In and Out scandal
Encyclopedia
The "In and Out" scandal is an ongoing Canadian political scandal
Political scandal
A political scandal is a kind of political corruption that is exposed and becomes a scandal, in which politicians or government officials are accused of engaging in various illegal, corrupt, or unethical practices...

 involving allegations of improper election spending on the part of the Conservative Party of Canada
Conservative Party of Canada
The Conservative Party of Canada , is a political party in Canada which was formed by the merger of the Canadian Alliance and the Progressive Conservative Party of Canada in 2003. It is positioned on the right of the Canadian political spectrum...

 during the closely contested 2006 federal election. Parliamentary hearings into the issue led to a deadlocking of various committees, and then to the snap election in 2008
Canadian federal election, 2008
The 2008 Canadian federal election was held on Tuesday, October 14, 2008 to elect members to the Canadian House of Commons of the 40th Canadian Parliament after the previous parliament had been dissolved by the Governor General on September 7, 2008...

. The term has also been applied to earlier instances of similar campaign financing
Campaign finance
Campaign finance refers to all funds that are raised and spent in order to promote candidates, parties or policies in some sort of electoral contest. In modern democracies such funds are not necessarily devoted to election campaigns. Issue campaigns in referendums, party activities and party...

.

Background

The basic "in and out" scheme involves transfers of money between different levels or organizations within a political party
Political party
A political party is a political organization that typically seeks to influence government policy, usually by nominating their own candidates and trying to seat them in political office. Parties participate in electoral campaigns, educational outreach or protest actions...

. Elections Canada
Elections Canada
Elections Canada is an independent, non-partisan agency reporting directly to the Parliament of Canada. Its ongoing responsibility is to ensure that Canadians can exercise their choices in federal elections and referenda through an open and impartial process...

 places strict limits on campaign budgets in order to provide an even playing field between the parties. They also directly fund political activity through per-vote financing, as well as reimbursing a major amount of campaign expenses for any riding where the candidate wins over a certain percentage of the votes. In recent elections the per-vote payout has been around $2, while between 50 and 60% of campaign expenses are re-paid if the candidate wins over 10 to 15% of the riding.

It is the second of these two funding sources that is used in the in-and-out scheme. In the 2000 federal elections
Canadian federal election, 2000
The 2000 Canadian federal election was held on November 27, 2000, to elect 301 Members of Parliament of the Canadian House of Commons of the 37th Parliament of Canada....

 the Bloc Québécois
Bloc Québécois
The Bloc Québécois is a federal political party in Canada devoted to the protection of Quebec's interests in the House of Commons of Canada, and the promotion of Quebec sovereignty. The Bloc was originally a party made of Quebec nationalists who defected from the federal Progressive Conservative...

 organized a system to inflate apparent campaign spending at the riding level, and thereby receive much higher refunds from Elections Canada. The Bloc organized "La Méthode In & Out" prior to the elections, having each candidate agree to certain spending numbers in order to inflate the overall cash flows. In exchange, Bloc leader Gilles Duceppe
Gilles Duceppe
Gilles Duceppe is a Canadian politician, and proponent of the Québec sovereignty movement. He was a Member of Parliament in the Canadian House of Commons for over 20 years and was the leader of the sovereigntist Bloc Québécois for almost 15 years. He is the son of a well-known Quebec actor, Jean...

 would sign their nomination papers, a requirement for running in the election.

Large amounts of cash were transferred from the party organization to the individual riding association
Riding association
In Canadian politics a riding association , officially called an electoral district association is the basic unit of a political party, that is it is the party's organization at the level of the electoral district, or "riding"...

s that are in charge of running one candidate's election campaign. The money was then distributed to the volunteers as payments for various expenses. The volunteers then donated that money back to the party. On the surface it appeared that the ridings were spending much larger amounts of money than normal, enough to drain the party war chest
War chest
In arms and armor, a war chest is a container for the personal weapons and protective gear of a citizen-soldier, kept in the household, and is the origin of the term.-In politics:...

. In fact, a considerable portion of the money was being returned directly to the party's coffers.

Under normal circumstances the money received by the volunteers would be subject to income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

 and therefore the scheme would be unattractive to them. But because the money was then spent on political donations, it could be written off. The only cost to the volunteer was time in filling out their tax forms - something they were giving up anyway as a volunteer for the party.

