On the third floor of a faceless commercial tower in Vienna, Virginia, a bedroom suburb of Washington, D.C., the directory prompts a double-take. Here, in this landlocked stretch of shopping malls, sits the unlikely nerve centre of the Liberian International Ship and Corporate Registry, one of the offshore conveniences that allows the world’s maritime moguls to fudge their ownership, hide their profits, and keep their fleets afloat with discount maintenance standards and cut-rate Third World crews. The fifty-five-year-old registry sells a ship’s rights to fly the Liberian flag—an eye-catching riff on the U.S. Stars and Stripes with a single white star on blue in the upper left corner, befitting a country founded by freed American slaves. All that’s required is a basic ten-cents-a-tonne fee and an annual flat rate of $3,800 per ship, plus an inspection with assorted costs. No need to visit Virginia, let alone bloodied, benighted Monrovia, in ruins from a decade-long civil war. Once the paperwork is complete, a fleet owner can stroll into any port and buy the flag at a store.
In the shadowy world of international shipping, Liberia is just one of more than two dozen countries that offer their national colours for sale. But, for the outcast regime of Charles Taylor, the Liberian registry proved a particular boon. With a roster of 1,900 ships, it is second in size only to Panama’s, funneling $18 million a year into Monrovia’s coffers—more than a quarter of the total foreign revenues of a nation isolated by United Nations sanctions.
Two years ago, a UN report traced some of Liberia’s revenues from the registry to offshore accounts used to buy arms for Taylor-backed rebels in Sierra Leone, in flagrant defiance of those sanctions. Around the world, members of the International Transport Workers’ Federation and the human-rights group Global Witness exhorted fleet proprietors to stop subsidizing the bloodshed and abandon the Liberian flag. No less than Lloyd’s List, the bulletin of the British maritime insurers, observed, “Never has the proposition that shipowners bear no moral responsibility for what flag states get up to looked so flimsy.” Which is why it seems noteworthy that Canada’s most celebrated shipowner, Paul Martin—until late August the official proprietor of Canada Steamship Lines—continued to list five ships on the Web site of his company’s international division that were flagged to Liberia.
At Canada Steamship Lines’ Montreal headquarters, where senior vice-president Pierre Préfontaine rhymes off the vessels in Martin’s international fleet, he doesn’t mention those Liberian-flagged ships or seven others sailing under the flag of Vanuatu, a tiny South Pacific tax haven first made trendy by the money-laundering set. One reason for that lapse may be the dissonance between the company’s iconic national image and its somewhat less patriotic reality. On the masts of all twenty cargo carriers owned or operated by csl International, as part of partnership agreements, there is nary a Canadian maple leaf in sight––nor, on board, a Canadian crew.
As it turns out, for tax-paying purposes, csl International isn’t a Canadian corporation at all. Unlike its sister company, Canada Steamship Lines, Inc., a historic presence on the Great Lakes since 1913, csl’s international division is based in a cinderblock low-rise in Beverly, Massachusetts, on the outskirts of Boston, but registered as an International Business Corporation (ibc) in the Caribbean tax shelter of Barbados. The Barbadian corporation, in turn, is owned by a holding company in Bermuda, another offshore fiscal paradise. Over the past seven years, that labyrinthine set-up has managed to save csl International and its Montreal-based parent, the csl Group, millions in Canadian taxes.
In some industries, such offshore fiscal chutzpah might raise eyebrows, but not in the rough-and-tumble waters of what’s known as the ocean trade. “You can’t operate with Canadian ownership and Canadian crews—it’s too competitive,” says Jack Leitch, the majority owner of the Toronto-based Upper Lakes Group. “Even God couldn’t make a go of it under those conditions.”
But Paul Martin’s company, which dove into the ocean trade in 1982, has never looked back. A year after Martin bought Canada Steamship Lines, he made a defining decision—to expand, not on the venerable Great Lakes routes, but out on the high-risk high seas. Ten years later, he gave the nod to set up a separate international division, officially registered in Liberia. That abrupt change in direction has been hailed as having refitted the company for the global economy. It has also given Martin his unique leadership mystique—his credentials as a multi-millionaire captain of industry who has survived the riptides of world commerce. But, at a time when only an act of God seems likely to block his coronation as Prime Minister Jean Chrétien’s successor, that provokes the question: Does Martin’s corporate experience fit him to helm the ship of state?
In All the King’s Horses, author Ron Graham notes that Martin threw himself into politics in 1988 “hoping to do for Canada what he had done for csl Group.” But understanding what he accomplished at csl is no easy matter. Martin himself won’t talk about a subject that blew up such a storm of conflict-of-interest allegations last spring that he finally bowed to the polls and promised to hand over the company to his three grown sons; he announced the official transfer on August 27th. Even some supporters seem unwilling to incur the wrath of a man known for his Vesuvius-like temper, who may soon have federal policies, and contracts, to dispense. “We don’t want to make pronouncements that will be linked to Paul Martin,” says Shane Foreman of the Canadian Shipowners Association. “It’ll backfire on us.”
At csl headquarters near Montreal’s Vieux-Port, the hatches are battened down. Pierre Préfontaine, the company’s official spokesman, declares all queries on what Martin knew about the company’s dealings, and when he knew it, either off-limits, or the domain of the federal ethics counsellor, Howard Wilson, who in turn deems them subject to the Privacy Act. As for csl’s corporate record, Martin ensured it would never be scrutinized. In the course of buying out the company, he took it private, putting its books beyond the reach of prying eyes.
All last winter, controversy dogged Paul Martin almost daily in the headlines. Conflict-of-interest allegations, both past and potential, were being hurled at him across the House of Commons floor. But, for nearly three months, he clung fiercely to his Canada Steamship Lines empire as if to a life raft. In one indignant outburst to journalist Susan Delacourt, then writing in the National Post, he declared that he’d never have entered politics if he thought it would mean he’d have to sell his beloved boats. “I’ve had this love affair with ships since I was five years old,” he told her. “I just love ships. I love harbours. I love ports. When I was in the business, I’d go down to the ships and crawl through the engine rooms.”
Who knew? The man whom his staunchest supporters describe as an unrepentant policy wonk—who would corral them in hotel rooms to debate Lester Thurow’s economic theories for eye-glazing hours—turns out to be a boiler-room buff. That declaration raised eyebrows in Ottawa, where long-time drinking companions struggled to recall Martin rhapsodizing about life on the waterfront. They’d thought of him as a weekend farmer, bragging about his Herefords in Quebec’s pastoral Eastern Townships, not as an old salt. According to one Martin friend, “There was a lot of snickering behind hands here over that.”
In Delacourt’s story, Martin laid out his maritime bona fides. As a boy growing up in Windsor, he’d spent hours watching the lakers churning by on the Detroit River. At 13, his first summer job was on a fishing boat near the family’s Lake Erie cottage. Later, he paid his way through college as a naval cadet sailing the Beaufort Sea and toiling as a deckhand aboard ships hauling cargo between Norway and Jamaica. Those details provide illuminating addenda to the already many-faceted Martin myth. Yet for a man about whom so much has been written—and on whom three books are due to appear this fall—surprisingly little of substance is known.
His handlers seem to want to keep it that way. In Ottawa, one journalist friend is rumoured to have vetted a campaign press list, noting beside some reporters’ names, “Don’t go near.” Others who have written unwelcome accounts have received blistering emails or telephone blasts from his leadership brain trust. And when the cbc’s Disclosure examined csl’s offshore practices, Martin refused to be interviewed, even off the record and off-camera—an unprecedented rebuff. That tight rein on information is not new. Three years ago, when freelancer Guy Lawson profiled him for Saturday Night, Martin’s team sent out instructions to potential interview subjects: “If asked about Mr. Martin’s personal holdings,” it read, “suggest that this article is about the Finance Minister and not the entrepreneur. Offer no further comment.”
