Evidence of meeting #50 for Finance in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cabinet.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Clerk of the Committee  Mr. David Gagnon
Benoît Robidoux  Associate Deputy Minister, Department of Employment and Social Development
Marc Tassé  Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

5:25 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

I believe so, yes. I believe they had to disclose that situation, that they believed they were in a conflict of interest, whether potential or apparent, and then get an opinion, likely from the Conflict of Interest and Ethics Commissioner, as to whether that was the case.

I agree with that. Did they actually ask for an interpretation and did they get it? Those are the two most important things when it comes to the perception of conflict of interest.

5:25 p.m.

Conservative

Marty Morantz Conservative Charleswood—St. James—Assiniboia—Headingley, MB

I note from your bio that you have some experience dealing with non-profit organizations. One of the peculiar things about this whole scandal is the fact that ultimately the government signed a contract with an organization that had no track record at all in terms of being able to administer that program. I think it falls also under the issue of due diligence.

What do you make of this, that the contract got signed with WE Charity Foundation? WE says they signed it with that company to limit their liability, but doesn't that speak to the lack of due diligence in government, which you touched on, over this matter?

5:25 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

With respect to due diligence, as you mentioned, I believe it was important for senior officials to gather the information and ask themselves whether the organization was able to deliver the expected result and whether the financial structure used made it possible to complete the project. In addition, it is important to know what their recommendations were and what they documented.

When it comes to due diligence, questions must be asked and documented. Whether or not a breach is determined will depend on the documentation submitted. Most senior officials are usually required to document their recommendations.

5:30 p.m.

Liberal

The Chair Liberal Wayne Easter

This is your last question, Marty.

5:30 p.m.

Conservative

Marty Morantz Conservative Charleswood—St. James—Assiniboia—Headingley, MB

Okay.

The cabinet ministers we had on earlier today claimed that when they were deciding this during cabinet committee, for example, they weren't made aware of the fact that it was going to be WE Charity Foundation. They weren't aware of the problems with WE's financial statements and breaches of bank covenants and those kinds of things. What is missing in this process where the public service either knew or didn't know, but if they knew, they didn't bring these huge red flags to the attention of the decision-makers?

5:30 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Once again, it all depends on what information has been shared. If people look at the contribution agreement and see the WE foundation's name on it, they must understand that the transaction involves that foundation.

I also believe that, if the matter has gone through the government's legal advisors, it is highly likely that they too have realized that it was not WE Charity, but its foundation. If so, I believe it would have been up to them to make recommendations and to ask the key questions I mentioned earlier, namely whether the entity with which we want to deal has the financial capacity and the legal structure required to carry out the mandate entrusted to it.

5:30 p.m.

Conservative

Marty Morantz Conservative Charleswood—St. James—Assiniboia—Headingley, MB

Thank you very much.

5:30 p.m.

Liberal

The Chair Liberal Wayne Easter

Thank you, both.

Mr. Fragiskatos.

5:30 p.m.

Liberal

Peter Fragiskatos Liberal London North Centre, ON

Thank you, Chair.

Thank you for being here, Mr. Tassé.

I'm wondering what advice you would be willing to provide to the committee about the best kind of due diligence that can happen during a particular context. That context is emergency decision-making. I think it's fair to say that COVID-19 is precisely that sort of context.

Any thoughts that you might have on that would be appreciated.

5:30 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Thank you for your question.

I believe that it is important to exercise due diligence, which involves a thorough review of all the particularities of contracts. You have to ensure the legitimacy, the capacity—that is always key—and the financial stability of the entities with which you are considering doing business. Those three important criteria should always be considered.

Furthermore, you need to look at the officers and their capabilities. In a situation of crisis, if you decide to award contracts directly, without going through the usual tendering process, you have to have procedures to compensate for that. You must therefore document as much information as possible, and all the existing information about companies, the simplest of which are their financial statements. You can check and confirm with certain agencies, such as the Canada Revenue Agency, that companies are in good standing. That is very important.

5:30 p.m.

Liberal

Peter Fragiskatos Liberal London North Centre, ON

Thank you very much, Mr. Tassé. I take your points, but that would be prudent to do in a normal decision-making context. Are there particular safeguards you can point to during crises, during emergencies, that you would recommend?

I ask that because of the obvious point that whether it's public policy-making or anything else, whether in matters of politics or in life, when we are moving very quickly, mistakes are much more likely to happen. Can you offer anything on due diligence during specific times of emergency and how to put in place safeguards to guard against mistakes as much as possible? That's what I'm looking for.

5:30 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Thank you for clarifying.

Once you agree that procedures are in place to ensure that the company has the necessary technical skills, you must also consider whether it has the necessary financial capacity.

Right now, many companies are going through a very difficult time financially. It is therefore important at this juncture to ask whether the company has undergone any major changes since the beginning of the COVID-19 pandemic, whether its financial structure has weakened and whether internal company controls have changed. In fact, we are seeing more and more companies lean toward resorting to non-traditional external financing.

Unfortunately, some studies show that criminal organizations tend to be the source of some of this kind of emergency funding. Abroad, and, these days, a little more in Canada, it seems that organized crime has infiltrated businesses that were quite legitimate and is using them to launder some money from non-legitimate activities.

The important thing is to find out whether a change of control or shareholders has taken place. Often, we deal with suppliers we have known and trusted for a very long time. However, even if they are the same people, it is important to ask them specifically whether or not they have sold shares or whether the shareholders have changed substantially.

5:35 p.m.

Liberal

Peter Fragiskatos Liberal London North Centre, ON

Thank you very much, Mr. Chair.

I have about a minute and a half remaining. I'd like to split my time with Ms. Dzerowicz, if I could.

5:35 p.m.

