Sam Katz got $127K cheque from HQ contractor he initially denied dealings with

Former Winnipeg mayor Sam Katz, who initially denied having any business association with contractor Armik Babakhanians, received a cheque directly from the businessman in 2012 as part of an Arizona land deal, CBC News has learned.

The $127,200 cheque was confirmed by lawyer Robert Tapper who represents both Katz and former City of Winnipeg CAO Phil Sheegl. Tapper said Katz gave half the proceeds of the cheque to Sheegl.

Tapper provided details of the transaction in an effort to discount a police allegation that Babakhanians, who was hired to build the new police headquarters, paid a secret commission to Sheegl. The allegation is made in documents police presented to a judge in June 2016 to get permission to search Sheegl and Katz's bank accounts.

"The reality is, that this was a land deal. It was as simple as that," Robert Tapper said in January.

But Paul Thomas, University of Manitoba political studies professor emeritus, said the transaction raises concerns.

"I always said Sam Katz in office was, how did I put it politely, ethically challenged," said Thomas. "He just didn't seem to have a good sense of right and wrong in terms of ethical standards in public office."

Thomas said it's not illegal for Katz to have engaged in a real estate deal with his close friend and top bureaucrat Sheegl and Caspian Construction owner Babakhanians. But it could be viewed as unethical.

"It's not above suspicion. It raises all sorts of concerns about intermingling public and private interests and pecuniary gain, financial gain and the potential for kickbacks or favouritism and so on and so it's more than dubious I guess I would say," said Thomas.

'This was a land deal,' says lawyer

Tapper provided a partially redacted bank statement for Samuel Michaels Properties Inc., an American company owned by Katz, which shows the $127,200 deposit and a $63,600 debit which Tapper said went to Sheegl a few days later. He also gave CBC News a copy of a handwritten trust agreement signed by Sheegl and Caspian Construction owner Babakhanians.

• Read the trust agreement at the bottom of this story

According to the document dated May 1, 2012, Babakhanians agreed to pay $327,000 Cdn for a partial interest in a piece of Arizona land.  One of Sheegl's companies, Winnix Properties Corp., holds the interest in trust for himself and partners such as Sam Katz, according to an email from Tapper.  Tapper said his clients made the deal verbally with Babakhanians in 2011 but only got around to putting it on paper the following year.

Tapper said that's why Babakhanians issued a $200,000 cheque to Financial Support Services, one of Sheegl's Manitoba companies, in July 2011, as a down payment. The payment came days after city council gave the former top bureaucrat power to award contracts for the police headquarters project. Sheegl then wrote a cheque for $100,000 to Katz marked 'loan'.

"Phil was running the project so, and he was partners with Sam, when he got [$200,000] he gave Sam's half to him," said Tapper in a January 2017 interview.

Tapper said Sheegl couldn't remember why he wrote 'loan' on the cheque but believed it was for tax purposes.

In court documents filed by the RCMP in the investigation into the construction of the Winnipeg Police HQ, the Mounties called the $200,000 payment from Babakhanians to Sheegl a "secret commission" in order to show favour to Caspian in the project.

"You have enough now to confirm there was a deal as opposed to a secret commission," stated Robert Tapper in an email.

Sam Katz got $127K cheque from HQ contractor he initially denied dealings with

8 years ago

Duration 4:09

Former Winnipeg mayor Sam Katz, who has initially denied any business relationship with contractor Armik Babakhanians, received a cheque directly from the businessman in 2012 as part of an Arizona land sale, CBC News has learned.

Not the only cheque to Katz

An estimated 10 to 12 cheques were issued by Caspian to Katz around 2013, including one for $30,000, according to allegations contained in an affidavit filed by RCMP Const. Marc Allard based on statements police received from company employees.

The December 2014 affidavit was used to obtain a warrant to search Caspian's offices.

According to the court document, a former Caspian accounting assistant told investigators she was told the cheques were payment for Winnipeg Jets tickets or concert tickets at the MTS Centre to share a box.

She also told police she entered another cheque to Katz in the accounting system for $4,000 or $6,000, and filed it in a folder marked "K", where she discovered another cheque for Katz for around $6,000.

"Both cheques were out of the Caspian Construction account and were personal cheques to Katz and not to a named company," according to the police affidavit.

Katz previously denied business dealings with Babakhanians

Last year, Katz told CBC News he had no business association with Caspian Construction or its owner Armik Babakhanians and that the cheques referenced in the police affidavit were payments for concert tickets.

"There is no relationship. On many occasions, all sorts of people call me up for tickets for all sorts of stuff … concerts, etcetera," Katz told CBC News Feb 29, 2016. "Someone would ask me, 'Can you get tickets for a sold-out event?' I would get them tickets and they would pay me back."

"I have basically put together a scenario for Jets tickets, absolutely … it varies every year, who's in it," Katz said in 2016, adding that Babakhanians was one of several people who bought space in the box.

• Police HQ contractor sent Sam Katz thousands of dollars in personal cheques: court documents
• Former Winnipeg CAO got $200K 'secret commission' for helping contractor, RCMP alleged
• Phil Sheegl's lawyer calls claim his client was 'in on it' false, stupid and ill-informed

'They crossed a blurred line'

"I think they [Katz and Sheegl] crossed a blurred line," said Thomas. "In the eyes of a lawyer like Mr. Tapper, it may not rise to the level of criminality, but the reason we've introduced these types of public sector conflict of interest laws, and now integrity commissioners, is that we know that there are matters of illegality and we know there are matters of unethical behaviour that go on."

Thomas is critical of what he called Manitoba's weak conflict of interest laws. He said the Municipal Council Conflict of Interest Act (MCCIA) is so outdated, he's not certain the real estate deal would be considered a breach, unless Katz did it while acting in the role of mayor. Thomas said if Katz conducted the deal on his own time, it likely wouldn't fall within the scope of the act. He believes the province should establish a values and ethics code so that it won't be left up to elected officials to decide what's right and wrong.

"I've talked to lots of politicians and I've worked on values and ethics codes in three provinces and it's not as obvious as we think. We don't all know what's right and wrong when there's complicated circumstances and the values at stake are several. You have to balance it all and you have to be able to reason ethically and come to sound judgments about what's ethical and what will pass the test on how it will look on CBC Television the next day," said Thomas.

A 2016 Report from the Manitoba Law Commission found that while the province was ahead of many other Canadian jurisdictions for enacting conflict of interest laws in 1983, those laws are now outdated and need reform.

Under the current MCCIA, the only two penalties for a breach of the act are removal from public office or paying restitution. Thomas would like to see additional options offered to judges presiding over cases, like the ability to impose fines and suspensions on those found guilty.

As for cases where elected officials are no longer in office, Thomas said the city would have options to recoup losses.

"The city may through an inquiry and subsequent court cases seek to recover money and if revelations come out that Sam Katz and Phil Sheegl profited from inflated prices or something like that in the services provided by Caspian then there may be steps to take to recover that money. But immediately I don't think there's anything that can really be done under the conflict of interest act," said Thomas.

None of the allegations in any of the police affidavits have been proven in court, and no charges have been laid. RCMP say they're still investigating.

Babakhanians declined to comment.