One notion that has been exhaustively examined in Martin’s life is his political heritage. As the son of one of the country’s most accomplished politicians—Paul Joseph James Martin, who served under four prime ministers, from William Lyon Mackenzie King to Pierre Trudeau—Martin Jr. has found his career routinely cast as the stuff of Greek mythology. Now, as he waits only a whisker from the brass ring of the Liberal leadership that was twice snatched from Martin Sr.’s grasp, no pundit has left unexplored the theme of a son avenging his father.
Paul Edgar Martin, known in satirical sheets these days as “Junior,” is even credited with a catalytic role in the birth of one of the country’s defining social policies. He was only eight years old when Paul Martin Sr., then Mackenzie King’s newly appointed minister of health and welfare, was summoned out of a cabinet meeting and told his son had been stricken with polio. Rushing home to Windsor and seeing Paul Jr. unable to speak convinced Martin Sr. of the need for universal health care.
Martin’s earliest memory is of his father taking him by the hand, at age three, to visit the Parliament buildings. He remembers scampering through the brooding panelled corridors and sliding across the gleaming marble floors. At the Martin dinner table, insider anecdotes about the great names parading through the headlines were served up with the meat and potatoes. Who else’s father could recount a trip to Lyndon Johnson’s Texas ranch to sign the Auto Pact, only to discover the U.S. president raiding the fridge at dawn in his pyjamas while checking out bombing reports from Vietnam?
By the time Martin was a teenager, the family had moved to Ottawa, but virtually every weekend, his father went back to Windsor to tend to riding affairs and press the flesh in coffee shops and autoworkers’ union halls. Often, he took his kids, Paul Jr. and Mary-Anne, on the long overnight train ride across Ontario. A brilliant man whom former Liberal cabinet minister John Roberts counts as “one of the best-read men I’ve ever known, next to Trudeau,” Martin Sr. learned to hide his intellect under the guise of a gladhander—a pose that would eventually prove his undoing. “The tragedy in his life was he developed a sort of persona he thought he had to have to be successful in politics,” Roberts says, “and eventually he grew into it.” For years, Paul Martin Jr., winced whenever journalists reported his father working a room in no-matter-what-country, demanding, “Anybody here from Windsor?” That may account for his own long ambivalence about a political career—and, when he finally capitulated, his initial ineptitude at mainstreeting. “He’d ask, ‘What’ll I say?’” recalls former Trudeau aide Patrick Gossage, who helped coach Paul Jr. for his first parliamentary race in 1988. “He didn’t have the charm of his father. Now he’s got the charm and the twinkling eyes down pat. He’s so polished I’m sure raindrops would hit that little Simonized shield around him and bounce off.”
In his memoirs, Martin Sr. makes clear that he tried to groom his son for politics, only to find him determined to make his own mark. But in retrospect, Paul Jr.’s life seems a filial fugue: He abandoned his own choice of courses to study philosophy, as his father suggested, at the University of Toronto’s St. Michael’s College. Then he followed in his father’s footsteps to prepare himself for a legal career, which Martin Sr. considered the only suitable stepping stone for public life. Even The Windsor Star noted on the occasion of Martin’s September, 1965, marriage to Sheila Ann Cowan, the daughter of his father’s law partner, that it was patterned on his parents’ wedding twenty-nine years earlier, almost to the day.
One story has become a staple in the Martin mythology. In 1960, when he was still at U of T, Maurice Strong, who would become Martin’s professional god-father, offered him a summer job as a roust——about at Ajax Petroleums, an Alberta gas producer Strong had just taken over. As Martin tells it, he got bored and went awol to party at the Calgary Stampede. On the way home, he smashed up the company truck and ended up being sacked. Strong cautions the story makes betteranecdotal fodder than fact: As soon as he learned of the firing, he offered Martin his job back. “It wasn’t a bad lesson,” Strong says, “but it was not at all hostile.”
Roberts remembers the young Martin as an idealist, chafing to work in the Third World or at the UN, where his father had been the official Canadian delegate at the opening session. The summer before his bar exams, he landed a job in Luxembourg working for the European Coal and Steel Community, a precursor of the European Union. It was there, watching the first rustlings of globalization, that he made a weekend pilgrimage to Geneva to consult Strong, by then president of Montreal’s Power Corporation.
Strong warned Martin that he risked spending years bucking sluggish international bureaucracies. “I told him, better to make something of yourself in business,” Strong recalls, “and then go in at a level where you can have some influence.” Strong takes credit for persuading Martin to pass his bar exams before accepting the keys to the business kingdom that he proffered: a job as his executive assistant at Power Corp. Most media accounts cast the meeting as a stroke of serendipity, but, of course, Martin had known Strong for years as his father’s business partner. In 1947, when Strong was trying to wangle a job at the UN, he’d had a pal arrange an introduction to Martin Sr. By the Fifties, they were deep in deals together with Martin Sr.’s lifelong friend and legal client, Paul Nathanson, the multi-millionaire heir to the Famous Players movie fortune. Among their holdings was an Alberta company that bore their initials, mns Investments Ltd.
Nathanson, who would become so reclusive he was dubbed Canada’s Howard Hughes, played Martin Sr.’s financial angel, helping craft a safety net to cushion him from the vicissitudes of public life. Such confidential arrangements, the stuff of scandal now, were not uncommon for political comers in those days. In 1957, when the Liberals were tossed out of office and Martin Sr. was already being touted as a potential Liberal leader, Nathanson helped orchestrate his acquisition of three Vancouver movie houses through Nellmart, a private company named after the politician and his wife. Paul Martin Sr. then leased the theatres back to Nathanson, ensuring himself an ongoing income.
Nellmart would continue in various transmutations as the Martin family’s holding company for years, one version amalgamating into another across an assortment of jurisdictions. It was not a financial cushion of which Paul Jr. was unaware: Later, he would replace his father as a director and shareholder. To this day, Nellmart, with its two remaining cinemas and modest real-estate portfolio, continues as one of Martin’s direct private holdings, never included in the blind management agreement that governs his shipping empire. That omission, which appears to have had the federal Ethics Commissioner’s blessing, would later provoke questions in the House of Commons.
The Power job that Strong handed Paul Martin Jr. kick-started his business career, lifting him straight into the loftiest corridors of influence in a new corporate establishment then emerging in Canada. No tedious slogging up the middle-management ladder or scraping together an entrepreneurial grubstake. Martin was propelled directly to the presidential suite, where he could watch the wheeling and dealing of a man who would later juggle the chairmanship of UN environmental summits with stints tending his personal oil-and-gas portfolio. Not that Martin Jr. appeared impressed with having landed that front-row seat. “It wasn’t a prestigious job,” he told Canadian Business. “Carrying Maurice’s bags was what it was.”
Martin was, in fact, doing just that on a trip to New York when Strong offered him a sobering lesson. They were exiting a meeting with top U.S. insurance honchos on Park Avenue, when Paul Jr. demanded to know how he’d done. “I said, ‘Well, Paul, you’re not going to make it,’” Strong recalls. As Martin’s jaw dropped, Strong tore a strip off him for laying out his opinions instead of listening and posing penetrating questions. “We were just in a room of very important people, and there’s not a single one who would have hired you,” Strong recalls saying, “and I wonder why I did.” These days, Strong speaks of Martin as if of a prized pony being groomed for show who had to learn the meaning of the whip. “He was always bright and hard-working and exuberant,” says Strong. “I didn’t want to break his spirit. I just made sure he went through the hoops.”
