OTTAWA Former prime minister Brian Mulroney has described a business relationship with Karlheinz Schreiber that is full of oddities, with cash stored in safes and taxes paid years later.
Mr. Mulroney told the House of Commons ethics committee yesterday that he received $225,000 in cash from Mr. Schreiber in 1993 and 1994, but as a retainer, so he didn't pay taxes on it right away. Instead of a trust account, the cash was kept in his safe and a New York safety deposit box.
Mr. Mulroney said he never sent Mr. Schreiber an invoice to indicate when the retainer became a payment for services. He paid the taxes in 1999 through a program that allows people to declare income they omitted to report in previous years. And although Mr. Mulroney said much of the money went to expenses that could have been deducted, he paid taxes on the whole $225,000.
"It just raises many more questions than it answers," said Toronto forensic accountant Al Rosen. "If it was in court, with a decent lawyer, we would have fed the lawyer 50 questions to ask him."
Not paying taxes right away on money received as a retainer is not unusual: An advance remains the client's money until the work is done, when it becomes income.
Instead of placing the retainer in a trust account, Mr. Mulroney put the $75,000 he received at a New York hotel in a safety deposit box there, and kept the other $150,000 in the safe at his Montreal home.
While lawyers have rules about handling clients' money through trust accounts, Mr. Mulroney said that his business with Mr. Schreiber was part of his international business consultancy, not his law firm work.
Mr. Mulroney said that he did work over three years, and took most of the money out of the safe and the safety deposit box years later, when he "settled" the deal, and paid taxes.
"As I mentioned in my statement, I had to pay for expenses, and then I concluded that the relationship was finished. So I compensated myself for my professional work, as a consequence," Mr. Mulroney told the committee.
He testified that he no longer has the records of his spending, but added that he never issued an invoice to Mr. Schreiber.
Professionals typically issue an invoice when services are rendered to mark the point at which money becomes their income. Mr. Rosen said he has seen cases where professionals did not issue such an invoice, but noted it's "unusual" to keep a retainer in cash.
In addition, Mr. Mulroney said a large part of the $225,000 covered the expenses of promoting the sale of military vehicles in Russia, China, Europe and the United States.
But instead of deducting that from Mr. Schreiber's payments as the law allows, Mr. Mulroney said he declared and paid taxes on the whole sum because he was surprised when Mr. Schreiber was arrested for fraud and bribery in 1999, and was concerned about how it might look.
New Democratic MP Joe Comartin said he found Mr. Mulroney's account hard to believe. "For anybody who's done any business work as a lawyer or an accountant, it just doesn't add up," he said.
In November, The Globe and Mail reported that in 1999, Mr. Mulroney made a voluntary disclosure. When asked to produce the letter explaining why he made the voluntary disclosure, Mr. Mulroney said he never sent one. A spokesman for Mr. Mulroney, Robin Sears, confirmed later that Mr. Mulroney paid his taxes through a voluntary disclosure.
With a report from Greg McArthur in Toronto