MUHC McGill P3 infrastructure case garners another arrest for financial crime

By Christine Duhaime | August 2nd, 2013

Wife of Dr. Arthur Porter out on bail

Pamela Porter, the spouse of Dr. Arthur Porter, has been released on bail in Montreal after spending more than two months in jail. Ms. Porter is charged with conspiracy and money laundering for Dr. Porter.

The money laundering charges stem from what is emerging, if the allegations are accurate, to be the largest public-private partnership (“P3“) corruption case, and the first P3 money laundering case, in Canada. The case arises from the $2.013 billion financing of the McGill University Health Centre (“MUHC“), one of the largest hospital infrastructure projects in the world under the legislative authority of Infrastructure Quebec (the “McGill P3 Project“).

Allegedly, a Canadian engineering firm paid $22.5 million as a bribe to Dr. Porter in connection with the financing to ensure it would receive the winning construction and long-term management contracts.

In 2012, MUHC was raided by police as part of its investigation. Apart from the corruption allegations, the McGill P3 Project financing estimates represented to Infrastructure Quebec were incorrect and as a result, the real cost to build and maintain the McGill P3 Project pursuant to a P3 model went from being $33 million less expensive than if built by the public sector, to $10 million more expensive, according to the Auditor General of Quebec.

The application of due diligence in respect of Dr. Porter and others associated with the McGill P3 Project raised issues because he and his spouse were foreign politically exposed persons in and outside of Canada (“PEP“) in all countries under anti-money laundering legislation as as result of his status as special ambassador for Sierra Leone, his country of origin.

As a PEP, financial transactions and dealings with Dr. Porter (and his spouse) would have required enhanced due diligence, and in particular, at the time of the McGill P3 Project transaction. Banks processing the alleged $22 million bribe from Canada, and banks receiving it in the Bahamas for Dr. Porter would both have anti-money laundering obligations to comply with, including the reporting of a suspicious transaction that was not consistent with the recipient’s employment income.

P3s are, contractually speaking, a method of delivering and funding public services using a capital asset where project risks are shared between the public and private sector, wherein the service delivery objectives of the government are aligned with the profit objectives of the private partner. The effectiveness of the alignment depends on a sufficient and appropriate transfer of risk to the private partners. In the P3, the government specifies the quality and quantity of the service it requires from the private partner and depending upon the model, the private partner is tasked with the design, construction, financing, operation and management of the capital asset and the delivery of a service to the government or to the public using that asset. An essential element of P3 projects is integrity of the players, the process, and the project. Preserving the integrity of the procurement process for P3 contracts is essential to maintaining public confidence in P3 projects.

Cases like the MUHC – Porter prosecution call into question the integrity of provincial P3 projects and the government’s role in ensuring that persons associated with P3 contracts do not have integrity issues. Transparency is vitally important to mitigate against financial crime.

The Montreal Gazette wrote the following with respect to transparency:

“Riahd Ben Aissa, who headed the company’s construction division and was its original point man for the MUHC project, was arrested earlier this year in Switzerland in connection with allegations of corrupt practices unrelated to MUHC work. Also of concern is that the firm hired to excavate the land at the hospital’s Glen Yard site, Louisbourg SBC SEC, was headed by construction magnate Tony Accurso, who currently faces charges of fraud, corruption, bribery and conspiracy. His firms have previously been guilty of tax evasion. Further investigation revealed a number of anomalies in the bidding process. These include rules of secrecy that prevent an open examination of the bids to loopholes that allowed major partners in the consortium to bid on both the McGill as well as the Universite de Montreal hospital projects.

The lack of transparency in the process and allegations of financial crime increase the cost of doing business in Canada. According to several news reports in the US financial press, the MUHC P3 scandal is having a chilling effect on project finance bonds and is making debt more expensive in Canada.

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