a proceeding that morphed into the secret proceeding before Judge Then.
"Most unusually, not only is [Eurocopter]denied the right to know why it is searched, it is denied the right to know why it can't be told why it can be searched," he complained. "It is an indefinite secrecy order, and it is a blanket order on everything."
Among the evidence against Eurocopter are statements and documents from Giorgio Pelossi, a shadowy figure who acted as Mr. Schreiber's accountant and right-hand man until they fell out in 1991.
In 1995, Mr. Pelossi, 65, began funnelling information to the RCMP, including a 1986 letter from MBB to Shreiber-controlled IAL discussing the figure of $1.12-million as a potential "agent fee" for IAL.
The RCMP claims their final agreement included a $6,000 monthly retainer to be paid to GCI, an 8-per-cent commission on the sale price of helicopters and 15 per cent on the cost of equipment.
Police believe $93,506 was ultimately paid out in commissions per helicopter. Multiplied by 12, the total commissions equalled the $1.12-million MBB and IAL allegedly discussed.
"Giorgio Pelossi stated that the principal behind IAL - Karlheinz Schreiber, for whom he worked at the time on the Canadian Coast Guard sale - advised him that part of the commission money was for the purpose of paying Canadian officials to assist in the contract process between CCG and MCL," says the RCMP's search warrant application.
"Giorgio Pelossi further alleges that Schreiber transferred a portion of the commission money to Frank Moores, a principal of GCI," adds the RCMP document, prepared by Insp. Mathews.
In addition, Mr. Pelossi told the RCMP that IAL had entered into similar commission agreements with another European company - Thyssen Industrie - to help establish a Canadian plant to make light armoured vehicles and with Airbus Industrie to sell its aircraft to Canada.
"Each arrangement allegedly called for the payment of commission payments to Schreiber or to a Schreiber corporate entity," says the document. "It is further believed that Schreiber and others used a scheme of bank transfers and corporate exchanges from one company to another to conceal the origin and purpose of the money that have been received as commissions."
At least, that was the RCMP version. Mr. Greenspan describes Mr. Pelossi as an inveterate liar who has fabricated Mr. Schreiber's connections to European shell companies such as IAL.
Mr. Greenspan also said Mr. Pelossi has no credibility since he has been convicted of embezzlement and is awaiting trial on charges he laundered money for Italian mob figures.
"I'm prepared to meet him anywhere, any time to cross-examine him," Mr. Greenspan said in the interview. "There are some very ludicrous things in much of this that are dependent on a thoroughly unreliable scalliwag called Pelossi."
The RCMP have conceded Mr. Pelossi has credibility problems, but they point to a polygraph test they administered, which he passed. They also insist there is a great deal of independent evidence to corroborate his allegations.
Much of it involves revelations from Eurocopter Canada officials such as Mr. Wittholz, who described a 1987 meeting of company officials in Ottawa where colleagues used a German phrase that translates as "useful expenditures."
According to the RCMP, the phrase is a well-known euphemism for bribes - and Mr. Wittholz "explicitly understood" it to mean just that.
The police also allege that Eurocopter's board was hoodwinked by the two MBB executives who served on it - Mr. Pfleiderer and Mr. Pluckthun. Police say that as the "operating minds" of the Canadian branch, the pair managed to exert their will on matters such as the commission payments.
So complete was this deception that Mr. Wittholz only learned of the scheme after personally signing the coast guard contract on behalf of Eurocopter Canada.
He realized something was wrong when MBB backed the commission fees onto the price of the helicopters, turning the sale into a losing proposition. Alarmed, Mr. Wittholz began stockpiling copies of important documents in his home, "because I expected something would blow up, and I wanted to have everything on hand."
Meanwhile, the secret hearings continued - with the participation of three unlikely parties now represented in the courtroom:
•Mr. Schreiber, the alleged middleman;
•The CBC, which became entangled in the very secretiveness it was seeking to dispel after learning of the proceeding through reporter Harvey Cashore, who had co-authored a book on the case with journalist Stevie Cameron;
•Mr. Mulroney, who was granted standing to ensure that there was no repeat performance of the unjust smearing he had suffered years earlier.
The Crown had many reasons for wanting a sealing order, including a fear that "persons of considerable public stature" might have their reputations tarnished.
They were worried that publicity might allow potential wrongdoers to destroy valuable evidence - something that was rumoured to have already been done by one senior Eurocopter executive.
The Crown also argued that in an industry renowned for its secrecy, publicity could deter potential sources from coming forward.
In the latter stages of the case, the Crown argued strenuously that since the granting of confidential informant status is a solemn undertaking, the RCMP informant had a right to utter anonymity.
Meanwhile, more than a dozen police officers and forensic accountants were working steadily on the case. In court documents filed in 2000, Insp. Mathews said more than 30,000 pages of material and dozens of computers diskettes had been seized.
He said the material comprised numerous financial transactions between subsidiaries and parent companies in at least six countries, and included 70 bank accounts in different banks and multiple currencies. Much of the material had to be translated from German and involved multiple currencies.
All the while, Canadians were oblivious to the Eurocopter case.
By early 2001, the Crown had reversed its position on the suppressed information. It launched a motion to open almost all of it, arguing that circumstances had changed.
Eurocopter did an abrupt turnaround of its own. It argued that the material should be kept from the public. Were the media to jump on the story, Mr. Schabas warned, it could destroy the presumed innocence of a company that still faced no charges. It could also harm Eurocopter's commercial interests.
Several other lines of attack were pursued by Mr. Schabas and Mr. Greenspan. In particular, Mr. Greenspan argued strenuously that RCMP Sergeant Fraser Fiegenwald had illegally travelled to Switzerland on June 28, 1995, to interview and receive documents from Mr. Pelossi.
At the time, Mr. Greenspan insisted, Canada has not yet sent an official Letter of Request to Swiss authorities, which meant the RCMP were violating basic Swiss law.
Mr. Schabas targeted the relationship between Eurocopter Canada and its German parent, saying the RCMP had stated that they had no evidence to show that Canadian executives knew of the alleged commission scheme.
"Indeed, the evidence is explicitly to the contrary," Mr. Schabas said.
If Mr. Plunkthun and Mr. Pfleiderer had indeed kept their Canadian counterparts in the dark, as the RCMP claimed, Mr. Schabas said any commissions paid would have simply passed from the German parent company to a company in Liechtenstein - perfectly in keeping with a mutual contract.
Put it all together, Mr. Schabas told Judge Then, and one could only conclude that "this is not a fraud on the government or Canada, or a conspiracy to commit fraud."
In deciding to lift the sealing order, Judge Then said that Mr. Schreiber and Eurocopter had failed to show a substantial threat to either their reputations or a fair trial in the Eurocopter case.
"Rather, on the record before me, the risk to the administration of justice does not rise beyond mere speculation," he said.
He also said that the evidence he had seen was insufficient to convince him that the RCMP had received documents from Mr. Pelossi illegally at their June 28, 1995, rendezvous with him.
The chances of the search warrant being quashed by any court were not reasonably probable, he said.
Judge Then added that "the mere fact of an invasion of privacy or loss of reputation is not sufficient in itself to tip the scale in favour of continued sealing."
The constitutional right to public and press access had won the day.
"If, as has been alleged, there has been police misconduct in the context of Canada's international relations which leads to a quashing of the warrant, the public should have full access to that proceeding," Judge Then said.