Photo Of Paul Martin By Tom Hanson

Ottawa:  The summer of 1995 was an intense one for Paul Martin as finance minister. He was slaying the deficit by slashing government services, and trying to confront the doubts of international financiers about Canada's ability to make ends meet.

But he also seemed to find time for a file floating around the Finance Department -- a file on pension reform that would improve the fortunes of his private shipping empire.

According to newly released documents, Mr. Martin spent time in 1995 quizzing bureaucrats about legislation they were drafting, and made suggestions on how the measures could better suit business -- until his own deputy minister told him to back off. Even still, he stood before Parliament a year and a half later to table the new bill, and then watched as his companies went on to reap $82-million from the changes. In the end, Canada Steamship Lines became the largest beneficiary by far of the legislation.

Did Mr. Martin abuse his power as finance minister for personal gain? Or did he prudently separate his private interests from his very public job?

Over the past few days, those questions have become the subject of private sniping between the Conservative and Liberal parties, on the brink of an election that is likely to put one of them in office.

According to the Conservatives, Mr. Martin did something seriously wrong in 1995, and should be judged now for his actions. He was a wealthy business owner and stood to become much wealthier because of legislation his department was preparing, the Conservatives say.

The party's researchers spent more than seven years collecting government documents related to Mr. Martin and the pension measures, and presented them this week to The Globe and Mail. Included in the documents were details that had not previously been reported -- that deputy minister David Dodge, who is now Governor of the Bank of Canada, advised Mr. Martin in a memo to stay away from the pension reform issue; that a subsequent memo to Mr. Martin suggested he was still involved in the file; and that CSL made far more money off the changes than any other company. 

"I really think there's something suspicious about this," says Monte Solberg, the Conservative finance critic.

According to the Liberals, however, the only suspicion should centre on the Conservatives' timing -- releasing the documents just days before an election. Moreover, Mr. Martin's aides say his office went to great lengths to keep him out of the pension overhaul process.

Ultimately, the Conservatives' allegation rests on memos sent to Mr. Martin after he was told by his deputy minister to stay away from the file. The personal nature of the memos, Mr. Solberg said, suggests they went directly to the minister's office. But the Liberals say they had specific protocols to prevent such documents from getting to Mr. Martin.

"Paul Martin was never involved in this file," his spokesman, Scott Reid, said. "There is no evidence to the contrary."

Either way, the dispute shows how fierce and personal the current election campaign has become. But it also reveals how Mr. Martin's private interests have shadowed his political career, and what efforts he has made to avoid conflicts of interest.

Long before Mr. Martin became finance minister, the issue of pension surpluses had been a thorn to both companies and employees, neither of whom had a simple way to access the money. Indeed, the issue had been to court so many times that the Supreme Court asked the federal government to do something about the gap -- a request that led partly to the changes in question. Provincial laws already covered how to deal with large surpluses in private pension plans. But pension plans in corporations that were regulated at the federal level -- including shipping companies -- were not covered by provincial laws.

By the summer of 1995, CSL and its affiliates -- companies that Mr. Martin wholly owned at the time -- had amassed a pension-fund surplus worth about $200-million. 

The surplus was the result of good investments over the decades, and a shrinking work force that meant fewer demands on the funds. As a cabinet minister, Mr. Martin was not allowed to be involved in the daily affairs of CSL; he had already placed it in a blind management trust. But he would have been well aware that the surplus was abnormally large, since much of the growth took place before he became a minister.

But the surplus was locked away, accessible to neither Mr. Martin as owner of the company nor to the CSL pensioners, because federal laws had no provision for disbursing the excess monies.

According to the documents, Mr. Martin had views on the amendments being considered. 

The finance minister wanted to know "about the possibility of employers being allowed to use a portion of their pension surplus for 'corporate' purposes," says a memo from the Office of the Superintendent of Financial Institutions, addressed to Mr. Martin in July, 1995.

The memo discusses how Ottawa could implement "your idea . . . for a more flexible regime" in the disbursement of pension-fund surpluses. OSFI concludes with a promise to keep Mr. Martin abreast of the revisions to the pension rules, and says, "your direction will be sought."

But a few months later, Mr. Martin was told abruptly to let his secretary of state for financial institutions, Doug Peters, handle the matter. In a memo dated Oct. 4, 1995, and titled "conflict of interest," Mr. Dodge wrote, "after discussion with the office of the Ethics Counsellor, departmental and OSFI officials have been instructed to ensure that you are not to be involved in this matter in any way."

The conflict Mr. Dodge refers to involves a minor CSL pension plan. But in subsequent documents, it's clear that the Oct. 4 edict to Mr. Martin is meant to be a broad one, recusing him from anything associated with the Pension Benefits Standards Act.

However, documents on the PBSA were still being forwarded to Mr. Martin after the Oct. 4 edict. OSFI re-sent its memo to his office on Jan. 8, 1996.

Asked this week why OSFI continued to keep Mr. Martin in the loop, a spokesman for OSFI said the memo dealt simply with policy issues of general application, and had nothing to do with any specific pension plan or company. (In an e-mail exchange in June, 1998, between Finance officials and the office of the Ethics Commissioner, Finance officials recognized the Oct. 4 date as the start of Mr. Martin's recusal from the pension-surplus issue.)

By March of 1997, the legislation was ready for the House of Commons and was introduced by Mr. Martin himself, although later amendments were introduced by other Liberals. The bill proposed a process to unlock pension-fund surpluses and have the money distributed to both employees and employers.

It died when an election was called in June of that year, but it was reintroduced in the Senate and passed with little fanfare on June 11, 1998.

At CSL, company management had been entertaining the idea of disbursing its pension-fund surplus. But according to both a CSL spokeswoman and a lawyer who acted for the company's pensioners, no action was taken until the pensioners decided to initiate court action and force the company's hand.

"We sued the company, because they had been promising for years and years to do a surplus share with the employees," said lawyer Susan Rowland, who acted for the pensioners.

By the spring of 2003, the two sides reached a settlement under the new pension rules. The employees received $82.5-million, and the companies received the same amount. 

That's more than 10 times what any other company has received since the bill came into effect in 1998, OSFI documents show. But according to his staff, Mr. Martin had no involvement in the pension-revision process from the moment he was told to keep away from the file. The minister's office had an "iron-clad" system requiring staff to block any document that came into the office that had anything to do with the list of topics Mr. Martin had been told to stay away from.

In the memo from OSFI addressed to Mr. Martin, in which OSFI talks about "your ideas" on how to reform the pension-surplus rules, the "you" actually referred to Mr. Peters, the secretary of state, and not Mr. Martin, Liberal officials argue. Further, the memo was not date-stamped, as is normal practice, to indicate when it would have reached the minister's office.

"The minister of finance never saw this document," Mr. Reid said.

In an interview this week, Mr. Peters, who was a widely respected bank economist before running for Parliament, said he had full control over any matter that was associated with Mr. Martin's shipping companies. Mr. Dodge declined to comment.

"The Department of Finance was extremely careful on this," said Mr. Peters, who is now retired.

At CSL, the company eventually rolled its share of the gains into a program to modernize the CSL fleet of ships, spokeswoman Martine Malka said. "It was all reinvested in the company." 

Last year, while making his bid for the Liberal leadership, Mr. Martin passed on the companies to his two sons.