Canadian ad industry tarred by $33 mil suit

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[Montreal] The Canadian government filed a lawsuit last week in Quebec Superior Court against seven ad-agency heads and 11 local ad agencies implicated in a scandal that erupted last year over misspent sponsorship funds. The government's goal in taking legal action is to recover at least $33 million of $83 million in taxpayer dollars, a figure that could rise as evidence mounts.

The suit is the latest step arising from Auditor General Sheila Fraser's bombshell report in February 2004 concluding that ad agencies and other middlemen pocketed $83 million in commissions from a $208 million sponsorship fund, sometimes for little or no work. The Royal Canadian Mounted Police have been investigating the charges and the Gomery Commission is probing the details with testimony that is broadcast live on TV.

The sponsorship program was originally started to make the government more visible in Quebec following the 1995 referendum that kept the province in Canada by the barest of margins. The Gomery Commission is inquiring how the money went to Quebec advertising and public relations agencies friendly to the Liberal Party without proper accounting.

The suit names 11 of those agencies: Jean Lafleur Communications Marketing; Groupaction Marketing; Gosselin Communications Strategiques; Gosselin Relations Publique; Gestion Operations Tibet; Communication Coffin; Publicite Martin; Malcolm Media; Le Groupe Polygone Editeurs; Media I.D.A. Vision; and Draft.

The suit also names Chuck Guite, the civil servant who ran the sponsorship program. He and three agency CEOs named in the lawsuit-Groupaction's Jean Brault, Communication Coffin's Paul Coffin and Publicite Martin's Jacques Paradis-already face criminal fraud charges in relation to the scandal.

Prime Minister Paul Martin vowed that all sponsorship records will be reviewed and all possible avenues pursued, including civil litigation, to recover funds that were improperly received. Although Mr. Martin was finance minister and VP of the Treasury Board at the time, he has said he wasn't in the loop. His predecessor as prime minister, Jean Chretien, was known for keeping Mr. Martin, his rival, out of the picture.

Among the many facts revealed so far is that hundreds of thousands of dollars changed hands simply for passing a check from one company to another. In regard to Mr. Chretien, the commission found that a company owned by one of his closest friends, Jacques Corriveau, received millions of dollars in subcontracts from companies hired during the sponsorship program.

It also uncovered in several days of testimony that Jean Lafleur, who owned two agencies bearing his name, remembered little about hobnobbing in an exclusive cigar club with top Liberal politicians and business leaders.

Mr. Lafleur's company earned $55.6 million in fees and commissions between 1994 and 2000 to promote the government and government-owned companies, and an additional $5.7 million for which he can't account.

Quebec ad agencies are concerned the whole industry has been tarred. Yves St-Amand, president and general manager of the Quebec agencies' association, said marketers are left feeling that everyone behaved the same way as the implicated agencies. "Clients have lost confidence and feel that the way of doing business in the advertising sector isn't clean," he said. The association is working on a plan to persuade clients, once the hearings and cases are resolved, that creativity hasn't been affected by the scandal.

Oh! Canada!

Highlights in excessive spending from televised testimony to Canada's Gomery Commission

Jean Lafleur, CEO, Jean Lafleur Communications Marketing:

* Can't remember for which salmon-fishing companion he bought a $1,000 fishing rod.

* Paid self $7.7 million between 1994 and 2000 plus enormous salaries to wife, son and daughter, but can't account for $5.7 million billed by his company.

* Charged up to 17% commission for simply delivering promotional items supplied by his son's firm, which had already charged a 100% markup.

* Took a $93,000 commission to arrange financing for a TV movie on hockey legend Maurice Richard.

* Paid one company $57,000 to help organize the Royal Canadian Mounted Police's 125th anniversary ball, then charged the government more than $144,000 for that company's services.

* Double billed the government for designs for a stamp-promotion campaign.

Gilles-Andre Gosselin, CEO, Gosselin Communications Strategiques and Gosselin Relations Publique :

* Won $1 million sponsorship contract by saying his company, consisting of himself and his wife, had 12 employees.

Jean Chretien, Ex-prime Minister

* Used funds to order golf balls with his signature; said they were just for gifts; got the idea from U.S. President George W. Bush's signed golf balls.

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