Canada ad scandal may bring down ruling party

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A Montreal agency executive last week gave the most explosive testimony yet in the investigation into ad agencies' misspending of government-sponsorship money that could end up toppling Canada's government.

A shocking government report first disclosed in February 2004 that some $83 million of a $208 million sponsorship fund funneled through advertising and public-relation agencies wasn't properly accounted for, but the ongoing investigation is getting closer and closer to implicating government officials from Canada's ruling Liberal Party.

When Jean Brault, president of Montreal-based ad agency Groupaction, began testifying March 29 before the Gomery Commission, Justice John Gomery banned media coverage of the previously televised hearings. Interest in the scandal, already high, exploded as Mr. Brault's widely leaked testimony circulated in government circles, the rest of Canada and the U.S., and Mr. Gomery lifted the ban April 7, letting the media report on most of the testimony with the exception of some specific details.

"The Gomery Commission has captured the imagination of Canadian taxpayers like no other event in Canadian history," said Jacques Duval, president of Montreal agency Marketel, owned by Interpublic Group of Cos. "The revelations raise anxiety levels every day."

Canada's Parliament is buzzing with talk of a no-confidence vote in the government that could trigger an election. And last week the House of Commons was a virtual shouting match as Prime Minister Paul Martin promised that if Liberal Party members took money it will be returned, and insisted that all Liberals shouldn't be tarred with the same brush. Mr. Martin was finance minister and VP of the Treasury board when the sponsorship funds were siphoned off, but said he wasn't in the loop.

Following a U.S. blog's leak of Mr. Brault's testimony last week, the Liberal Party asked the Royal Canadian Mounted Police to look into fraud by its own party members and was granted official status at the Gomery Commission in order to question Mr. Brault.

FUNNELING SCHEME

Mr. Brault testified last week about funneling some $900,000 to the Liberal Party by making cash donations to the party and putting election workers on his staff in return for sponsorship contracts.

One of the groups that lobbied the Gomery Commission to lift the media ban was the Association des Agences de Publicite du Quebec. President-General Manager Yves St-Amand said, "We feel that everything should be open so as to show that it was not the advertising industry, but specific individuals involved." Last month the Canadian government filed a lawsuit in Quebec Superior Court against seven ad-agency heads and 11 local ad agencies seeking to recover at least $33 million of the taxpayer dollars lost (AA, March 21).

With more to come-Mr. Brault and Chuck Guite, the civil servant who ran the sponsorship program, go on trial June 6-it's unclear whether the government can survive or will have to call an election.

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