Champagne wishes

He stole $100 million, and lived like a king. Then it all fell apart.

Champagne wishesThe experts will tell you that most frauds start small—maybe a few hundred bucks pocketed here, a little accounting fudge there—and get gradually bigger over time as the thief warms to the task, and gains confidence. That’s the way it almost always goes.

But Paul Champagne was not your typical fraudster. For one thing, Champagne had no particular expertise in finance. He was a computer engineer, brought in to manage maintenance contracts at Canada’s Department of National Defence in 1992. He was a technical authority, who could tell the bureaucrats how to buy, operate and maintain their computer systems more efficiently, and to save the taxpayer money in the process. For most of his time at DND, he wasn’t even an employee, but an outside contractor. And, up until the day he was fired in 2003, most of his colleagues thought he was doing a great job. Even when he was fired, it was for exceeding his authority in approving contracts that were beyond his position.

His theft wasn’t discovered until shortly thereafter. And what a theft it was: an estimated $100 million embezzled from DND through a phony invoicing scam that ran for just under a decade. Every year he supplemented his $80,000 salary by about $10 million—one of the longest-running and biggest frauds in Canadian history.

Champagne recently sat down with Maclean’s in a small, windowless room at the minimum security Pittsburgh Institution, just outside Kingston, Ont., for his first-ever public interview. He had just passed one year in prison, and was a little less than two months away from his early release date—June 3. He wanted to tell his story. To make it clear that he takes responsibility for what he did, to absolve others who might have been tarnished by it—and yes, to “apologize to the Canadian taxpayer.” But there was a warning, too: stealing that much money from under the nose of the Canadian government was easier than you might imagine, getting away with it for a decade was even easier. And it’s all rooted in the way that government departments reward those who spend their budget, and punish those who do not.

Paul Champagne was hired to clean up a mess, and clean it up he did. It was 1992, and he was an IT specialist with a company called Montreal Engineering. When DND put out the call for someone to help manage the department’s systems maintenance contracts, Champagne’s firm offered his services, and won the mandate. At the time, DND was spending around $227 million a year on more than 2,000 separate contracts. Champagne’s big innovation was to declare that DND would henceforth pay to fix only systems and equipment that were broken. Essentially, he was ripping up a couple thousand extended warranties, and betting that the government would save a bundle. He was right. Maintenance costs soon fell by more than three-quarters, to about $50 million per year. Over the course of the 1990s, Champagne’s simple restructuring saved the government well over $1 billion.

He was a 34-year-old father of three young children making a decent middle-class living, doing contract work for the government. But he quickly became a star. Though he had no financial signing authority, Champagne earned a reputation as the IT guru within Canada’s military bureaucracy, presiding over DND’s sprawling computer infrastructure. That first winter, as the government’s year-end approached, Champagne learned about the games that happen when bureaucrats rush to spend the last of their budgets. What he soon discovered was that bureaucrats live in almost as much fear of under-spending their budgets as they do of overrunning them. Budgets that aren’t spent get cut, and nobody wants their budget cut. Champagne became known as the guy who could spend vast sums quickly. When you had a million bucks that you had to get rid of, he was the guy who could make it disappear—on software upgrades, licences, anything intangible and related to technology that you didn’t need, and didn’t understand anyway. But that very first year he ran into a wall. “I reached a point where I just didn’t have any more I could spend on,” he recalls. “I couldn’t move the money out the door fast enough anymore to meet the goals of the department.”

He came up with a plan. If DND was so desperate to spend money, he thought of a perfect place to stuff it: his pockets.

A fraud investigator would call it a simple fake invoicing scheme—charging DND for work that was never performed. But to a non-criminal it can get a little confusing. And that confusion is what helps fraudsters go undetected.

Champagne set up his own consulting company, and approached another small Ottawa-area engineering firm, RMC Systems. He asked RMC to function as his billing and accounting department for work he was doing for DND. He said his work was secret, dealt with matters of national defence, and he needed someone to process his payments. Meanwhile he approached a much larger DND contractor, Digital Equipment. (It was later acquired by Compaq Computer, which was finally acquired by Hewlett-Packard.) He told officials at Digital Equipment to pay any invoices that come from RMC, and to pass along the costs to him at DND. All of this sounds pretty suspicious, but Champagne assured both RMC and Digital Equipment that it was all part of the department’s streamlining. And besides, both companies would be paid for their trouble. “I can be pretty convincing,” Champagne says now.