Liberal

The Chair Liberal Wayne Easter

Ms. Dzerowicz, you're on.

5:35 p.m.

Liberal

Julie Dzerowicz Liberal Davenport, ON

Thank you so much.

I want to say a huge thanks to Mr. Tassé. Thanks so much for being here with us. Your expertise is very impressive.

I will say to you that I think the comments you made are very important, but to what Mr. Fragiskatos mentioned, we were making fast and furious decisions during a pandemic. So when you were talking about sole-source contracts....

The reason I'm trying to clarify a few things is that any of the general public who are listening right now could be confused—there are so many details—and I want to make sure we're clear. The public service deliberately decided not to go the sole-source contract route because we didn't have time to do so. They were trying to implement a program, a volunteer service program, in a very short period of time, so they decided to do a contribution agreement.

Mr. Shugart, the Clerk of the Privy Council, has indicated the following:

[T]he contribution agreement in this case was typical of relationships between a government department and an entity. They are guided by principles of audit and of due diligence with respect to the interest of the Crown. This contribution agreement will bear scrutiny as typical of the mechanisms that have been approved by the Treasury Board and that have been used in the government for a very long time.

We've heard through many hours of testimony that there were lots of checkpoints and measurements before we actually paid into this contribution agreement. So we deliberately did it. It was not because we wanted to award a particular company; it was because of the situation that was at hand.

Do you have any experience with Government of Canada contribution agreements? Have you actually studied them? Do you have any comments on that?

5:35 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

I actually have had the opportunity to study a few of them.

During a pandemic, it is always very important to consider what additional procedures you plan to adopt. These depend on a company's organizational structure and financial status.

You said earlier that normal procedures had been followed. One must be careful, however: in times of crisis, not only are normal procedures needed, but perhaps enhanced procedures are as well.

There is a concept called enhanced due diligence; meaning that certain important factors need to be confirmed. Some risks are inherent to a company, and the two major ones in times of crisis are very often the company's financial capacity and its organizational structure.

So this must be emphasized in the contracts. If a contract is awarded very quickly, these questions must be asked: whether the company is financially capable of carrying out the work, whether it has the organizational structure needed, and whether the agreement protects the government.

5:35 p.m.

Liberal

The Chair Liberal Wayne Easter

Thanks, both of you.

We'll go to Mr. Fortin for six minutes.

5:35 p.m.

Bloc

Rhéal Fortin Bloc Rivière-du-Nord, QC

Thank you, Mr. Chair.

Mr. Tassé, thank you for being here today. I heard your testimony on the importance of doing proper due diligence. As I understand it, this must be enhanced during a pandemic, when things are being done more quickly. In a case like this, no tendering was done, as has been pointed out, because the government felt it did not have the time to do it. I am not sure about that, but that is what we were told. So they moved more quickly. My understanding is that due diligence would have been more important in this case.

The ministers whom we have questioned to date and who approved this agreement never saw a due diligence report. They all told us that they had assumed one had been done.

Do you find that disturbing?

5:40 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

It is questionable, and surprising. Were there any other communications that might have made up for the gap? That remains to be seen. The information certainly would have been necessary to make an informed decision.

5:40 p.m.

Bloc

Rhéal Fortin Bloc Rivière-du-Nord, QC

According to some of those ministers, at least according to one who made it clear today, the contract we are talking about was signed by the federal government on the one hand and by a legal entity called the WE foundation on the other. The ministers tell us that they had done business with WE Charity. However, it seems that WE Charity is a shell, in legal terms, a company, a corporation that is separate from the WE foundation. The dates of incorporation and the officers are not the same for the two organizations. The minister told us that, in her mind, the agreement she was approving was with WE Charity.

I will not ask you whether that constitutes a defect in consent that would be grounds to have the contract annulled. Since we are dealing with the cabinet, I refuse to believe that a judge would tell us these individuals are not competent to make a decision of this kind.

With respect to the lack of due diligence, could we say that this is a case of carelessness or gross negligence?

5:40 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

We need to see what the senior officials who handled the matter have to say about it. When we talk about enhanced diligence, that means being diligent about the entity with which we want to sign a contract, as well as all the other entities attached to it. In any event, they should have done due diligence on all the companies attached to WE Charity, including the WE foundation. They should then have issued their recommendations based on that due diligence and submitted them to the minister.

It is indeed surprising that the minister was not aware of it. However, we need to see what information was communicated and in what form.

5:40 p.m.

Bloc

Rhéal Fortin Bloc Rivière-du-Nord, QC

Thank you.

Let's talk about the tendering process, Mr. Tassé. We are talking about $43.5 million in fees to manage grants. Originally, the amount was supposed to be $300 million, then it was $912 million, and now we are talking about $500 million. It is no longer clear how much is involved. That said, they were supposed to manage some amount over $500 million in grants and be paid $43.5 million for it. To me, that is a major contract.

Based on your experience, would you say that this type of contract is normally subject to a tendering process? If not, under what circumstances can one bypass the process?

August 12th, 2020 / 5:40 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Again, I will tell you that it depends on how urgent it was at the time. It has been said that WE Charity was the only supplier that could meet the technical requirements at that time. But when you are dealing with a single supplier, you have to check their financial capacity and their governance structure. You cannot simply argue that only they can manage the project because they have the technical expertise to do so. Technical expertise is one of many criteria. In a pandemic like the one we are currently experiencing, financial capacity is crucial.

5:40 p.m.

Senior Advisor, Canadian Centre of Excellence for Anti-Corruption, University of Ottawa, As an Individual

Marc Tassé

Yes, we are certainly talking about due diligence...

5:40 p.m.

Liberal

The Chair Liberal Wayne Easter

This will be the last question, Mr. Fortin.

Go ahead, Mr. Tassé.