NEW CHALLENGES TO HARPER GOVERNMENT FROM AN OLD

C O N F I D E N T I A L SECTION 01 OF 02 OTTAWA 002080 SIPDIS SIPDIS E.O. 12958: DECL: 11/13/2017 TAGS: PGOV CA SUBJECT: NEW CHALLENGES TO HARPER GOVERNMENT FROM AN OLD ALLEGED SCANDAL REF: A. OTTAWA 1961 ¶B. OTTAWA 1928 Classified By: PolMinCouns Scott Bellard, reason 1.4 (d) ¶1. (C) Summary: New revelations about a more than decade-old scandal involving then-Conservative Prime Minister Brian Mulroney have begun to haunt the Conservative government of PM Stephen Harper. With opposition members of Parliament openly raising the possibility of a cover-up and rifts developing within the Conservative party itself, the government likely will find itself on the defensive at least for the time being, instead of concentrating all attention on moving forward with its legislative agenda. PM Harper has promised a public inquiry once an independent advisor (whom he has not yet named) first sets the terms of reference. There is little prospect that this process will fully satisfy the opposition or media. The controversy will diminish the appeal to the Conservatives of an election any time soon. End Summary. 2, (SBU) On November 9, PM Harper ordered an independent and impartial third-party review of allegations by Canadian-German businessman Karlheinz Schreiber in a sworn affidavit filed in Ontario Superior Court that then-Conservative PM Brian Mulroney had agreed in 1993 to accept C$300,000 in cash in connection with Air Canada's 1988 C$1.8 billion purchase of Airbus planes. (Mulroney won a C$2.1 million libel settlement from the then-Liberal government in 1997 related to this Airbus affair; there are now calls for a review of this settlement.) Schreiber also claimed that Mulroney had agreed in August 2006 to hand PM Harper a letter from Schreiber during a weekend with the Harper family at the PM's government summer residence at Harrington Lake. PM Harper underscored that Schreiber's allegations remain "unproven and untested in a court of law." Schreiber separately faces an imminent extradition to Germany on charges of fraud, bribery, and tax evasion. ¶3. (SBU) After Mulroney called on November 12 for a public inquiry -- a course of action that Liberal Party leader Stephane Dion then also demanded during Question Hour in the House of Commons on November 13 -- PM Harper reversed himself and promised to launch such an inquiry. He clarified that he would now ask the independent third party (whom he did not name publicly) instead to determine the exact terms of reference for the inquiry, without clarifying any timetable. In a formal statement on November 13, Harper specified that "if in reviewing material, the independent party finds any prima facie evidence of criminal action he or she will identify this and advise how this should be handled and what impact, if any, it should have on the nature and timing of the inquiry." ¶4. (SBU) The clamor from the opposition parties on November 13 (when Parliament came back into session after a ten-day break) was loud and included suggestions of cover-up, allegedly in particular by Minister of Justice and Attorney General Rob Nicholson, whom some members described as a Mulroney loyalist. The opposition's focus was on what the Harper government knew and when it knew it, and also raised questions of basic governmental competence. Liberal leader Dion argued that, as PM Harper's name appears in the Schreiber affidavit he is saddled with "at least the appearance of conflict of interest." The NDP plans to ask the Commons ethics committee to hold hearings into the 1997 libel settlement with Mulroney. One opposition member went so far as to ask whether Mulroney had paid any income tax on Qthe alleged kick-backs. ¶5. (SBU) A Strategic Counsel poll released on November 12 had the Conservatives tied with the Liberals at 32% nationally (down from 34% in October),and attributed the drop directly to the Schreiber case, reporting that support dipped for the Tories and spiked for the Liberals (up 3%) -- especially in voter-rich Ontario and Quebec -- after Mr. Harper ordered the review. Other highly divergent national polls have pegged Tory support at between 32% and 42% in recent weeks. Overall, the Harper government had been on a slow upward track since the summer, but it remains short of a reliable majority. ¶6. (C) Comment: Only weeks ago in the wake of the Throne Speech and the "whipped abstentions" on key votes by the Liberals, the Harper government was poised to make significant progress soon on its key legislative agenda (including items of concern to the USG such as revised counterterrorism provisions as well as tougher crime and copyright bills) and was apparently trying to taunt the Liberals into a possibly imminent election. Now, with the taint of the allegations against a Conservative elder OTTAWA 00002080 002 OF 002 statesman (who at the same time remains a controversial and polarizing figure in Canadian politics) and increasingly against the current Prime Minister and his staff, new elections any time soon likely are much less appealing to the Conservatives, especially since latest polls do not indicate any positive bounce in their popularity even after the recent tax cut. Furthermore, Harper's November 9 command to party loyalists to shun Mulroney for the time being has rekindled rifts within the party. The Liberals and other opposition parties will predictably pursue these allegations with vigor, although no one wants to take the side of the highly discredited Schreiber. It will take months (at best) to get to the bottom of the allegations, and there is little prospect that any explanations and/or conclusions will fully satisfy the opposition or media. It will require careful high wire walking for the government to manage the Mulroney file successfully and to retain any moral high ground on accountability, on which it has staked much of its reputation. Visit our shared North American Partnership blog (Canada & Mexico) at http://www.intelink.gov/communities/state/nap BREESE