The Sixth Estate

Senator Doug Finley was Campaign Director in 2006

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The controversy over the In and Out scandal appears to be on the rise for the moment. I’m not sure whether it will continue or not, but I am sure of one problem: relatively few people actually seem to know what they’re talking about. The Globe & Mail finally came down on the side of condemning the government, but it used weasel phrases like “too-clever-by-half mistake” to refer to what went down. The Conservative Party is gaining some traction with its claim that this is just an administrative dispute over the technical interpretation of some regulations, a minor beef it has with Elections Canada. This is an important point: the Conservatives say this is just a legalistic paper disagreement. They don’t actually disagree with the facts as alleged.

The only reason such a position would be at all defensible is because people are not entirely clear on what happened. Neither was I, for that matter. As an aid first to myself and second to any interested readers, I decided there should be a clear statement of what it is believed happened during the 2006 election. At the end of reading it, you can decide whether, even if it was legal, this is the sort of shenanigans you think a political party should be getting up to.

In Canada, all federal elections are regulated by the Elections Act, which is administered by the strictly apolitical agency Elections Canada. This act carefully regulates how parties are allowed to receive and spend money during an election campaign. For instance, both local, individual campaigns and the national party campaign have a spending limit (in the 2006 election, the Conservative limit was $18.3 million). It’s not all bad news for parties: candidates can submit their expenses to Elections Canada and get a taxpayer-funded rebate on half of certain expenses. Of course, this gives ethically challenged politicians an incentive to use, shall we say, creatively inflated accounting. But the point is that even if happen to have more money, legally you can only spend up to the limit. This is a way of keeping the playing field level between wealthier and poorer candidates — a way of ensuring that money alone does not determine the strength of an electoral campaign.

In 2000, the Bloc Quebecois was accused of manipulating election expenses to make use of the second of these — basically, maximizing local spending in order to increase the size of the refund given to the party. In 2006, the Conservatives may have tried to manipulate both.

The problem began in December 2005, before Christmas. On November 29, Paul Martin dissolved his ineffectual minority government after losing a confidence vote, and set an election for January 23. Less than a month later, it became apparent to Conservative Party officials that their TV advertising campaign was going to cost more than their budget. Let’s be clear: this is not just an accounting hassle, but an offence under the law, since the law sets spending limits for political parties. In the worst-case scenario, the party would have to suspend its campaign for a while in order to avoid exceeding the limit. Obviously, that was unacceptable.

Instead, several senior officials in the campaign proposed an alternative: they could make it look as if the expenses were actually coming from local ridings. Local political candidates have spending limits, too, but they’re calculated separately and they often don’t spend up to their limit. The officials who hatched and implemented the scheme included now-Senator Doug Finley, the National Campaign Director; now-Senator Irving Gerstein, fundraising chief; Crestview lobbyist Mike Donison, the former party executive director; and Auditor-General’s Office employee Susan Kehoe, the party’s former chief financial officer. Other officials were presumably also involved, but these four have been formally charged by Elections Canada.

Under the scheme, money being spent on national election plans, like advertisements, would be funneled through local campaigns before being paid out. The party executive phoned around to the ridings, asking if they would be coming in under their limit. If they said yes, then the party financial agent, Conservative Fund Canada, wired some of the money it had to spare (money it had collected, but couldn’t spend because of the spending limits) to the local party. Then, after a few hours, the local party wired it back to the national party. When they did, they recorded it as a campaign expense. Then the money was put back into the advertising that the party had wanted to buy in the first place. This is the essence of the scheme. Ultimately the Conservatives laundered at least $1.3 million in national party money through local ridings.

Now, the Conservative argument is that this was perfectly okay because the advertising being purchased would have been seen by voters in the local constituencies, and therefore it can legitimately be called local spending — or rather, joint spending by various ridings to purchase collective advertising. This is a very dubious claim indeed. The fact that national party money was funneled through local accounts and then back to the national party to be spent is clear evidence that they knew they were doing something funny.

In another context, this would be called money laundering. In fact, that’s literally what was happening: money was being filtered or “cleaned” to make it legitimate. It also broke the law. First, the party actually spent more than its spending limit by using creative accounting — which is illegal. Then, it submitted paperwork based on the fiction that the money was spent locally — which is why they’ve charged with another offence, of submitting false paperwork. That’s where Elections Canada’s charges come in. The Conservative argument is that they found a loophole that enabled them to break the spending limits. Even if this wasn’t illegal (which it is), it would be incredibly unethical. By the plain meaning of the word (even if not the legal meaning of the term), it is fraud: representing national money as local money to get around the law.

Exactly how many ridings were involved in the scheme, I don’t know. 67 candidates submitted expenses that were held back. Elections Canada paid out $100 000 before realizing something was up and suspending its refunds. That meant only a few got their turn at the trough — but for those few, it was very lucrative. In Hull-Aylmer, Conservative Gilles Poirier lost after spending $12 000. It got $34 000 in refunds from Elections Canada. This, I assume, was the carrot the party used to draw local ridings into the scheme. Some, to their credit, objected anyways on the grounds that it looked illegal. When they did, party higher-ups got nasty. After Oxford, ON refused to take part, Donison fired off an email accusing them of being “a bunch of turds” for trying to “wiggle out” of their responsibilities.

What makes matters worse for them is that the Conservatives got greedy — and this is where they were caught. Recall that Elections Canada will reimburse local candidates 60% of their expenses. The Conservatives submitted a claim for $777 000 in taxpayer subsidies on the basis of their “local expenses” incurred as part of the In and Out scheme. This caused a problem. They needed to find a way to plausibly connect the spending to local campaigns even though it had been purchased by the national party.

Somebody — I’m not sure who — cut a key corner. In one case, a string of invoices to candidates from Retail Media in Toronto were taken back to the company by Elections Canada. Retail Media said it hadn’t written the invoices and that they didn’t even look like real Retail Media invoices. The most likely explanation (here I am speculating) is that someone in the party took the single expense, “broke it up” for the benefit of the various ridings participating in the scheme, and then sent them all out new invoices, so that they could all claim their individual part of the pie. It’s the Retail Media invoices that prompted Elections Canada to begin investigating the scheme.

It’s understandable that Conservatives are downplaying this and that Liberals (for instance) would be shouting it from the rooftops. That’s the nature of politics: even it it’s just unconsciously, we tend to magnify the sins of our enemies and minimize the misdeeds of our own side. But in this case, the wrongdoing is unmistakable. It looks illegal to me. And it was certainly deceitful, and a deliberate attempt to circumvent the legal spending limits which our country places on political parties to ensure that elections are fought on the basis of ideas, and not money. The truly disturbing question is: do political ads matter? The Conservative Party clearly thinks they do — so much so that they illegally spent extra money buying them. If they’re right, then this raises the disturbing prospect that the outcome of the election was fraudulent.

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