The Legislature Raids

          

Joy MacPhail, 26 April 2004, continues:  In April 2002, RCMP and Victoria police launch a joint investigation involving schemes to trade B.C. marijuana for cocaine. The investigation also looks into organized crime and the possible police corruption. May 15, 2003, the government issues requests for proposals for the purchase of B.C. Rail. November 17, 2003, the company hires a fairness adviser, Charles River Associates, and Charles River Associates releases the interim report on the B.C. Rail deal. The report refers to leaks of information. What was the source of those leaks, and what did they contain?

            Hon. K. Falcon: The leaks that the member opposite refers to were spelled out in the Charles River Associates report that came out. What he indicated was that the information that was faxed accidentally by the investment banker working on this project to CN…. Immediately upon faxing it, they realized that information shouldn't have been sent. They contacted CN immediately to get that information back — which they did, along with the confirmation that the information wouldn't be used or looked at or what have you. Furthermore, that was information which Charles River took pains to point out was ultimately going to be distributed, and was, to all of the bidders anyhow. It wasn't information that would have a germane impact on the deal itself.

            J. MacPhail: I'm looking at page 11 of the November 14, 2003, Charles River report. Again, part of the exercise is to put this information on the public record. It says there were two leaks. Was the minister just describing one there?

            Hon. K. Falcon: I just got clarification on that. That was part of the information provided to all the bidders, and though it was a leak, it wasn't a leak that would have been germane to the bidders because they had that information. It was a leak to the media, and it had to do with the Ministry of Transportation's interests in Highway 99 as it relates to the railway line.

            J. MacPhail: Let me read from the report of Charles River Associates: "In the second case, we have been informed that the error was quickly identified." Can the minister tell us what that error was? Can he repeat what that error was that this report is referring to?

            Hon. K. Falcon: That was the provision of information to CN that they shouldn't have been sent. That was immediately destroyed.

            J. MacPhail: But what was the information? We've been trying to find this out for ages. Of course, the fairness adviser doesn't say anything about what the information was. We now know it was sent to CN. Thank you very much to the minister for identifying that. It says: "We have been informed that the error was quickly identified." This is the fairness adviser, who should be speaking more in the positive, I think, rather than in the passive.

           What was the action that was taken? Who took the action? Who identified the error?

            Hon. K. Falcon: The information was commercial data about B.C. Rail's business operations, information that was ultimately made available to all of the bidders. It was the investment bankers that realized they had inadvertently faxed that particular portion of the information to CN earlier than they should have received it. They contacted the evaluation committee to let them know that they had inadvertently done this. Legal counsel from the government side had contacted CN immediately and asked for legal undertakings from their counsel that they would immediately destroy the information, and that legal undertaking was given.

            J. MacPhail: Who are the investment bankers, and when did they discover this? What was the date?

            Hon. K. Falcon: The investment banker was CIBC World Markets. We haven't got a specific date, but we are pretty confident it was sometime in mid-October. It would have been…. Yes, we can find out for you. We'll take that on notice and find out.

            J. MacPhail: In September CIBC World Markets was caught saying, "Of course, CN would be the best choice for buying B.C. Rail" — early September 2003. That's why I was interested in knowing who it was that leaked to CN. We have in September 2003 the investment bankers saying publicly that CN, of course, is the best choice for buying B.C. Rail. In October we have CIBC World Markets leaking information to CN inadvertently or wrongly. The bid closes in November. How long a process did it take to notify CN, to get the information destroyed and, more importantly, to distribute the same information to all of the other bidders? Timing here is very important.

            Hon. K. Falcon: The time involved would be three days maximum.

           One thing I should say — I should correct an earlier comment I made — is that the data that was faxed out would be data that would only have gone to the final partner, so I was incorrect in saying it would have ultimately gone to all of them. It actually would have just gone to the final one, so I wanted to correct that.

            J. MacPhail: What does that correction mean? The data that was given to CN never, ever went to the other bidders?

            Hon. K. Falcon: Yes.

            J. MacPhail: Okay. Let me just get this clear. In September 2003, CIBC World Markets, the analyst, who's the investment banker for British Columbia, says: "Of course CN would be the best company to buy B.C. Rail. They're actually doing the bidding of the taxpayers." They show their hand — that CN would be the best choice. That's September. In October there's a leak of commercial data to CN while the bidding is going on. CN is one of four bidders, and that commercial data is never distributed to the other bidders — and somehow this is a fair process?

           How does that work? The minister said this data that was leaked to them should have only gone to the final bidder. Well, the problem is: we were in the middle of a bidding process that had four bidders. How is that fair?

            Hon. K. Falcon: The CIBC World Markets reference you're making to the CN deal apparently referred to the Ontario Northland deal. One thing I think it is important to point out to the member, as I'm sure the member is aware, is that in those large organizations, those large investment banking and banking concerns, they do have market analysts, who operate quite separately from the investment banking arms. It is quite common. There is what is commonly referred to as a Chinese wall between the two of them, so that the analysts will continue to make comments on how they view the world in the rail sector, for example, and the investment banking arm will operate very independently of that.

           The other thing I would point out is that in regards to the information, the reason why it wouldn't go to all the parties is because the information is very commercially sensitive — data that you don't want the competitors to have. You don't want them to have access to all of that data. The final negotiating partner you end up with is the partner you would like to have access to that data.

            J. MacPhail: I am very pleased with the forthrightness of the Minister of Transportation. He's what we like to call courageous in telling the truth. But let's be very clear. What the minister has just admitted to is that the leak, which we asked about day after day in the Legislature and in question period…. We now know what it is. It's commercially sensitive information of B.C. Rail that should only go, in the final analysis, to the successful bidder — except that CN got it halfway through the bidding process. If that doesn't give you a leg up, what does?

           The playing field wasn't levelled after that. The government didn't say: "Oh, my gosh. That's such a big error; we should start all over again." They didn't do anything. They called up CN after they'd had the data for three days, minimum — at least three days, and that's three days from the time it was discovered that this information had been leaked. They've got three days to absorb it and then destroy it, and the other three bidders get nothing.

           Madam Chair, I will just refresh the minister's memory. The Minister of Finance of British Columbia commented on the inappropriateness of the CIBC World Markets analyst making the comments that she did about the B.C. Rail deal. It was around the time of the release of the first-quarter report. The story interfered with the release of the first-quarter report.

           It was about a CIBC World Markets analyst — I think it was a woman — who made those inappropriate comments, and she was chastised. The company, the investment banker, was chastised by the Minister of Finance of British Columbia, so the admission was delivered by the government that yes indeed, CIBC World Markets did say this about the sale of B.C. Rail. I find it unbelievable, but I'm very happy that the minister has been so courageous in the truth here that this is the story.

           When this was discovered Charles River Associates says this: "In the second case, we have been informed that the error was quickly identified." We now know that the government didn't identify the error. It was CIBC World Markets. We now know it was sensitive commercial information that should only ever be given to the final bidder. We know that. Then the report goes on to say, "We have documented statements from the attorneys" — I love that American language, "attorneys" — "involved, verifying that the data were retrieved from or destroyed by those who had access to it," so fill in the blanks there. It would be the lawyers from CN saying: "Oh yeah. We've destroyed it."

           The minister said that process took three days — minimum three days — from the time it was identified. Well, whoop-de-do — and it's the fairness adviser's assessment that there was no problem there? You don't think getting commercially sensitive data that didn't go to anyone else didn't help CN in its bid?