Six months after Martin began his corporate apprenticeship at Power, Strong left to work for Martin Sr., by then Lester Pearson’s Minister of External Affairs. For Strong, it was the plum post he’d long been lobbying for: director-general of External Aid. He promptly transformed that obscure backwater into the Canadian International Development Agency (cida)—the first step on his route to becoming a backroom global powerbroker.
Still, Strong has never been far from his protegé’s side. Over the years, Martin has been a shareholder in at least two of Strong’s companies, including the now-defunct Cordex Petroleums, formerly known as Baca Resources. But Strong’s chief influence has been in shaping the trajectory of Martin’s career—business first, politics later, the eye on the prize always. “My basic advice to him was, ‘Paul, don’t try to ride two horses at once,’” Strong says. When it came time to move to the next horse, Strong was waiting to give him the nod at the starting gate. When Martin was ready to throw in the political towel after Chrétien made it clear he was sticking around for another election, Strong invited the finance minister to his log retreat in the Kawarthas for a weekend of cheerleading. “I said, ‘Paul, you’ve got a big investment in public life,’” Strong recounts. “‘You’ve come this far, you should stay in there.’”
Last summer, just as Martin’s Liberal leadership bid threatened to founder on the shoals of its own success—his rivals all but vanquished, the inevitability of his
victory threatening to reduce his campaign to a yawn—Strong arranged a timely lifeline: a UN appointment. Secretary-General Kofi Annan, who counts Strong as one of his closest confidants, announced Martin would co-chair a new committee to help boost private-sector investment in developing nations. The committee was, insiders confide, entirely Strong’s brainchild, and it brought Martin full circle to the idealism of his youth. But it also lifted him above conflict-of-interest charges then threatening to tarnish his winner’s gloss. That image-doctoring was no accident. Strong admits he hoped to leaven the former finance minister’s reputation as a flinty deficit-slayer with the righteous lustre of a Third World champion. “People think of him as a very tough finance minister who made some very tough decisions,” Strong says. “But now they’ll see the other side of him. He’s driven genuinely by a desire to do something useful for society.”
Reporters have already pounced on the fact that Strong has just bought a condo in Ottawa, a convenient perch from which to offer advice to a likely prime minister. But Strong recoils from suggestions he may soon play the éminence grise to a future Martin government. “I’m trying not to be a big actor on the public side,” he confides. “I simply don’t want anyone to be looking at Paul somehow as a creature of our relationship.”
In the lobby of the landmark Canada Steamship Lines building on Montreal’s Victoria Square, a model of the SS Tadoussac, once the queen of the Saguenay, is anchored under glass, evoking the past glories of csl’s fleet. When Paul Martin started at the company thirty years ago, csl occupied almost the entire Victorian structure. Today, its resident staff of fifty—a fraction of its 750-person global payroll—is confined to the sixth floor. Two storeys above, in a corporate penthouse, sits the executive command post—and stunning private art collection—of its landlord, Paul Desmarais.
When Power Corporation bought Canada Steamship Lines forty years ago, Desmarais hadn’t yet arrived on the scene. Strong was on the hunt for companies in which Power could pick up a controlling interest at bargain rates, and Canada Steamship Lines was ripe for the picking. The venerable firm was reeling from a damning indictment by a royal commission probing waterfront violence. In July 1963, Mr. Justice Thomas Norris had brought down a report blaming csl’s extravagant coddling of Hal Banks, the swaggering head of the Seafarers International Union, for encouraging Banks’s reign of terror among shipping crews. Banks had skipped bail on criminal charges and fled back to the U.S. But Strong, one of the chief allies of Lester Pearson’s new government, snapped up a quarter of csl’s stock for $16 million, then indulged in a little muscle-flexing of his own: He demanded four seats on the board.
At Power, Martin was still learning the corporate ropes when Strong left and Desmarais, a savvy Sudbury law-school dropout, moved in. In 1968, after eyeing Power’s $265 million in assets for nearly a year, Desmarais pulled off a staggeringly complex set of twin reverse-takeovers that left him with control of the company’s voting shares and a fiefdom that would allow him to become the kingmaker behind virtually every Canadian prime minister since Lester Pearson. Even before his arrival, Power had been a waiting room for political hopefuls or those caught between engagements. Today, Power’s boards and advisory councils are littered with newsmakers past and present: former Ontario premier William Davis, former German chancellor Helmut Schmidt, retired U.S. Federal Reserve chairman Paul Volcker, and Desmarais’s one-time prime ministerial crony, Brian Mulroney. “Paul has always collected politicians,” says maverick Montreal investment guru Stephen Jarislowsky. “Apparently he finds them interesting.”
That avocation made Desmarais all the more sympathetic when Martin booked six months off in 1968 to run his father’s Liberal leadership bid. For Martin Sr., then in his mid-sixties, it was a last chance at the Grail he’d seen wrestled from his grasp ten years earlier by Pearson. His adoring twenty-nine-year-old son whipped up a campaign against a field of young Turks that included the media’s twin darlings, Pierre Elliott Trudeau and John Turner. But, when the first ballot was tallied, Martin, the doughty party warhorse, had only 277 votes. Shattered, he watched his dreams sink beneath the tidal wave of Trudeaumania. Later, he told reporters that his son had taken the blow much harder than he—a claim Martin Jr. shrugs off. In retrospect, it seems astonishing that the promising young Power executive was caught off guard. Trudeau’s candidacy, after all, had been hatched in late-night sessions at Power run by vice-president Claude Frenette.
When Martin returned to Power Corp., his rise was swift. Within a year he was a vice-president himself, dispatched to ailing divisions as a one-man corporate rescue squad. At Dominion Glass, he showed he could stickhandle his way through labour disputes. Then William Turner, Strong’s heir to the Power presidency, seconded him to Consolidated Bathurst, the pulp and paper giant where Desmarais, its largest shareholder, was demanding an urg-ent turnaround. At “Connie,” as it was known in Power corridors, Martin demonstrated the sort of unsentimental grit that would later earn him plaudits from Bay Street as finance minister—slashing the payroll, shuttering mills, and axing entire divisions until the balance sheet was pared to profit.
During that stint, Martin had an insider’s view of Desmarais’s own moxie. For three years, Power’s chairman had been single-mindedly amassing csl stock. In 1972, the reason for his obsession became clear. He announced another of his trademark, convoluted reverse-takeovers—one that effectively left Canada Steamship Lines as the operating parent of the much larger Power Corp. If Bay Street was at first mystified, the tight-knit fraternity of tax lawyers was not. That year a new provision in the federal tax code came into effect, allowing an operating company such as csl—unlike an investment company such as Power—to write off acquisition and investment expenses. For the next four years, that juggling act saved Power millions in taxes. The move not only cemented the legend of Desmarais’s sly genius, it provided an instructive example of how a shrewd ceo could play the tax code to his advantage.
In late 1973, Desmarais appointed Paul Martin to csl’s presidential suite. Martin was only thirty-five, but there was no doubt he was being groomed for great things. Each boost up the corporate ladder seemed carefully calculated, not the product of his own scattershot ambition. In Martin’s first year as csl’s president, Desmarais left his own accountant brother, Louis, as ceo, to discreetly watch over Martin’s shoulder.
Ensconced behind an ancient captain’s desk in csl’s sixth-floor head-quarters, Martin threw himself into what became his private merchant navy. It was not a typical business for an aspiring politician—certainly not as tidy as the law. Shipping, even on the Great Lakes, was a sprawling, brawling industry, constantly challenged by the weather’s brutal whims and the moods of the unions manning the decks and the wharves. Martin’s delight in that rambunctious, macho world surprised some in Power’s button-down, mba crowd, but not those who knew his favourite bedside reading: the rollicking Flashman series by George MacDonald Fraser. In Fraser’s mock historic chronicles, the fictitious adventurer Harry Flashman, a Victorian version of Forrest Gump, manages to insinuate himself into the Nineteenth Century’s pivotal moments, despite the fact that he’s a lying, cheating, boot-licking scoundrel.