The scheme may have remained unknown if not for an ironic court case against former Bloc MP, Jean-Paul Marchand
Jean-Paul Marchand
Jean-Paul Marchand was a member of the Canadian House of Commons from 1993 to 2000. He is a professor and author by career....

. Marchand agreed to spend $66,000 as part of the in and out scheme, but spent only $22,276. The Bloc sued Marchand, saying he had broken his contract and owed them $36,362. A Quebec judge agreed with the Bloc, but lowered the amount to $16,362. When the story broke in 2003 as a result of the court case, the ruling Liberal Party
Liberal Party of Canada
The Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...

 immediately started to implement changes to the election law to stop this process. However, these changes were not implemented before the party lost power in 2006.

In and Out

The current scandal, which the term "in and out" now largely applies, refers to a scheme implemented by the Conservative Party in the 2006 elections, the very elections that prevented passage of the bill outlawing the practice.

In this case of "in and out", it is held that the scheme was not only intended as a method of gaining additional income, but also as a way to avoid limitations on campaign spending at the national level. Having reached their $18.3 million advertising limit, the party transferred $1.3 million dollars to 67 riding offices that had not yet reached their own $80,000 limit. The ridings then returned the money to the party, stating that it was being used to purchase advertising. The ads in question were identical to the party's national ads with the exception of a "paid for by..." message in small print that was added to the end of the ad in post-production.

The scheme was once again noticed only in a roundabout fashion, when some of the riding finance officers asked for the 60% reimbursement from Elections Canada. The first was an invoice submitted by Vancouver East
Vancouver East
Vancouver East is a federal electoral district in British Columbia, Canada, that has been represented in the Canadian House of Commons since 1935....

 candidate Elizabeth Pagtakhan; asked to explain a $29,999.70 election expense, Ms. Pagtakhan's official agent, Denny Pagtakhan, told an auditor "I think we contributed to TV national advertising. There was no way we can spend our limit so we were asked by the Party if we can help contribute."

Noticing that the invoices were all from a single company in Toronto, Retail Media, they became suspicious and Commissioner William Corbett started an investigation. Investigator Ronald Lamothe questioned Retail Media about the invoices, notably one for $39,999.91 sent by Steve Halicki's campaign for the riding of York South-Weston. The invoice was on Retail Media letterhead, yet Retail Media stated that they dealt only with the party and "did not generate invoices to candidates or electoral districts." The CEO even went so far to claim that "the invoice must have been altered or created by someone, because it did not conform to the appearance of invoices sent by Retail Media to the Conservative Party of Canada with respect to the media buy."

Returning to Steve Halicki's riding, Barbro Soderberg, Halicki's official agent, told investigators she was approached by Conservative Party campaign manager Rom Cimaroli, who proposed a deposit of about $40,000 into Mr. Halicki's campaign account. The funds would be immediately transferred back to the party and recorded as an advertising expense. Despite misgivings, she was reassured by party officials that the transaction was legal.

The Conservative Party denied any documents were doctored or falsified, and claimed that the payments were above board. They stated that regional groups of riding organizations had met to plan out bulk purchases of airtime to be billed to the national party. The "alterations" were simply the editing of the bills at the party headquarters to divide up the amounts that should be billed to each riding.

Fallout

Elections Canada didn't accept the explanation, noting that the money was only sent out to candidates who had not spent close to their $80,000 limit, something the party could not have known before the election started. They also noted that airtime blocks were booked weeks before the ads ran, or the money had been paid to the ridings. In April 2007 the Chief Electoral Officer
Chief Electoral Officer
The Chief Electoral Officer is the person responsible for overseeing elections in some commonwealth countries and provinces.Specifically, it may refer to:* Chief Electoral Officer * Chief Electoral Officer...

, Marc Mayrand
Marc Mayrand
Marc Mayrand , is a Chief Electoral Officer of Elections Canada, a position he has held since 2007.Mayrand studied law at the University of Ottawa and the London School of Economics....

, refused to pay the refunds, totaling about $780,000, stating that the party had paid for the ads. In an obvious parallel with the Bloc events of a decade earlier, the Conservative Party decided to sue Elections Canada to get the money back.

