Former prime minister Brian Mulroney said he tried to fully disclose his business dealings with Karlheinz Schreiber after he left office, but the RCMP turned his offer down.

In 1996, as the government made its case against him in the Airbus affair, Mulroney instructed his lawyer to travel to Ottawa to meet with the minister of justice and RCMP officials.

"He would volunteer that I would come to Ottawa with all of the documents," Mulroney told the Oliphant inquiry Wednesday.

"They could interrogate me on anything they wished. They turned us down cold, and proceeded, as you know now, in a very hostile and aggressive and extremely costly manner for the taxpayers of Canada."

He also said that the nine lawyers representing the Government of Canada never once asked him about his full business dealings with the German-Canadian arms dealer.

Mulroney also gave his explanation for another key issue: Why it took him several years to declare the $225,000 he received from Schreiber, rather than report the payments as income for 1993-1994.

He said the money was a retainer and he did not consider it to be part of his taxable income at the time. He paid taxes on the money in 1999, when it became part of his income stream.

"I had practiced law for 13 years. I wasn't a tax lawyer, but my understanding of the tax law ... was that a retainer is not declarable as income until it's used that way, and therefore I treated it in that manner," said Mulroney.

He said he only used the money after it had been declared to the Quebec and federal tax department. Before then, the cash had been placed in safes in Montreal and New York.

At the end of his testimony Wednesday, which also marked the end of questioning from his own lawyer, he said he regretted accepting the money in cash.

"All I can tell you is that what transpired represented a significant error in judgment -- one that I deeply regret, and one for which I've paid dearly," said Mulroney.

"It would be my hope one day to encounter a Canadian who, through the course of a long and busy life, has not made some error of judgment of some kind. I haven't yet."

Mulroney blames media for high emotions

The inquiry continued Wednesday afternoon, after Mulroney fought back tears in a discussion over the Airbus affair -- specifically, the impact of a letter that wrongly linked him to kickbacks.

Mulroney, recounting the impact on his family, took a long pause to compose himself on the stand.

He said the ordeal sullied his "father's good name" and was devastating to his family.

"Commissioner, Nicolas was 10 years old," a choked-up Mulroney told Justice Oliphant in reference to his son.

During the intermission, a statement on an online blog produced by Mulroney's media team claimed that a reporter and broadcast producer had laughed during the exchange, and that was what had unsettled Mulroney.

"It was that sight -- not captured by the cameras -- that caused Mr. Mulroney to break down," the post reads.

The two members of the media denied the claim.

The Airbus affair dates back to the 1988 sale of 34 Airbus jets to Air Canada -- then a Crown corporation.

In 1995, Mulroney sued for defamation after a letter from the RCMP that linked him to kickbacks in the deal was leaked.

In 1997, Jean Chretien's Liberal government paid Mulroney a $2.1-million settlement.

The Liberals apologized to Mulroney for the "letter of request" but not for the actual RCMP investigation, which ended six years later without charges.

Mulroney explains work

The purpose of the inquiry is to probe the business dealings between Mulroney and Schreiber.

Earlier Wednesday, Mulroney explained the work he did for Schreiber, who paid him cash to promote a plan to build light-armoured vehicles.

Schreiber says he negotiated a deal with Mulroney not long before he resigned as prime minister in June 1993.

He wanted Mulroney to lobby on behalf of a proposal by Thyssen AG to build light-armoured vehicles in Canada.

Mulroney told the Oliphant inquiry that he had promoted the vehicles for UN use.

"When I examined more carefully the documentation that Mr. Schreiber had given me, including the merchandising documentation with the United Nations splashed all over it... I thought that I might usefully explore the concept with the leading members of the United Nations, in particular the P5 countries," Mulroney told the inquiry, referring to the five permanent countries.

Mulroney said he mentioned the concept during an October 1993 meeting with a senior Chinese official in Beijing.

He said it wasn't the purpose of his trip but that he mentioned the idea because he was already meeting with high-level officials.

Mulroney said "nothing came to pass at the time" of his talks with the Chinese regarding the vehicles.

Mulroney said he also raised the idea during a meeting with then-Russian president Boris Yeltsin.

"He (Yeltsin) misunderstood what I had said, then when I said 'I'm not trying to sell anything, I'm trying to explore the possibility of what you might think of the concept and whether you think it's a worthy one,'" Mulroney said.

"And he said 'Yes.'"

Mulroney said he also spoke to former French president Francois Mitterrand about the idea after he received a surprise phone call from him during a stay in Paris.

"(Mitterrand said) at the time when the project could come to fruition within the United Nations he would give us his support," Mulroney said.

He said he again discussed the idea with Mitterrand at a Colorado Springs at an event organized by former U.S. president George Bush in October 1995.

Mulroney also said had long conversations with former U.S. secretary of defence Caspar Weinberger so that he could be better informed on the technical issues.

"I had discussions with him because he had long experience on the military side, I also had discussions with James Baker, who had been secretary of the treasury and secretary of state," Mulroney said.

However, Mulroney said he wasn't sure if he talked specifically to Baker about the vehicles.

Cash payments

Mulroney admits to having received cash payments from Schreiber, but maintains they were made after he left office.

Mulroney said he received his first cash payment in August 1993 from Schreiber as part of a deal that he would promote his business interests.

He said Schreiber gave him a second cash payment of $75,000 after the China trip when the pair met up at a Montreal hotel.

Mulroney said he received the final payment of $75,000 in New York in December 1994.

Although Schreiber said he paid Mulroney $300,000, the former prime minister claims to only have been paid $225,000.

Schreiber attended the proceedings on Tuesday but, after complaining of pains, was taken to hospital where he had surgery to remove his gall bladder.

Schreiber's wife, Barbel, told The Canadian Press that her husband has been in pain since last Friday.

She said her husband had "terrible" pain on Monday night but he did not want to miss Mulroney's testimony the following morning.

On Tuesday, at the inquiry, Schreiber called his wife and said he wanted to be taken to his doctor.

However, the doctor wasn't available so Schreiber was taken to hospital where he had surgery Tuesday night.

Schreiber's wife said he was recovering well but she didn't know when he'd be released from hospital.

Schreiber is wanted in Germany on a list of charges that includes fraud, extortion and tax evasion. He has been allowed to remain in Canada to participate in the inquiry.

He is scheduled to take the stand for a sixth time at the inquiry next week.

With files from The Canadian Press