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

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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.

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