On 15 April 2008, Elections Canada and Royal Canadian Mounted Police
Royal Canadian Mounted Police
The Royal Canadian Mounted Police , literally ‘Royal Gendarmerie of Canada’; colloquially known as The Mounties, and internally as ‘The Force’) is the national police force of Canada, and one of the most recognized of its kind in the world. It is unique in the world as a national, federal,...

 (RCMP) officers raided the Conservative party headquarters in Ottawa. Tipped off, major news organizations and cameramen from the other political parties were already on hand when the RCMP officers arrived. Lamothe's affidavit noted:

"a deliberate 'in-and-out' scheme conceived to move money from national coffers into and out of the accounts of local campaigns, which have their own spending limits, in order to skirt the national spending limit... Funds were transferred into and out of each of the bank accounts of the 67 campaigns ... entirely under the control of and at the direction of officials of the Conservative Fund of Canada and/or the Conservative Party of Canada... The purpose of the in and out transfers was to provide participating candidates with documentation to support their reimbursement claims for these election expenses."


Garth Turner
Garth Turner
John Garth Turner, PC is a Canadian business journalist, best-selling author, entrepreneur, broadcaster, financial advisor and politician, twice elected as a Member of the House of Commons, former Minister of National Revenue and leadership candidate for the Progressive Conservative Party of Canada...

, who was elected in 2006 running for the Conservatives but later moved to the Liberals
Crossing the floor
In politics, crossing the floor has two meanings referring to a change of allegiance in a Westminster system parliament.The term originates from the British House of Commons, which is configured with the Government and Opposition facing each other on rows of benches...

, went on record stating he was personally aware of one such transaction. He said:

"I was asked to be the guest speaker ... but before I gave my speech the treasurer gave their report for the annual meeting and they had more than $40,000, which was transferred into their bank account
Bank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...

 and then the same day they wrote a cheque
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...

 back to the central party. And by transferring $40,000 into their bank account during the campaign they got a 60 per cent rebate.


Sam Goldstein, who ran what The Ottawa Citizen described as a Conservative "token campaign" against Olivia Chow
Olivia Chow
Olivia Chow is a Canadian New Democratic Party Member of Parliament and former city councillor in Toronto. She won the Trinity—Spadina riding for the New Democratic Party on January 23, 2006, becoming a member of the Canadian House of Commons. Most recently, she was re-elected in her riding for...

 in Trinity—Spadina
Trinity—Spadina
Trinity—Spadina is a federal electoral district in Ontario, Canada, that has been represented in the Canadian House of Commons since 1988.It generally encompasses the western portion of Downtown Toronto. In the 2001 Canadian census, the riding had 106,094 people, of whom 74,409 were eligible to...

, later went on record stating that he agrees that the transfers were to pay for national ads. He told Citizen that "It's national advertising is what it is."

A brief political firestorm erupted over the issue, which was quieted by the 2008 elections
Canadian federal election, 2008
The 2008 Canadian federal election was held on Tuesday, October 14, 2008 to elect members to the Canadian House of Commons of the 40th Canadian Parliament after the previous parliament had been dissolved by the Governor General on September 7, 2008...

 that started soon after. The opposition parties
Official Opposition (Canada)
In Canada, Her Majesty's Loyal Opposition , commonly known as the Official Opposition, is usually the largest parliamentary opposition party in the House of Commons or a provincial legislative assembly that is not in government, either on its own or as part of a governing coalition...

, smelling blood, repeatedly attacked the Prime Minister
Prime Minister of Canada
The Prime Minister of Canada is the primary minister of the Crown, chairman of the Cabinet, and thus head of government for Canada, charged with advising the Canadian monarch or viceroy on the exercise of the executive powers vested in them by the constitution...

 during Question Period
Question Period
Question Period, known officially as Oral Questions occurs each sitting day in the Canadian House of Commons. According to the House of Commons Compendium, “The primary purpose of Question Period is to seek information from the Government and to call it to account for its actions.”-History:The...