CSL’s own history is punctuated with high drama—the 1927 disappearance of the iced-over Kamloops on Lake Superior (where the corpses of its crew were discovered the following spring on an island, gnawed by wolves), the suspicious 1949 fire that sank the SS Noronic at a Toronto wharf, immolating 118 passengers. But, by 1974, the chief cliffhanger at csl was its balance sheet.
Desmarais had already sent Martin in to help salvage its Davie Shipbuilding division near Quebec City, where a contract to build three 80,000-tonne tankers for a Greek shipowner was disastrously behind schedule, triggering crushing non-performance penalties. In 1976, after a year-long strike had shut down the yard, Desmarais finally gave the nod to unload it. Already, the massive transportation conglomerate that Martin presided over was shrinking. But Davie’s woes left his own career prospects unscathed. That year, Desmarais added the role of ceo to Martin’s title, and in 1978 he was named to Power’s prestigious board.
Then, in June 1981, Desmarais summoned him to his office to offer what Martin later called the opportunity of a lifetime. In fact, his boss was asking a favour. Desmarais had decided to take a run at Canadian Pacific, the venerable rail-and-resort behemoth. But first, to avoid running afoul of federal regulators, he needed a buyer to take csl off his hands—one who wouldn’t tip the markets to his next move. Martin offered himself.
CSL’s price was set at $195 million.
The only catch was that Martin had scant money of his own. He headed straight from Desmarais’s office to the headquarters of his sometime golfing buddy, Laurence Pathy, whose tightly held Fednav commanded Canada’s biggest ocean-going fleet, and assets of at least $500 million. They clinched the deal in fifteen minutes, on a handshake. Pathy agreed to ante up $35 million in preferred shares and to foot the cost of three new ships—collateral that allowed Martin to borrow the rest. For that, he turned to Desmarais’s long-time backer, the Royal Bank, whose chairman sat on Power’s board. Power received $30 million in preferred csl shares. “Obviously, [the company] was basically a semi-present,” says Stephen Jarislowsky. “Desmarais could have taken it back any time he wanted.”
Martin has never revealed the amount of his loan from the bank, nor the additional debt, if any, he owed Desmarais. But, in interviews, he underlines the drama behind the transaction’s terse prose. By the time the deal had closed, two months and a thirty-six-hour bargaining session later, the price was down to $180 million: Power kept $15 million in csl’s cash and liquid assets. On August 8, when the sale was finally announced, it was upstaged by the headline-grabbing second paragraph of the press release, which revealed that Desmarais had quiet-ly made his move on Canadian Pacific. For Martin, that day provided another sort of milestone: Interest rates rose to more than nineteen percent. But, as Jarislowsky points out, rates were “not necessarily high for Paul Desmarais. It depends how Paul arranged it for you.”
Still, that chummy buyout somehow fuelled Martin’s reputation as a self-made tycoon and risk-taker. Three years later, he told Canadian Business that he had thrown in “virtually every cent I had and could scare up.” More than once he has joked that he literally bet the farm—the couple’s 300-acre spread near Cowansville, Quebec—on the csl gamble. That may well be true, but he appears not to have had to cash in his 11,800 Power shares—acquired through an interest-free, executive stock-purchase plan for at least $385,000. By 1988, he had declared holdings of Power stock worth $2 million. Nor was he obliged to remortgage his Montreal house. On the contrary, no sooner had he bought csl—with rumours flying that he was “up to his ass in debt,” as one supporter puts it—than Martin and his wife sold their comfortable Moncrieff Road home for $325,000 and traded up. They plunked down $575,000 for a tony new address on Belvedere Circle, just around the corner from their friend Brian Mulroney’s showplace at the top of Westmount’s Mount Royal, the city’s most exclusive stretch of real estate. The seller was Power’s president, James W. Burns. That investment turned out to be charmed. Six years ago, the Martins sold the house to yet another Power executive for $1,150,000.
The new captain of csl didn’t hide his euphoria. “I felt on top of the world,” he exulted to Edgar Andrew Collard in csl’s official history, Passage to the Sea. “Everyone wants to be his own boss, and now I was. But this was not my main motivation. I really felt csl was part of Canadian history.”
Within a year of Martin’s arrival, that shared history was—well, history. He set csl on a new course that parted ways with the national plotline. When Martin took over the company in 1981, it was not only a vast cargo conglomerate with the largest fleet on the Great Lakes, but it was also a force to be reckoned with on land. Its Kingsway Transport division boasted 2,500 trucks, and Colonial-Voyageur, the bus lines that had been the foundation of Desmarais’s fortune, had a lock on Ontario and Quebec coach traffic. In the previous year—the last year that csl accounts were public—the company had raked in revenues of nearly $400 million.
But no sooner had Martin taken over than the 1981 recession sent profits plunging. Total Canadian lake cargo was down by twenty-five percent, and Stelco, csl’s biggest customer, was under siege from Third World competition and a strike at home. In 1982, Martin decided the only solution was to refocus on ocean shipping, where the profits were more promising but the competition was cutthroat.
It was not a decision taken lightly. He might have chosen other routes to growth. Kingsway Transport’s president was pushing to turn his division into a continental trucking colossus. But Martin nixed that strategy. By 1987, he had sold off Kingsway and was auctioning off bus routes, one by one. He whittled csl down to its shipping core. Then he set up a new marketing team to tout the updated technology of its massive, swivelling, self-unloading booms to the world.
Over the next eight years, csl would become the leading global player in that unglamorous niche market, scrambling after contracts in the international cement, gypsum, and gravel trade. Coal—especially the cheap, high-sulphur Appalachian variety that the Canadian government was fighting in Washington as a cause of acid rain—became one of csl’s top cargoes. Even today, hauling Michigan coal for Ontario’s power plants is a prime csl money-maker, prompting New Democratic Party Leader Jack Layton to dub Martin “a practising coal baron.”
At first, Martin took to the oceans with three “salty lakers,” which could work either the Great Lakes or the Atlantic routes. In 1984, when a new addition debuted at csl’s Collingwood shipyard, it was greeted with more than the usual hoopla. On a bunting-draped wharf, before cameras and a cheering crowd, Nell Martin sent a bottle of champagne crashing into the scarlet hull of the ship that her son had named after his father. More than once, Martin Sr. and his wife hitched rides south to Florida on the Hon. Paul Martin as it hauled its cargo of gypsum from Cape Breton to Tampa. “They’d go down on holiday,” recalls Greg Glasner, a Halifax seaman who served three tours of duty on the ship. “Some nights we’d have a barbecue on board and break out some liquor and beer. She’d dance; he wouldn’t.”
In June 1988, the Martins weren’t on board when the ship pulled into Tampa and the pocket belt on its self-unloading boom collapsed. The captain received a telex from csl headquarters, ordering him to bring the ship back up to the dry dock at Port Weller on the Welland Canal, where it would be repaired and reflagged. Glasner and his shipmates were in shock. They knew exactly what reflagging meant—unregulated foreign seafarers who earned as little as one-third of their wages. As the boatswain, Glasner was clearing $3,000 a month after taxes, which meant the company was paying him more than $5,000 a month. His Filipino replacement, with no tax deductions or benefits required, cost csl $2,500. For each of the thirty-one crewmen, the company would save between $500 and $1,500 a month on wages alone—at the very least $62,000 on a typical four-month contract. In fact, a 1996 oecd report estimated the total yearly savings from offshore flagging could run to a staggering $700,000 per ship.