So, Champagne submitted fake invoices to RMC. RMC paid Champagne, added a small commission and passed the bill on to Digital Equipment (and later to Compaq, then H-P). The larger company paid RMC, added its own commission and sent the bill to DND. And at DND, Paul Champagne made sure H-P got paid. It was a tidy little money train, with one obscure DND contractor at both the beginning and the end. But nobody at RMC, or Compaq, or H-P ever saw the full picture. Once the ruse was finally exposed, all of the companies claimed that they had been duped, and no one at those firms was ever charged with a crime.

Once the train was on the track, millions of dollars began flowing into Champagne’s account at the Bank of Nova Scotia. “At that point I convinced myself that I was well worth the money,” he says. “I was saving DND $157 million a year, so I said, ‘Okay, I’m probably taking $10 million a year, that’s GST.’ I convinced myself I knew what was best for everybody. They would call it a God complex, I guess.” Pretty soon, the thirtysomething family man was living, if not quite like a god, then certainly like royalty.

A key problem for any thief is how to handle their loot in a way that will avoid detection. Here again, Champagne proved he wasn’t your typical embezzler. He decided the best way to hide his windfall was not to hide it at all. Over his years at DND, Champagne drove nice cars (he liked Corvettes). He took trips to Vegas and elsewhere on private jets. He moved into a palatial mansion in a gated community outside Ottawa. Built on two acres, with tennis courts, a pool and a private gym, the property was once appraised at over $1.4 million. He began making multi-million-dollar investments in Ottawa technology firms. He bought a vacation home in Florida, backing onto a golf course. In the late 1990s, he took the family on a trip to the Turks and Caicos islands, and fell in love with the place. Champagne claims he spent over $10 million flying tradesmen to Providenciales Island to build his seven-bedroom beachfront mansion. In 2001, he moved his family to the island, enrolled his kids in school, and spent most of the next three years commuting back and forth to his job in Ottawa, spending weekends in the Caribbean.

If anyone asked, he told them he’d made successful investments in the stock market, speculating on high-tech companies. It was the same story for everyone, including his wife and extended family. But few people asked questions.

“Somewhere along the line—and it wasn’t like an epiphany of a moment—I said, ‘I’m not going to pretend I’m hiding in some Bridlewood home and I don’t have any money,’ ” he says. “I didn’t hide my wealth from anyone. I didn’t rub it in anyone’s face at work, but most of them knew that I was well off.” Champagne was hiding all the evidence of his crime in plain view, and he figures that may have actually reduced suspicion.

“Because I was so blatant with it, you get less questions. Even with my wife, [she thought] I made great high-tech investments and I’m an extremely well-paid consultant in National Defence. That part is not that difficult to sell.”

The pressure of the job and the scheme, combined with his ever-inflating lifestyle, took a toll. Aside from the demands of running much of DND’s huge IT operation, there were far-flung investments and properties to maintain. And, of course, every March there was a whole lot of money to funnel into his bank account from desperate bureaucrats. Still, Champagne says he never really worried about getting caught. “I actually thought I was smarter than everybody anyway,” he says. “Nowhere did I say to myself, ‘Okay, I have $25 million, I should call it a day’—because, for one thing, I couldn’t think of an exit strategy from National Defence.”

There were moments, however, when certain people in the department would ask too many questions. They raised concerns about the annual rush of year-end spending, or they insisted on seeing a lot of Champagne’s paperwork. Those people made him uncomfortable, so he took matters into his own hands, using his connections in Ottawa’s high-tech industry. “These were people who didn’t understand the bigger picture, they were too bureaucratic, they were going to cause problems for the year-ends, etc. etc. They just didn’t . . . they didn’t get it,” he says. “So I had a couple of people moved, headhunted out of the Department of National Defence.”

That kind of meddling might provoke an attack of conscience in some, but Champagne never saw himself as a bad guy. “There were certainly nights where, looking in the mirror, you think ‘Jeez . . . what have you got yourself into?’ But to be honest, while you’re in the middle of all this, you feel like you’re saving the world. There’s no time to be saying, ‘Is this necessarily the right or wrong thing to do?’ I knew if I dropped the ball, I could face criminal charges. But in your mind you’re really thinking, ‘That’s not going to happen, because this could be a massive government scandal. Who would want that?’ ” So, the money train kept rolling merrily along. Until the day it came off the rails.

Paul Champagne knew how to beat an audit; he’d dealt with many of them over his time in government. But he could not deal with three at once.

“Around Christmas 2003, I got hit by a perfect storm,” he recalls. “Consulting Audit Canada was in the midst of a regular audit. Our own audit organization within National Defence was also auditing the maintenance contracts. Then Hewlett-Packard started doing an audit of their own maintenance contracts. They brought in KPMG, and I knew I could not control that one. I remember sitting in my den trying to control the flow of these three separate audits, saying, ‘I gotta figure an exit strategy pretty quickly here. This is not going to go well.’ I was called in eventually by my management within National Defence. At that point I knew it was over.”