. The Prime Minister only responded directly to the questions on one occasions, challenging the Liberals to make their accusations outside the chamber where they were not protected from parliamentary privilege
Parliamentary privilege
Parliamentary privilege is a legal immunity enjoyed by members of certain legislatures, in which legislators are granted protection against civil or criminal liability for actions done or statements made related to one's duties as a legislator. It is common in countries whose constitutions are...

.

Conservative party executives and press contacts stated that there is nothing illegal about transferring money to ridings for advertising, and that all the parties did it. Heather MacIvor at the University of Windsor
University of Windsor
The University of Windsor is a public comprehensive and research university in Windsor, Ontario, Canada. It is Canada's southernmost university. It has a student population of approximately 15,000 full-time and part-time undergraduate students and over 1000 graduate students...

 noted that the Conservatives were being disingenouous, and that it was the intent to receive the Elections Canada funds that constituted the "in and out".

House investigation and snap election

The issue fell under the purview of the House Standing Committee on Procedure and House Affairs
Canadian House of Commons Standing Committee on Procedure and House Affairs
The Canadian House of Commons Standing Committee on Procedure and House Affairs is a standing committee composed of the four political parties of the Government of Canada that is responsible for the procedural and administrative matters relating to the Canadian House of Commons. It has 12 members,...

, an inter-party group that includes all four party whips
Whip (politics)
A whip is an official in a political party whose primary purpose is to ensure party discipline in a legislature. Whips are a party's "enforcers", who typically offer inducements and threaten punishments for party members to ensure that they vote according to the official party policy...

.

At the time, the committee was chaired by Conservative Gary Goodyear
Gary Goodyear
Gary T. Goodyear, PC, MP is a Canadian politician. He is a current member of the Canadian House of Commons, having been elected to represent the riding of Cambridge as a Conservative in 2004. On October 30, 2008 he was named Minister of State for Science & Technology within Prime Minister Stephen...

, who the opposition parties claim used his position to delay any debate on the issue, including hours of filibuster. This led to his removal from the position in a vote of non-confidence
Motion of no confidence
A motion of no confidence is a parliamentary motion whose passing would demonstrate to the head of state that the elected parliament no longer has confidence in the appointed government.-Overview:Typically, when a parliament passes a vote of no...

. He was replaced by Joe Preston
Joe Preston (politician)
Joseph "Joe" Preston is a Canadian politician and Conservative Member of Parliament representing Elgin—Middlesex—London riding.He defeated Liberal incumbent Gar Knutson in the 2004 federal election...

 who did not want the position, called no meetings, and then resigned almost immediately. The Conservative party whip, Jay Hill
Jay Hill
Jay D. Hill PC is a former Canadian politician and member of the Conservative Party of Canada. He was the Member of Parliament for the riding of Prince George—Peace River from 1993 until his retirement in 2010. He also served as Government House Leader in the Canadian House of Commons during his...

, stated that no new chair would be named unless the opposition parties agree to drop any debate of the in and out scheme.

The remaining members of Committee nevertheless continued to investigate, calling a number of witnesses to testify about the affair. Most of them refused to appear, which led to the issuing of 31 summonses, unparalleled in House history.

The deadlocking of the Procedure and House Affairs committee was one of a number of such actions that had led to a breakdown of the House process. On 14 May, the Speaker of the Canadian House of Commons
Speaker of the Canadian House of Commons
The Speaker of the House of Commons of Canada is the presiding officer of the lower house of the Parliament of Canada and is elected at the beginning of each new parliament by fellow Members of Parliament...

, Peter Milliken, said rulings by committee chairs are being routinely overturned by majority votes, even when the rulings are procedurally sound. Such a state of affairs has led to "general lawlessness" at committees. Partisan fighting, the cause of the problem, was renewed as the parties blamed each other for the problems.

It was this breakdown of procedure that led to the calls for a snap election. Stephen Harper
Stephen Harper
Stephen Joseph Harper is the 22nd and current Prime Minister of Canada and leader of the Conservative Party. Harper became prime minister when his party formed a minority government after the 2006 federal election...

 blamed Stéphane Dion
Stéphane Dion
Stéphane Maurice Dion, PC, MP is a Canadian politician who has been the Member of Parliament for the riding of Saint-Laurent–Cartierville in Montreal since 1996. He was the leader of the Liberal Party of Canada and the Leader of the Opposition in the Canadian House of Commons from 2006 to 2008...

 for the problems when he first hinted on 14 August that an election might be called. Referring to the in and out hearings as a kangaroo court
Kangaroo court
A kangaroo court is "a mock court in which the principles of law and justice are disregarded or perverted".The outcome of a trial by kangaroo court is essentially determined in advance, usually for the purpose of ensuring conviction, either by going through the motions of manipulated procedure or...