On the glum two-week trip north, Glasner and his shipmates hatched schemes to save their jobs. They offered to halve their wages, and take them in cash, tax-free, under the table. But each time the captain telexed their proposals to Montreal, the answer was no. At Port Weller, they were handed one-way tickets back home to the Maritimes. Glasner found another gig, but some of his mates spent months out of work. One deckhand lost his house. The next time Glasner saw his old ship, it was on the same Tampa gypsum run he’d always worked, but it was flying the white cross of the Bahamas. What surprised him was that it was no longer called the Hon. Paul Martin. The company had switched its name to the Atlantic Erie.
At csl, family ties made way for a new international marketing strategy. Now, all twenty self-unloaders in its international fleet sail under what are known as flags of convenience. John Parsons, an inspector for the International Transport Workers Federation (itf) in Halifax, who investigates the complaints of foreign seafarers, says that though csl’s ships are in much better shape than some of the rusted-out hellholes he’s seen, that doesn’t necessarily help their offshore crews. “If you have these fellas working ten to twelve months a year straight, no breaks or holidays, for $1,500 a month,” he says, “it’s kind of a sweatship.”
CSL’s Pierre Préfontaine dismisses critics of foreign flagging as naïve. “We can’t compete with the entire world unless we remain on an equal playing field,” he argues. “We have to be competitive.”
Parsons’s union, the itf, has been battling flags of convenience for over fifty years. But, four years ago, Paul Martin became one of its chief targets when csl set up shop in Australia, and proceeded to export foreign flagging to that already turbulent labour climate. The company had just bought two ageing self-unloaders from the Australian government, which was on a privatization binge. csl Australia hinted it would resell them to an offshore subsidiary to avoid paying local wages. When it promptly reflagged the River Torrens to the Bahamas, renamed it the CSL Pacific, and flew in a Ukrainian crew, the Maritime Union of Australia (mua) decided it was time to man the barricades.
Last year, when the Torrens’s sister ship, the CSL Yarra, tied up at an obscure Australian port with no union office to speak of, its crew saw what was coming, and refused to disembark. As their sit-in stretched to fourteen days, csl cut off food, water, and power to the Yarra, turning it into a fetid bunker—and a cause célèbre. Support and media coverage poured in from around the world. The Canadian Labour Congress denounced the company’s move as “globalization at its worst.” At the itf’s quadrennial conference in Vancouver, three months later, the mua whipped up public denunciations of Martin as a profit-hungry global shipping magnate. “This is no longer just a local issue,” said mua National Secretary Paddy Crumlin. “It’s an international disgrace.”
Australian courts have since upheld csl’s rights to sell the company to an offshore affiliate—a decision Préfontaine cites as vindication. But he also hints that, from the first, csl knew it had the Australian government on its side in its union-busting campaign. “Somehow the government of Australia made a policy decision not to maintain this Australian flag,” he says, “probably because it was a burden on their economy.”
But the mua, which csl is now suing for damages, won its own brand of vindication last January. The Australian Transport Safety Bureau released a report on a harrowing accident aboard the CSL Pacific. One of the ship’s low-wage Ukrainian deck-fitters had been caught in its self-unloading gear—he was only released after shipmates heard his screams—and hospitalized for six weeks with a fractured pelvis, ribs, and vertebrae. The Safety Bureau blamed the mishap on “a significant failure of the management system,” but also on a first mate’s sheer exhaustion, equivalent to a blood alcohol level over 0.05 percent. “Put simply,” said Crumlin, “the crew might as well have been drunk, they were so overworked.”
In the late 1980s, shipping wasn’t csl’s only focus. The company also helped keep Martin’s political fortunes afloat. Its payroll boasted some of the key figures now guiding his current leadership campaign, including mastermind David Herle. Patrick Gossage, who had been hired to promote csl’s self-unloading wizardry, went on to coach Martin in preparation for his 1988 parliamentary race, then for his Liberal leadership bid two years later. “He was a terrible speaker,” Gossage recalls. “He had this big voice, no inflection, and he’d just roar on, waving his arms. He was like a freight train roaring down the track, going nowhere.”
At the Liberal leadership convention in 1990, Gossage watched Martin digest the news that he’d lost to Chrétien and concluded that csl’s owner was not particularly devastated. “In a way, he wasn’t ready psychologically, or professionally, even,” Gossage says. “He was very green politically.” But in business, Gossage found Martin as sure-footed as he was obsessed by minutiae. “He was very demanding, very hands-on,” Gossage says. “He’d call you up in the middle of the night and he wanted to know every detail.”
When Martin finally did throw his hat into the political ring, he chose to run not in tony Westmount, but in the blue-collar riding of Montreal’s LaSalle-Émard. At the same time, he bought back his half-interest in csl from Laurence Pathy and put in a new executive team, which largely runs the company today. But, even after he was elected in 1988, he kept his eye on the wheelhouse. Four years later, he was sufficiently on top of the firm’s fortunes to step in and replace then-president James Elder with his trusted friend, Tony Chesterman, a Montreal adman who’d long orchestrated csl’s public image.
During his 1988 race—campaigning against Mulroney’s U.S. free-trade agreement as a threat to Canadian jobs— Martin found himself in an awkward position. It was he who had closed csl’s last shipyard in Collingwood and ordered up a half-dozen new ocean-going carriers from the Verolme yard in Brazil. He had sent Canadian jobs overseas himself.
In a long section at the end of Passage to the Sea, the csl history Martin commissioned, he confessed to Collard that, as he stood on the Brazilian docks watching the launch of the CSL Innovator, flagged to the Bahamas, he couldn’t help but feel “emotional.” Once, he’d dreamed of sending Canadian-built ships around the globe manned by Canadian crews. But he’d had, he said, “no choice.” He blamed his pragmatic course on the policies of an intransigent Tory government that had refused breaks to Canadian shipping and shipbuilding. There was a defensive tone in that apologia. But after a decade as the Liberals’ most powerful minister, Martin can no longer blame a hostile government. Nor can he claim that all his other options were closed. When Jack Leitch pulled Upper Lakes out of the ocean trade three years ago, selling his half-interest in Marbulk shipping to csl, he refocused on diversifying in Canada.
As Martin’s supporters point out, not all csl’s shipbuilding business has
been exported offshore. Some ships deemed too creaky for ocean-going, such as the Atlantic Huron, were rebuilt after being repatriated to the Great Lakes under the Canadian flag—qualifying them for an accelerated depreciation write-off under the federal Income Tax Act. Seven years ago, the company launched a $200-million program to refit its ageing laker fleet at a shipyard it jointly owns with Upper Lakes and Fednav at Ontario’s Port Weller.
But many of csl’s biggest orders have gone to China. In 1995, it commissioned three new 70,000-tonne self-unloaders from the government-owned Jiangnan shipyards. For Canada’s struggling shipbuilders, that contract was a particular slap. Three years ago, when the first ship finally steamed out of the yards in Shanghai, Martin was careful not to attend its launch, but the Sheila Ann was an unmistakable tribute to his wife.
On Bay Street, Martin’s insistence on staying the international course he set for csl is applauded as proof that he has prime-ministerial mettle. But, in the Maritimes, where whole towns have watched shipping and shipyard jobs evaporate, there is less celebration of his take-no-prisoners leadership style. For John Parsons, no UN appointment on Third World development can pack quite the same message as the sight of a csl ship pulling into Halifax harbour under a Liberian flag. “It says to me he isn’t worried about the individual citizens of a country,” Parsons says. “The business will do anything for a buck.”
Barbados, The Investor’s Paradise,” trumpets the azure web page of the Barbados Investment Development Corporation, “where fish can fly and your business can soar.”