Initially Champagne was dismissed, not for stealing money, but for approving transactions for which he had no authority. But he knew that as soon as he was out of the building, the audits would turn up trouble. Champagne flew to the Turks to be with his family, and to wait for the mess to hit the fan. It didn’t take long. The RCMP launched a criminal investigation and searched his Ottawa-area home. The government demanded full repayment from Hewlett-Packard of all the fraudulent contracts that had flowed through the company and its predecessors over the past decade. H-P initially balked, saying that it too had been victimized. But soon it gave the government a cheque for $146 million, and launched a series of lawsuits against Champagne and others implicated in the scheme, to recover its losses.

At this point, Champagne faced a fateful decision. He was sitting in a tropical paradise, with no extradition treaty, with millions in his bank account. “I’ve got tons and tons and money, and if worse comes to worst I could have lawyers fight this for me forever,” he remembers thinking. “I can pay the lawyers ’til the day I die and, you know, there’s very little Canada can do about it.” But that is when Champagne’s story takes its final surprising twist: he had an attack of conscience. He knew that, over the years, many innocent bureaucrats at DND had unknowingly attached their signatures to his fraudulent invoices. He knew that as the scandal exploded, those people would be grilled by police. Careers would certainly be destroyed. It was entirely possible, he thought, that innocent people could end up doing jail time for his crimes, even though they had been duped. “Everything kind of fell on me,” he says. “I thought, ‘I can’t do this, I just can’t, and I can’t have this burden over my family.’ Because if I deal with it, it’ll go away eventually. Whatever sentence they give me will eventually end. You can only take so much money away from me, you can only give me so much time. So I came back.”

Then came the difficult conversation with his wife: explaining the extent of his troubles, and the fact that he would likely have to go to jail. “She was devastated at that point . . . stunned,” he admits. Telling his three kids, who were teenagers by then, wasn’t much easier.

By the time he landed back in Ottawa in the summer of 2004, Champagne was a minor media celebrity and his scheme, as he predicted, had become a political scandal. It took until February 2006 before he was charged.

He co-operated with police, took full responsibility, pleaded guilty, and in April of last year was sentenced to seven years in prison. He reached a settlement with H-P, and though the details are confidential, Champagne gave up his homes and the shares he held in various companies. He was left with enough money that his family could move to a modest home in the Ottawa area and live comfortably while Champagne went to prison.

Like most federal prisoners in Ontario, he spent three months at Millhaven maximum security penitentiary outside Kingston, being assessed and processed. There, he learned to keep to himself, mind his own business, and laugh off the jokes at his expense.

Last summer he was transferred to the minimum security Pittsburgh Institution, where prisoners live in townhouses and cook their own meals. Across the parking lot looms the hulking, medium-security Joyceville Institution. Champagne rose by six o’clock each morning to get to his job in the prison grocery store (he was manager of dry goods) by 6:30. He was paid $6.35 per day. The toughest part, he says, was knowing that his family was suffering more than he.

“I missed my [twin] children’s 18th birthday; I missed their high school graduation; I missed my son’s 21st birthday. My father-in-law broke his hip; he’s now had to be put into a nursing home. My mother-in-law was diagnosed with cancer. I missed my 50th birthday, my wife’s birthday, my 25th anniversary, and my mother died—all within this year,” he says. “I’m in a place where they feed you, they take care of you, you’re warm. My wife’s had to deal with all this by herself.” Still, she stuck by him, and on June 3, 14 months after entering prison, he was granted early release after serving one-sixth of his sentence. Currently, he’s at an Ottawa-area halfway house pondering the big question: what now?

In his optimistic moments, Champagne imagines he might create a happy ending for himself, like Frank Abagnale Jr., the former con man who became an expert on investigating fraud. Leonardo DiCaprio played him in the biopic Catch Me If You Can. But mostly, his hopes are modest and largely undefined. “I’m 51 years old, and I’m high profile,” he says. “But I gotta get back working.” He never misses a chance to remind you that he’s sorry. Sorry for what he did, and sorry for what he lost too.

“I certainly miss the job, and I miss the respect that came with that job,” he says. “Is it a lot better being rich than not rich? Oh, absolutely. Whoever says it isn’t, is probably rich. And I have to realize I’ll always be seen in a different light. I certainly have extreme guilt over the other people who were affected . . . and my family.”

And, because he knows the world will always wonder, he states categorically that there is “no pot of gold waiting out there,” no secret stash of money to be scooped up when no one is looking. On that point, like so many others, you just have to take Paul Champagne’s word for it.