10/01/2012 10:38 EDT | Updated 12/01/2012 05:12 EST

Quebec Corruption Inquiry: Gerald Tremblay, Montreal Mayor, Entangled In Political Bombshell


MONTREAL - Quebec's construction inquiry witnessed its first political bombshells Monday with a star witness testifying about corruption so deep, so systemic, that kickbacks to the Montreal mayor's political party and payments to the Italian Mafia were handled by the same person.

A former construction boss testified that doing business meant a three per cent kickback from the value of municipal contracts to the mayor's party; a one per cent bribe to a city employee; more gifts and payments to other city officials; 2.5 per cent to the Italian Mob; and a meeting with the country's most powerful Mafioso when a dispute occurred in what was essentially a bid-rigging industry cartel.

It was the first time the inquiry heard about specific bribes to a political party. It might not be the last. Witnesses have yet to be asked about political activities at the provincial or federal level.

Former construction boss Lino Zambito testifed that the cost of public works was driven up by corruption — and seemingly everyone was in on the scam.

"I found it ridiculous how everyone knew about it — and how it continued," Zambito said during his second day of incendiary testimony.

"People knew about it at the city. The business people knew about it. The suppliers knew it... (It was) business as usual... There was wilful blindness. It was accepted."

Zambito said he learned about the partisan kickback from Nicolo Milioto — the same man seen on police surveillance video handing the Rizzutos cash from construction profits. Milioto started collecting on behalf of the political world as well in 2005, Zambito said.

The allegations at the inquiry Monday prompted municipal politicians to demand the immediate resignation of the mayor, who still has a year left in his term. Mayor Gerald Tremblay defended himself and showed no sign Monday of planning to step aside.

Zambito testified that for years he paid a three per cent cut from all the contracts his company received from the City of Montreal to Tremblay's party.

He described a system in which the 2.5 per cent he gave to the Mafia on each contract, which he testified about last week, was merely the tip of an iceberg of corruption that drove up the cost of construction work in Montreal.

On Monday he described new layers: one per cent bribe for a city official involved in contracting; a 25 per cent commission that another city official claimed on so-called "extras," the falsified expenses of construction companies; and that three per cent for the mayor's Union Montreal party.

In one instance, Zambito said that when he found himself in a dispute with a powerful Quebec construction magnate over a multimillion-dollar contract, it was none other than Vito Rizzuto, the longtime Mafia don, who was summoned to mediate.

Zambito recounted a tiff he had with construction mogul Tony Accurso in 2004 over a $25-to-$30 million Quebec provincial contract that was ultimately settled by Rizzuto, who gets out of jail this week.

He said he was invited for a meeting at Accurso's restaurant and was surprised to see Rizzuto there.

The Mafia boss had been invited to mediate the dispute. Rizzuto suggested to Zambito that his company might be too small to handle the job, he recalled.

So Zambito said he agreed to back away, in exchange for future favours.

In a statement late Monday, Accurso denied ever having had a dispute with Zambito or having asked Rizzuto to intervene in one. Accurso also said in the statement that the contract from Quebec's transport department was ultimately awarded without any rigging and that several competitive offers were fielded.

Zambito shared several anecdotes about how construction contracts were allegedly rigged.

He said it wasn't actually the Mafia that decided who got contracts. So, he was asked, what was the purpose of the 2.5 per cent fee he paid the Mob? Zambito said that was simply the cost of doing business — the price to enter the bid-rigging cartel that controlled public works in Montreal.

Zambito said entrepreneurs decided amongst themselves who would win a bid.

Once that winner was picked, the lucky company would not generally reveal its bid amount to others. It would simply tell "rival" companies what their minimum submission should be. So everyone else submitted higher bids, and the contract winner was guaranteed, Zambito said.

There were rarely any disputes; Zambito said he only saw Rizzuto called upon to mediate that one time.

"It was a mutual collaboration between entrepreneurs," Zambito said.

"The guys all have an interest in things working out."

While most city employees were honest, Zambito said, there was corruption at all levels of city hall.

In addition to the partisan kickback, Zambito described a running joke about another tradition at city hall: a one per cent bribe to a city bureaucrat.

The official apparently claimed a so-called "TPS" — the name being a tongue-in-cheek twist on the French-language acronym for the federal sales tax, the GST. The kickback was named for, and by, a high-ranking and now-retired local official, Gilles Surprenant, according to Zambito.

"He picked the name himself," Zambito said.

"'TPS' meant 'Taxe Pour Surprenant' (Tax For Surprenant). At the time, it was one per cent of the value of the work."

Surprenant was an engineer involved in planning public works projects that would go to public tender. The bureaucrat was responsible for setting aside budgets for projects and Zambito said that, over time, he helped inflate the price of local projects.

Zambito said the amounts were paid in cash, directly to Surprenant. He estimated that over the span of a decade, his company alone paid Surprenant between $100,000 and $200,000.

Another former city engineer he wined and dined, Luc Leclerc, was in charge of inspecting work sites. Zambito testified earlier that when he first entered the Montreal market, Leclerc had been dispatched to make his life difficult.

Not long after, Zambito said, he agreed to join the select group of entrepreneurs who handled the city's water and sewer contracts. They operated under a cartel-like system.

Zambito said civil servants operated another scam.

Bureaucrats approved falsified expenses to ensure that contingency money for various projects, set aside for unexpected "extras," would be fully exhausted.

That money was then divided between the entrepreneur and the bureaucrat, with 25 per cent of the "extras" going to the municipal employee in cash.

Zambito said Leclerc and others profited from that scheme — and he estimated Leclerc pocketed more than $200,000 over a decade. Zambito said the municipal employee drove a Corvette and also owned a pizzeria.

Zambito said municipal officials were lavished with gifts, including a Mexican holiday, and were frequently offered golfing excursions and fancy dinners.

Things began to change when allegations of corruption surfaced in news reports about three years ago. Zambito said many city engineers were forced to retire after the Quebec government created a new police squad, nicknamed Hammer, which began investigating municipal corruption cases.

A police witness has already testified that corruption schemes have driven up local construction costs by as high as 30 per cent, although he said public scrutiny following recent scandals has wound up reducing the cost overruns by half.

Local opposition politicians demanded that the mayor quit immediately.

"The time for Gerald Tremblay's resignation has arrived," said his main rival, Louise Harel. "He has lost his legitimacy... Montrealers can't take this anymore."

The next election is more than a year away. Tremblay showed no sign Monday of planning to step down before then.

He said his party's books were scrutinized each year by the province's elections watchdog and, "we never had a complaint." If there's a problem, Tremblay said, that same body should investigate.

Aside from that, Tremblay said he would await the conclusion of the inquiry before commenting on specific allegations of wrongdoing.

"My conscience is at peace," Tremblay said.

"And I can't comment on each allegation."

Zambito testified that the system also created frustrations for insiders.

He said that as other industry players became aware of the inflated costs, they increased the price of raw materials and equipment accordingly.

He also shared an anecdote about how he had to employ a full-time staffer to distribute Christmas gift baskets to city employees one year.

Zambito's company went under in 2011. He is facing a series of criminal charges that he says destroyed his construction business, by making it impossible for him to get financing.

He now runs a restaurant.

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