That slogan is the sort of fiscal come-on that once left former Auditor General Denis Desautels fuming. In 1992, as Paul Martin and fellow MP Chaviva Hosek toured Canada, cobbling together the Liberal platform known as the Red Book, Desautels decried the offshore corporate loopholes that were costing the country hundreds of millions a year in lost tax revenues. A vague vow to do something about it found its way into the Red Book. Then, on February 22, 1994, Martin, the Liberals’ newly appointed finance minister, presented his first budget and announced he was making good on that vow. “Certain Canadian corporations are not paying an appropriate level of tax,” he intoned disapprovingly. “Accordingly, we are taking measures to prevent companies from using foreign affiliates to avoid paying taxes which are otherwise due.”
Applause broke out on both sides of the House of Commons. Amid the fanfare, nobody asked Martin if his own corporation was avoiding taxes that were otherwise due. In fact, two years earlier, before his shipping company was put under the control of a blind management agreement, he had overseen steps to make sure csl pulled off a handsome discount on its own tax bill. In 1992, csl International was set up as a separate division, registered as a foreign affiliate in Liberia—one of nearly two dozen countries specifically listed in the tax code from which Canadian corporations could bring back their profits, tax-free.
In the draft legislation Martin submitted to the House with his 1994 budget, he had tossed Liberia and nine other countries off that privileged list. However, when the bill’s actual regulations came down, four months later, a new, obscurely worded third clause had been tacked on to Section 5907 (11.2). It revised the definition of just where the foreign affiliate of a company could be headquartered in order to repatriate its profits without being dinged by Canadian tax collectors. Clause c) was written in the sort of convoluted legalese that journalists dub mego—My Eyes Glaze Over—which may be why none of them paid attention to its extraordinarily precise provisions. But for fiscal wizards whose idea of bedtime reading is the latest subsection of the Liechtenstein tax code, the message of that snorer was clear: Barbados, which had lost some of its privileges in the first draft, had just lucked back in.
“We didn’t mention Barbados,” concedes a senior finance department official who spoke only on condition of anonymity. “We used wording that would accurately describe, for those in the know, a situation that would apply to it. If there was anybody else in the same circumstances, they would have gotten that same treatment. But there’s no question that Barbados was a particular issue.”
Did Martin know that his company would waste no time in taking advantage of that loophole? Within the year, csl International had switched its registered office from Liberia to Barbados. There, it became an International Business Corporation or ibc—a special class of Barbados company that entitled it to a local tax rate of between one and 2.5 percent, compared with the estimated twenty-eight percent corporate rate back home.
The savings defy accurate calculation, especially since csl keeps its revenues fiercely under wraps. But according to the only figures available—from Dun & Bradstreet—csl International’s operating subsidiary based outside of Boston reported $66 million (U.S.) in annual sales last year. Most shipping experts consider that figure laughably low—as little as a quarter of the international division’s true revenues. But if, for argument’s sake, it were correct—leaving its net revenues at a hypothetical $25 million—the maximum tax the company would pay in Barbados is $625,000, compared with the $7 million due if it were headquartered in Montreal.
Still, for ibc owners, the real bonanza kicks in after the Barbados government has skimmed off its modest slice. The company’s remaining profits can wing their way back to a head office in Toronto or Montreal in the form of dividends, safe from Revenue Canada’s clutches. “To an outfit like csl that owns its own Barbados company, the savings are immense,” says Hamish Smith, whose Asset Finance Structuring, Inc. has helped Canadians take advantage of the island’s fiscal shelter. “Unlike some lease deals, the saving isn’t deferred. You never have to pay it back.”
Those provisions have proved a boon to Barbados, where the international financial-services sector contributes $200 million a year to the local economy. Last April, when Paul Martin found himself besieged by questions about why he’d left that loophole, nobody raised an eyebrow when he blamed it all on strenuous lobbying by the Bridgetown government. But finance-department officials don’t remember events quite that way. “There’s no question the government of Barbados wrote in,” said one official, in a background briefing, “but my recollection is they wrote in much later. It was not immediate.” Nor would Barbados be likely to pack enough clout to provoke a turn-about in Canadian policy: “Economically,” he confides, “I don’t think, if they were upset, it would make a big difference in the scheme of things.”
What’s indelibly etched in the departmental memory is the swift outcry from Canada’s top accounting firms and tax lawyers protesting the draft regulations that initially came down with Martin’s budget. “They immediately started calling in and suggesting the regulations had gone too far,” the official recalls. That outcry might have come from the clubby tax community, but there was no doubt about who was really in a rage: Their corporate clients in some of the country’s most influential boardrooms were apoplectic at the prospect of losing their huge write-offs. “There certainly was some apprehension and discussion,” confirms Robert Brown, former chairman and ceo of PricewaterhouseCoopers. “But it would mainly have been generated by clients. The argument would be that the tax laws of other countries provide some wiggle room and if you want to be competitive, you have to do the same.”
Virtually every major Canadian corporation enjoyed the wiggle room of a foreign affiliate in Barbados. Not only was the arrangement entirely legal, but, thanks to the twenty-three-year-old Barbados-Canada tax treaty, it had a patina of respectability unlikely to incur the wrath of high-minded shareholders. Sidestepping Canadian taxes via Barbados didn’t have the same taint as setting up a brass-plaque bank in some secretive, zero-tax paradise, where the airport arrival lounge was filled with bulky men in shades gripping cash-stuffed gym bags. “It’s not like you have a few companies hiding money in Barbados,” says one of the island’s leading lawyers, who asked that his name not be used. “The banks, the mining companies, the insurance companies—they’re all here.”
It doesn’t seem surprising that Martin preferred not to blame the reappearance of the Barbados loophole on Bay Street. But what is remarkable is just how swiftly finance department officials responded to that display of corporate clout. “We agreed we had gone too far,” says the official. “Within a week or two, the assistant deputy minister wrote a reply, saying, ‘We did not intend to go as far as we did.’”
By June 23, 1994, the verbal spaghetti of clause c) had been tacked on to draft regulation 5907 (11.2) and in January, 1995, Martin personally signed the bill. By December of that year, csl International had set up shop in Bridgetown. Predictably, it was not the only company to take advantage of the island’s fiscal allure. Tiny Barbados, pop. 265,000, is now the third-hottest spot for Canadians to stash their money abroad, after the U.S. and Britain. Between 1988 and 2001, Canadian investment there jumped from $628 million to $23.3 billion—a staggering 3,600 percent. But what most riled the new Auditor General, Sheila Fraser, was the cost in lost Canadian tax revenues. In 1990, Canadian corporations repatriated $400 million in tax-free dividends from Barbados subsidiaries. By 2000, that amount had skyrocketed to $1.5 billion. At the same time that Martin was unleashing his lauded assault on the deficit, slashing expenditures in ways that left the middle class feeling the pinch and social services noticeably frayed, he had—contrary to the claims in his budget speech—appeared to open the floodgates for corporate profits on the lam.
As Fraser pointed out, lost tax revenues meant government-spending cuts or higher taxes for the average Canadian taxpayer. “Nobody wants to pay someone else’s taxes,” she scolded last December. “It’s time to fix this.”
For many, the most striking aspect about the Barbados loophole was that the finance minister’s own company wasted no time in cashing in. csl’s Préfontaine waves off questions about the optics of that move. “We’re competing against the world here,” he says, “and to be competitive we have to organize our affairs accordingly.”
