01/27/2014 12:30 EST | Updated 03/29/2014 05:59 EDT

Former head of Quebec Federation of Labour testifies at corruption inquiry

MONTREAL - The former head of Quebec's largest labour union testified Monday that he was well aware the construction wing of the federation had been penetrated by organized crime.

Former Quebec Federation of Labour president Michel Arsenault's testimony came after months of allegations at the provincial inquiry that organized crime had used the union's construction wing to gain access to the federation's billion-dollar investment fund.

The inquiry focused on one particular failed attempt at gaining funding for a soil decontamination company called Carboneutre, which had Mafia elements behind it.

In a wiretap conversation played on Monday, Arsenault is heard saying he'd been informed the company was being controlled by Raynald Desjardins, an alleged Mafioso currently awaiting trial for the slaying of a rival crime boss.

Arsenault told Henri Masse, the man he replaced, that he was aware Desjardins was giving orders to the construction wing bosses. He was partnered with Jocelyn Dupuis, a former executive with that same wing.

Arsenault said he didn't fund any Dupuis-pushed projects, including Carboneutre, which was rejected when it was discovered Desjardins was behind the project.

The ex-union leader said he didn't necessarily have a problem with doing business with people who had a criminal past.

"Maybe you'll find me naive, but I believe in rehabilitation," Arsenault testified. But he drew a line at Desjardins.

"It was a name that frightened me," he testified.

On Monday, Arsenault defended the $9.7 billion Solidarity Fund, which he credits with saving or maintaining 500,000 jobs in Quebec since its inception in 1983.

"I find that the Solidarity Fund and the QFL are being treated severely by the commission," said Arsenault, who was head of the federation from 2007 until his retirement last year.

Arsenault presided over the fund in addition to the union during his time at the helm. He testified he saw no conflict of interest in holding the dual roles.

He also clearly doesn't believe any major changes are necessary, using an English expression to illustrate his opinion.

"'If it ain't broken, don't fix it', as the English say," Arsenault told the inquiry. "The fund is doing well. They are able to improve their procedures internally."

Later, in a 2009 wiretap, Arsenault is heard saying he would never relinquish the dual role. He explained that other union-led investment funds elsewhere in Canada have failed because of outside influence and he did not want to see the same thing happen to the QFL.

He said many new measures were brought in around 2009 to assure transparency and insisted that a majority union presence on the board is necessary for the fund's well-being.

"Our report card is good, not perfect but not bad," he said.

The former union leader was asked to discuss his relationship with former construction magnate Tony Accurso, who has been portrayed at the inquiry as having considerable sway over the union's billion-dollar Solidarity Fund.

Arsenault, who once vacationed on a luxury yacht owned by Accurso, said they were still friends and their wives sometimes shared meals. He had dinner with him just last November, following his departure from the union.

However, he felt the need to defend the yacht trip pulling out a newspaper clipping showing the head of the Caisse de depot, the province's powerful pension fund manager, vacationing at the luxury estate of the Desmarais family in Sagard, Que., where no business was discussed.

Arsenault grumbled there was a double standard when it comes to ethics in Quebec, one for executives and another for the QFL.

The former union boss, who has been involved in organized labour since 1974, sought to minimize the influence of the 600,000-strong labour union and denied that governments are fearful of its power.

Arsenault didn't deny having access to the premier's office as well as those of other senior ministers, but said it was no different than other unions. He said he didn't exploit the access.

Arsenault has come up repeatedly in wiretap conversations at the inquiry, including an explosive bit last week involving the current premier of Quebec.

He was overheard in a 2009 conversation discussing a deal with "Blanchet" to thwart a possible corruption inquiry.

That was a reference to Premier Pauline Marois' husband, Claude Blanchet, a director at the labour federation's Solidarity Fund from 1983 to 1997.

Arsenault was also confident that Marois and her Parti Quebecois, then in opposition at the legislature, could be convinced to oppose an inquiry.

"The PQ won't touch this," Arsenault told Jean Lavallee, ex-president of the labour federation's construction wing. "I'll talk to Pauline."

Marois and the PQ have said there was no deal. Arsenault has not been asked to explain those comments yet at the inquiry.

He returns to the stand on Tuesday.