Construction boss: We rigged contracts and paid a 2.5 per cent cut to the Mafia

A special constable stands guard next to the hearing room at the Charbonneau commission in Montreal, Wednesday, Sept. 26, 2012. (Graham Hughes / THE CANADIAN PRESS)

MONTREAL -- A former construction boss has delivered groundbreaking testimony about a system of corruption in the industry that saw him pay Canada's most powerful Mafia family a 2.5 per cent cut on public contracts.

Lino Zambito told Quebec's corruption inquiry about a cartel-like operation lording over the construction industry in the province and he said he had no choice but to participate.

He described a system that drove up the cost of public works during his testimony Thursday, perhaps the most damning to be heard at the inquiry so far.

Only certain companies were allowed to bid for public contracts, he said. They would set their prices artificially high. They reached a group decision on who would submit the lowest bid. Then they took turns winning contracts, he said.

And when it was all said and done, he said, the Cosa Nostra claimed a percentage.

Zambito said that, as far as his own company was concerned, that fee was a 2.5 per cent share of the value of a sewer project, paid to the once-dominant Rizzuto family.

The burly 43-year-old businessman shrugged off a suggestion from an inquiry lawyer that he was paying protection money.

"I saw it as more of a business. Entrepreneurs made money and there was a certain amount owed to people of," he said and, pausing an instant before he completed his sentence, Zambito added, "the Mafia."

Zambito said he knew where the money -- delivered through a middleman -- ultimately wound up.

He even defended his personal ties to the Mafia.

Zambito said his family knew the Rizzutos from the old country and said they were part of the same tight-knit community whose members helped each other out as newcomers to Canada.

His testimony shed light on allegations made three years ago in media reports that triggered demands for an inquiry that is now underway in Quebec. That inquiry is probing links between the underworld, the construction industry, and political parties.

Zambito is the first person to describe, in such exhaustive detail and so publicly, his own personal involvement in construction-related wrongdoing.

His blunt testimony Thursday was reminiscent of the role played by advertising exec Jean Brault several years ago at the federal sponsorship inquiry -- that of a businessman blowing the whistle on wrongdoing in which he personally participated.

The scope of the alleged corruption being discussed at the Quebec inquiry potentially dwarfs the sums involved in the sponsorship scam, which rattled federal politics.

In this case, according to a police officer who testified at the Quebec inquiry, the Mafia has imposed a so-called "tax" of up to 30 per cent on the construction industry in the province.

The investigator testified this week that the system exists to this day -- although he says the Mafia has been claiming a smaller cut lately, in the wake of recent scandals.

The inquiry heard earlier Thursday that representatives from more than six-dozen construction companies visited a Mafia hangout several years ago, while the RCMP was watching.

RCMP officers were jotting down licence plates outside a notorious Sicilian Mafia hangout on numerous occasions, including a 2005 Christmas party.

An investigator for the Charbonneau inquiry testified that his team later cross-referenced those plates and tied the vehicles to 74 construction companies.

He pointed out that some entrepreneurs owned multiple companies. But the investigator, Eric Vecchio, noted that a good number of companies that received public-works contracts in Montreal, for things like excavation and sewers, were represented at that party.

For instance, he said six out of 10 companies that received contracts for sewer work were seen at the now-closed "social club."

Later in the day, when he was on the witness stand, Zambito rattled off the names of companies he said were involved in price-fixing. But he said the system had existed for years and was originally established by the companies themselves -- not by the Mafia.

"When I got into the business, the system already existed, I can't tell you how long it had existed but there was a system in place and there were rules of the game that were well established," he said.

He said the rules were made clear to him when he first entered the business around 1999 and submitted an extremely low bid for a project, nearly at cost price.

He said he was informed that the other entrepreneurs weren't pleased and they told him -- through a city engineer -- that if he wanted to work anywhere near Montreal or its surrounding areas, he'd have to play by the rules.

"The market in Montreal was closed and hermetically sealed," he said.

"If you didn't follow the rules, you didn't work in Montreal. You can go work elsewhere."

He added that the same cartel system existed wherever people bid on public contracts -- whether at the municipal or provincial level. He was not asked, nor did he discuss, whether such a system existed in other Canadian provinces.

Zambito, who now owns a restaurant north of Montreal, explained how companies justified inflated expenses while also pocketing extra cash payments.

He said there were fake-billing schemes for services that weren't used or needed. For example, Zambito said a company he'd lease trucks from each day would agree to be billed for extra trucks that weren't used. The extra money would be funnelled back to Zambito, minus a cut for the other company.

Zambito now faces criminal charges related to an alleged corruption scheme involving his construction business. His company, Infrabec, went bankrupt last year after two directors including Zambito were arrested on fraud charges amid allegations of a widespread collusion scheme in the municipality of Boisbriand.

Among the people arrested with them were Sylvie St-Jean, the city's former mayor.

On Thursday, Montreal's mayor called a news conference where he expressed outrage over the revelations trickling out at the Charbonneau inquiry.

"As a citizen, as the mayor of Montreal, I was deeply angered," Gerald Tremblay said.

He demanded that the provincial legislature convene immediately, several weeks ahead of schedule, for an emergency session to toughen contracting laws so that the city can legally bar certain companies from public bids.

Tremblay has also asked for an administrative review into a former city employee -- one who happened to be the daughter of a construction boss seen in police surveillance video.

Her father was seen in police videos taking cash from Zambito, and later giving it to top members of the Mafia, and she worked as an official at the city of Montreal.

This week the Charbonneau inquiry saw old videos of construction figures handing over money to the now-deceased Nicolo Rizzuto, the one-time head of the Sicilian Mafia in Canada.

The videos and evidence were amassed during Operation Colisee, a five-year investigation that culminated in mass arrests in 2006 in the largest sweep against the Italian Mafia in Canadian history.

But much of the construction-related evidence was ignored.

Because construction wasn't part of the RCMP investigation, which centred on drugs and illegal gambling, officers either shelved evidence or even turned off surveillance microphones while mobsters were talking to construction bosses.

The inquiry head, France Charbonneau, explained today that the RCMP decision was a legal issue. She said that, in Canada, police investigators cannot listen to conversations involving people not specifically targeted in a wiretap investigation.

The recordings have created a splash now, years later, at the inquiry. Tremblay said he wants to hear more about why the evidence was never used.

He said it could have prompted political action years ago that would have saved untold sums of taxpayer money. Tremblay said he wished the material had been handed over to the provincial police.

"I don't understand," Tremblay said. "I'm deeply angry about that."

The RCMP even fought in court to avoid sharing the material with the Charbonneau inquiry, and lost.

During a news conference Thursday, Public Safety Minister Vic Toews wouldn't comment on why the RCMP had been unwilling to tell other levels of police about its information.

"Sometimes they are in the position to say something, sometimes for investigative and other reasons they are not able to," Toews said.

"All I can say is that police officers are trained and sworn to uphold the law and they will do so to the best of their ability -- if not they will be accountable to their superiors and to the community in general."