OTTAWA - A key package of correspondence from Karlheinz Schreiber to Prime Minister Stephen Harper was filed and forgotten by federal bureaucrats upon receipt two years ago, a public inquiry has heard.
Donald Smith, an official in the Privy Council Office, testified Monday that a low-level analyst didn't realize the significance of the material and never sought advice from superiors on what to do with it in March 2007.
"It should have been caught . . . It was not," Smith told the inquiry headed by Justice Jeffrey Oliphant.
The package, which was routinely filed away at PCO instead of being forwarded to Harper's office, included a summary of Schreiber's past business dealings with former prime minister Brian Mulroney.
When Schreiber later went public about those dealings in November 2007 -- and mentioned his letter to Harper from eight months earlier -- opposition MPs accused the prime minister of trying to cover up the affair.
Harper hotly denied those allegations and insisted he had never seen the March letter -- an assertion that appears to be backed up by the evidence presented Monday.
Sheila Powell, another Privy Council official, said it wasn't surprising the analyst didn't realize the implications of the March correspondence, given the level of detail in the material.
"I think you would have to have a really in-depth knowledge . . . of what the situation was with Mr. Schreiber to understand that there actually was an allegation there," said Powell.
She acknowledged that "if we had 20-20 hindsight" her office may have acted differently and passed the material on to the Prime Minister's Office.
But at the time, she said, the analyst who handled the correspondence couldn't reasonably be expected to grasp its significance.
At issue before the inquiry is Schreiber's claim that he paid Mulroney $300,000 to lobby for a project to build German-designed armoured vehicles in Canada. He says the deal was struck in principle just before Mulroney stepped down as prime minister in 1993 although the money didn't change hands until later.
Mulroney says the total payments were $225,000 and he took no action on Schreiber's behalf until he was out of office. He says his lobbying was confined to foreign political leaders and wasn't aimed at Canadian politicians or bureaucrats, something that could have put him in conflict with federal ethics rules.
The March 2007 letter to Harper did not lay out the full story in all its detail. Rather it contained an attachment -- in the form of previous correspondence between Schreiber and Mulroney -- that provided an outline of their business dealings.
Included were claims that the two men had reached a deal before Mulroney left office and that Mulroney later tried to persuade Schreiber to deny publicly that any money had changed hands.
The material eventually did find its way to Harper's office, but not until September 2007. At that point it was buried deep within another sheaf of correspondence sent by Schreiber to the prime minister.
Documents tabled Monday indicate that staff in the correspondence unit of the Prime Minister's Office simply filed the material in September without consulting more senior officials and took no further action.
Less clear is the fate of four other packages of correspondence that Schreiber sent to Harper between the summer of 2006 sand the fall of 2007.
Included in those packages were legal documents, news clippings and copies of correspondence with other government officials -- some of it relating to Schreiber's efforts to stave off extradition to Germany, where he faces charges of fraud, bribery and tax evasion.
Some of the material passed to the PMO by Privy Council was directed to the office of Ian Brodie, then Harper's chief of staff. It wasn't clear, however, whether Brodie personally saw it or whether it was handled by a lower-ranking aide.
A report compiled for the inquiry by the PMO indicates the material was kept on file but no answers were sent to Schreiber.