Was Martin briefed on csl’s shift to Barbados? Préfontaine lobs that question to the federal Ethics Counsellor’s office. But Howard Wilson, a dapper civil servant who has spent most of his career beating the drums for Canadian trade abroad, insists he can’t reveal the topics discussed at any of the dozen or so briefings Martin had over the last nine years with his csl trustee, Stuart Hyndman, one of the country’s leading maritime lawyers. Under the terms of Martin’s blind-management agreement, those briefings were allowed only when an “extraordinary corporate event” loomed. But Wilson won’t even reveal the exact number of meetings, or their dates, citing the company’s concerns about staying competitive with its rivals. “It’s personal information to Mr. Martin,” Wilson argues. “It’s corporate information and he owns the company.”
Wilson himself is particularly sympathetic to competitiveness pleas. Before accepting his current federal appointment, he was seconded to the Mulroney government’s Prosperity Initiative as executive director of competitiveness. He admits he was miffed in 1993 when the Conservatives chose not to run on that platform, but doesn’t hide his delight that Martin and Hosek drew on his work for the Liberals’ Red Book. “Some of the language,” he says, “is identical.”
Still, Wilson argues that it wouldn’t matter if Martin did know about csl’s shift of headquarters to Barbados. The finance minister didn’t have any conflict of interest in handling the tax legislation, he argues, because the loophole didn’t benefit csl alone or the shipping industry in particular, but what he calls a “broad class of interests”—the entire Canadian business community.
However, csl may be walking a fine line in complying with some amendments in the 1995 tax code. To qualify for a tax break, a Barbados subsidiary must fit the code’s definition of an “active” business—one that boasts more than five full-time employees on the island. “You have to have real people dealing with real things,” says Hamish Smith. “You can’t just have a brass plate on some lawyer’s office door or be clipping coupons.”
CSL International is registered in the law offices of Clarke, Gittens & Farmer in St. Michael, outside Bridgetown. Of its thirteen attorneys, the receptionist names only one, Gillian Clarke, who handles the csl file. But a paralegal interjects to say that the office has been ordered to refer all queries about csl to Pierre Préfontaine in Montreal. There, Préfontaine himself says, “Basically…our employees are in Boston,” and refuses to name the company’s local directors. “I won’t comment on this,” he says. Those conversations leave unanswered serious questions about the location of csl International’s “mind and management”—the term Revenue Canada’s enforcement teams use to determine where a company’s real orders originate. “If you set up an international business in Barbados and you run it out of New York or Toronto,” says the finance department official, “it’s kind of hard to say you’re carrying on an active business.”
CSL’s tax savings from relocating to Barbados can only be estimated. But that windfall could not have come at a more convenient time. It helped pay down the daunting debt load the company took on in 1988, when Martin bought out Laurence Pathy’s half-interest. That year, seamen like Greg Glasner saw official mortgage notices posted aboard the csl ships on which they crewed. A random survey of four csl self-unloaders that had been debt-free for years shows that in 1988 all four suddenly acquired mortgages totaling $452 million from Citibank Canada. The Atlantic Erie—a.k.a. the Hon. Paul Martin—alone carried one for $113 million.
Once those were discharged, csl began a new round of borrowing in the late 1990s to finance a refitting and shipbuilding spree. At the time, the company approached the financial markets looking for capital. But at Newcourt Credit Group, a now-defunct asset financing company, it failed to win approval. “We looked at the company,” recalls one former senior Newcourt executive, “and it didn’t meet our lending standards.”
Such verdicts have left csl largely dependent on banks, both at home and abroad. Many Canadian companies face the same situation, but they aren’t owned by a potential prime minister who is likely to hold the fate of the country’s chartered banks in his hands. Could csl’s long history of loans influence Martin’s decision on the mergers that the banks are so fervently lobbying for? Only last spring, csl took out the second of two new mortgages on the Atlantic Erie for $56.8 million from hsbc Bank Canada, formerly the Hong Kong Bank of Canada, boosting the ship’s total registered debt to over $100 million. Might Martin remember that generosity when it comes time to decide whether foreign financial interests rate a bigger piece of the Canadian action?
That prospect worries opposition critics like the Bloc Québécois’s Pierre Paquette. Paquette also warns that unless csl drops its offshore address, a Martin government won’t have any credibility in debates about financial transparency at forums such as the oecd or the G-8. “It would be a joke if the Canadian government made any declaration on the use of tax havens,” he says, “and it turned out the prime minister or his sons were using them.”
In 1855, when what became Canada Steamship Lines was still a collection of rowdy steamboat companies jockeying on the St. Lawrence, conflicts of interest were not exactly at the top of any politician’s mind. At a time when the chief business of Upper Canada’s legislative assembly was building railroads, its leading cabinet ministers didn’t think twice about approving £500,000 sterling for a project on which they held major construction contracts. More than a century would pass before Lester Pearson handed down the first written guidelines for his ministers, in 1964. Without offering any specifics, his vaguely worded letter warned they must “act in a manner so scrupulous that it will bear the closest public scrutiny.”
Avoiding the appearance of a ministerial conflict was also what Trudeau stressed when he updated Pearson’s guidelines in 1973. Three months later, the issue erupted in headlines that couldn’t have escaped Paul Martin’s attention. A flurry of news stories detailed the intricate financial ties among four leading Liberals—Maurice Strong, then UN Undersecretary-General; Bill Teron, chief of the federal government’s Central Mortgage and Housing Corporation; Jack Austin, the deputy minister of Energy, Mines and Resources; and Martin’s father, by then the government leader in the Senate and a member of Trudeau’s cabinet.
One story chronicled the holdings of Martin’s Nellmart in Commerce Capital Corporation, which had evolved from a share exchange with a predecessor of Strong’s mns Investments. “Should a family company which a senior cabinet minister controls hold a substantial interest in a trust, real estate and mortgage company which is growing past $100 million in assets?” it began. In the damage-control exercise that followed, Martin said his son, Paul Jr., by then a Power vice-president, was running the family firm, and had also taken a seat on the Commerce Capital board. But that assurance failed to mollify reporters, who noted that the senator hadn’t placed his preferred voting stock in a blind trust until after the controversy flared. “Whether or not Senator Martin actually operates the family holding company,” one journalist wrote at the time, “he ‘appears’ to control it.”
Ironically, conflict of interest would turn out to be a recurring preoccupation in Paul Martin Jr.’s life—a coda that haunts him to this day as he prepares to pass on his csl preferred voting shares to his three sons. Once again, critics, even among his supporters, are questioning the perception of a conflict that persists beyond the legal reshuffling of stock. “I don’t think giving it to your kids satisfies the demands of being prime minister,” says one long-time Liberal, “unless you really hate them and you’re never going to speak to them again.” The ndp’s Jack Layton, until last year a Toronto city councillor, points out the sale would never pass the city’s ethics code. “In municipal conflict-of-interest law, a benefit to your kids is a benefit to you,” Layton says. “We’re not in the Nineteenth Century anymore.”
Ten years after Paul Martin Sr.’s scandal, the potential for conflict of interest was still clearly on his son’s mind. In 1983, five years before he ran for Parliament, the owner of the csl Group asked for a private consultation with Senator Mitchell Sharp, the Liberals’ pro-business guru who was then co-chairing a task force on the subject. When Martin finally did run in 1988, he was scrupulous about making a detailed declaration of his holdings, even though, as an opposition MP, he wasn’t required to do so. But ethics were again topping the news. Scarcely a year earlier, Ontario chief justice William Parker had found that Tory cabinet minister Sinclair Stevens had violated fourteen counts of the Mulroney government’s own 1985 Conflict of Interest and Post-Employment Code for Public Office Holders. Not only did Parker find Stevens had promoted a commemorative coin scheme on government trips, but he’d sat in on his wife’s efforts to win a $2.6 million loan for their shaky York Centre group from the co-founder of Magna, an auto-parts giant that had received more than $64 million in federal assistance.