, he stated that the committees were being ruled by a "tyranny of the majority". No breakthrough was forthcoming, and the election call
Canadian federal election, 2008
The 2008 Canadian federal election was held on Tuesday, October 14, 2008 to elect members to the Canadian House of Commons of the 40th Canadian Parliament after the previous parliament had been dissolved by the Governor General on September 7, 2008...

 was made on 27 August.

Continuing controversy

The court case against Elections Canada
Elections Canada
Elections Canada is an independent, non-partisan agency reporting directly to the Parliament of Canada. Its ongoing responsibility is to ensure that Canadians can exercise their choices in federal elections and referenda through an open and impartial process...

 is ongoing. The Conservatives claimed to have won a victory when their case against Elections Canada returned a decision suggesting that the body had overstepped its mandate. However, this ruling was then overturned on appeal
Appeal
An appeal is a petition for review of a case that has been decided by a court of law. The petition is made to a higher court for the purpose of overturning the lower court's decision....

. The Conservatives sought leave to appeal that court ruling to the Supreme Court of Canada, which was rejected on May 4, 2011. No explanation was given, as is usual in such instances. The decision means that the Conservatives may not use local expenses as a means of reducing their 2006 election expenses.

In 2010 and 2011, several former Conservatives have come forward, saying they were punished for refusing to take part in the scheme. Inky Mark
Inky Mark
Inky Mark is a Canadian politician and a former member of the Canadian House of Commons, representing the Manitoba riding of Dauphin—Swan River—Marquette. Mark is a member of the Conservative Party of Canada....

 of Manitoba
Manitoba
Manitoba is a Canadian prairie province with an area of . The province has over 110,000 lakes and has a largely continental climate because of its flat topography. Agriculture, mostly concentrated in the fertile southern and western parts of the province, is vital to the province's economy; other...

 and Helena Guergis
Helena Guergis
Helena C. Guergis, PC, is a Canadian politician. She has represented Simcoe—Grey in the Canadian House of Commons since 2004, and was appointed Minister of State on October 30, 2008, following the October 14, 2008 Canadian federal election...

 of Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....

 both state they were approached in 2006 to take funds from the Federal party and then return them. Both refused. They join similar claims made earlier by David Marler of Quebec
Quebec
Quebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level....

, and Dave Mackenzie of Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....

, who was noted as also refusing the funds although he has not spoken publicly on the issue.

On February 24th, 2011, 4 senior Conservative Party members were charged in the In and Out Scandal under the Elections Canada Act with overspending over $1 million dollars in the 2006 election including allegations that Conservative election expense documents submitted to Elections Canada were "false or misleading" and attempted to fraudulently gain almost $1 million dollars in refunds from taxpayers. Senator Doug Finley
Doug Finley
Michael Douglas Finley is a Canadian Senator and was formerly campaign manager for the Conservative Party of Canada during the 2006 and 2008 federal elections and the party's director of political operations. He is described often as Harper's "number two man" who vets and disciplines candidates...

, (the party's campaign director in 2006 and 2008, and the husband of Human Resources Development Minister Diane Finley
Diane Finley
Diane Finley, PC, MP is a Canadian politician. She serves as Minister of Human Resources and Skills Development in the cabinet of Prime Minister Stephen Harper. Of the 12 MPs in the Priorities and Planning Committee of cabinet , known as the inner cabinet, she is the only woman...

), Senator Irving Gerstein
Irving Gerstein
Irving Russell Gerstein, CM, O.Ont is a Canadian businessman, politician, and a Conservative member of the Canadian Senate. He was appointed on the advice of Stephen Harper to the Senate on January 2, 2009...

, Michael Donison (former national party director) and Susan Kehoe (who has served as an interim party executive director) all face 3 months in jail, $1000 in fines or both.
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