Despite that litany of wrong-doing, Parker stressed that what mattered, almost as much as the facts, was the appearance that a minister stood to gain from his public role. “A real conflict of interest,” he wrote, “denotes a situation in which a minister of the Crown has knowledge of a private economic interest that is sufficient to influence the exercise of his or her public duties and responsibilities.”
In 1992, on the eve of the Liberals’ ascension to power, Martin showed up at a special joint committee on conflicts of interest in Ottawa to detail how his csl holdings could impact any future cabinet portfolio he might command. His list ranged from decisions on St. Lawrence Seaway tolls to debates on the fate of the Canadian Wheat Board, one of csl’s chief cargo clients. For each, he suggested the remedy was frank disclosure—not selling off the holdings that have given him a personal worth estimated at between $30 million and $50 million.
Martin also proposed the appointment of an independent Ethics Commissioner, answerable to Parliament, to police that uneasy territory. That notion made it into the Liberals’ Red Book under the chapter entitled “Governing with Integrity.” But once elected, Chrétien decided to name an ethics counsellor with no independent investigative or judicial powers, answerable only to the prime minister. Aides say he feared setting a legislative precedent, as well as creating an unwieldy bureaucracy. Instead of the high-profile outsider long promised for the job, he named Howard Wilson, a former trade diplomat who had served in such low-profile commercial outposts as Peru and Nigeria and who admits that once his current job is up, he’d still like one more government assignment. Over the past nine years, as Wilson’s rulings have repeatedly provoked protests, critics such as Duff Conacher, co-ordinator of Ottawa’s Democracy Watch, have dubbed the federal ethics watchdog the Liberals’ “lapdog.” In February, Democracy Watch launched a suit charging Wilson with systematic “structural bias.”
One of the first uproars over Wilson’s decisions came in 1994. Barely a year after Martin became finance minister, his role in Nellmart, the company that had once tarnished his father’s name, erupted in the media. His department, through the Canada Development Investment Corporation, was faced with ruling on the resale of Ginn Publishing, a Canadian textbook house, to its former U.S. owner, Paramount Communications. As it turned out, Paramount’s Canadian subsidiary was by then leasing all three of Nellmart’s Vancouver theatres directly from Martin’s firm. A media report alleged that Martin had sat in on meetings about the publisher’s fate with fellow cabinet members, including John Manley. Manley later denied it in the House and Martin recused himself from the decision. But Paramount won Ginn back into its fold anyway. Still, Wilson ruled that Martin needn’t have been so fastidious. The finance minister wasn’t in a conflict of interest, Wilson argued, because he was in “a landlord relationship—not an investment relationship” with Paramount.
In case after case, Wilson’s rulings have cut to the narrow legalese of conflict issues, never to the broad brush strokes of appearance that both Pearson and Trudeau invoked. Last winter, a report by The Ottawa Citizen’s Glen McGregor broke the news that in 1996, csl International had bagged a fifteen-year contract to haul coal to a $2-billion Indonesian power project in which Bambang Trihatmodjo, the second son of then-Indonesian president Suharto, held a well-publicized fifteen percent stake. The deal was of particular interest to Martin’s oldest son, known as Paul W., who had just been posted to the company’s Singapore office as marketing director. It was also won under unusual circumstances: csl had submitted its bid after the tender closed, provoking an outcry from rival shipowners.
Wilson has admitted that Martin was briefed by csl’s president, Sam Hayes, and Stuart Hyndman, his trustee, on the contract, estimated to be worth more than $140 million. But the Ethics Counsellor saw no problem with Martin getting an update on a transaction involving the Suharto family, whose corruption was widely alleged. No matter that President Suharto himself was due the following year at the Asia-Pacific summit in Vancouver, where the Canadian government massed extra security for his protection. In Wilson’s view, what was important about Martin’s meetings with his csl subalterns was whether they discussed business or public policy. “All I can say,” Wilson says now, “is Canadian government policy was not the subject of discussion.”
In another instance, when the Ministry of Finance was overseeing an update to the Pension Benefits Standards Act, Wilson advised Martin to hand off the legislation to his secretary of state for financial institutions just in case. Last year, Mr. Justice Warren Winkler not only ruled that the amended act could apply to csl, but his order unlocked a $165-million surplus sitting in its overstuffed pension account. This spring, half of that sum was distributed to csl employees; the other half, an estimated $82.5 million, went to the company’s own balance sheet.
On July 28, 2003, in an astonishing six-page letter to Martin on how to handle potential conflicts as prime minister, Wilson essentially said: Don’t worry. He advised Martin to continue to recuse himself from decisions involving maritime interests, shipbuilding, and the St. Lawrence Seaway. Then he pointed out that a prime minister never gets into the nitty-gritty of legislation the way cabinet ministers do. “The commercial interests you have had in csl…do not raise significant conflict of interest issues if you were to become Prime Minister,” he wrote. As for areas where Martin ought to excuse himself from decision-making, “these will be rare and easily managed.”
That blithe assurance left all four opposition parties slack-jawed with disbelief. Each party has separately warned that Martin’s—or his sons’—interests in csl are so vast they could influence decisions ranging from the ratification of the Kyoto protocols (his ships carry coal to Ontario’s smog-provoking power plants) to fisheries: last November the CSL Atlas was fined a record $125,000 for releasing an oil slick forty kilometres long off the coast of Nova Scotia. With cargo contracts from Indonesia to Colombia and at least one deal to service Hibernia’s offshore oil platforms, csl could claim a stake in virtually every major decision confronting the next government, from international-trade talks to energy policy.
For Sinclair Stevens, who brandishes the conflict-of-interest definition set out by none other than his nemesis, Justice Parker, Wilson’s letter is unfathomable. As Stevens sees it, Martin will not be off the hook even if he excuses himself from cabinet discussions on thorny subjects. “As prime minister,” Stevens fumes, “it’s totally unworkable. Under our system, he gets his authority from the Queen. He’s answerable for everything.”
Duff Conacher of Democracy Watch, agrees, albeit for different reasons. “Even if Martin stepped out of the Cabinet room, or delegated his powers to other ministers, the appearance of a conflict would remain,” he says. Since the prime minister personally appoints—and demotes—his ministers, Conacher argues, “they would all know that Martin could kick them out of Cabinet if they did not do what he wanted.”
In the same open letter to Martin last July, Wilson declared that the former finance minister need not have turned csl over to his sons, and warned that gesture could discourage other tycoons from bringing their talents to politics. Martin himself made a similar case last spring. But corporate Canada is not exactly without a voice on Parliament Hill. According to Democracy Watch, at least a quarter of current MPs hail from the ranks of business—more than from any other field.
That argument also raises the question: Are the qualities admired in a captain of industry the same as those required to steer the nation through turbulent times? Isn’t the savvy required to protect shareholders’ interests—pitiless budget-cutting and unrepentant regard for the bottom line—directly at odds with the communitarian instincts required to rally a fractious nation? “Business values are to maximize profits,” says historian Jack Granatstein. “Government values are to maximize the good of the people.”
For most of his sixty-five years, Paul Martin has been caught in the uncharted territory between these warring value systems. Now, as he sails toward the Liberal leadership, his bank accounts stuffed with corporate tribute, his image-makers working to show him as a caring, new, I-am-my-brother’s-keeper kind of guy, it remains to be seen which flag he will ultimately choose to fly.
Marci McDonald is the author of The Armageddon Factor: the Rise of Christian Nationalism in Canada, a 2010 bestseller based on her 2006 Walrus story “Stephen Harper and the Theo-cons.” She is the winner of several National Magazine Awards, including for “The Man Behind Stephen Harper” and “Blind Trust,” the cover story of the inaugural issue of The Walrus.