OTTAWA - Taxpayers are on the hook for $2 million of Brian Mulroney's legal costs at the inquiry into his dealings with Karlheinz Schreiber, The Canadian Press has learned.

That's in addition to the $14 million or more that the commission of inquiry is expected to cost.

Until now, it's been reported Mulroney was paying his own legal tab - an impression neither he nor his legal and public-relations team have done anything to correct.

The reports were based on the fact the former prime minister did not apply for public funding through the commission, headed by Justice Jeffrey Oliphant.

Fred Doucet - lobbyist and former aide to Mulroney - is the only participant in the inquiry who has asked for and been granted commission funding to help cover his legal fees.

However, former officer holders need not apply through the commission. Their legal costs are instead picked up by the Privy Council Office under a separate Treasury Board policy on legal assistance and indemnification.

PCO spokeswoman Myriam Massabki said $800,000 was "funded internally within the Privy Council Office's existing reference levels to cover Mr. Mulroney's legal costs for the fiscal year 2008-2009."

And another $1.25 million has been set aside to pay Mulroney's legal costs during the current year, she added.

"It is expected that legal assistance for Mr. Mulroney in relation to the inquiry will cost approximately $2 million over two fiscal years," she said.

Mulroney is represented at the inquiry by a team of six lawyers, including lead counsel Guy Pratte and prominent lawyer Harvey Yarosky.

Massabki said payment of Mulroney's legal fees is in accordance with a Treasury Board policy that "recognizes that the provision of legal assistance to current or former Crown servants, such as former prime ministers, is essential to the protection of the Crown's interest, the fair treatment of its servants and the effective management of the Crown.

"In addition, the policy acknowledges that the greater public interest is served by obtaining the full collaboration of Crown servants in testifying in certain legal proceedings, including commissions of inquiry."

Mulroney has said his business dealings with Schreiber occurred only after he left public office, but the commission's terms of reference cite allegations from Schreiber that touch on Mulroney's tenure as prime minister.

Those allegations "although unproven, go beyond the private interests of the parties, and raise questions respecting the integrity of an important office of the Government of Canada," says the cabinet order setting up the inquiry.

Pratte said Mulroney may yet wind up out of pocket for some of his legal expenses.

But he said payment of Mulroney's legal fees by taxpayers is not unprecedented. The same Treasury Board policy covered the legal tab for Jean Pelletier, the late chief of staff to former prime minister Jean Chretien, during the Gomery inquiry into the sponsorship scandal, he noted.

Pratte represented Pelletier during that inquiry.

Pratte said he was not aware of reports suggesting Mulroney was paying his own legal tab. Moreover, he said, no one ever asked him who was paying the bills.

Robin Sears, who is heading up Mulroney's public-relations team, said no effort was made to correct the public record "because the terms and negotiations between the government and the legal team were and remain confidential."

This is the second time taxpayers have been asked to foot the legal bill for Mulroney in relation to his dealings with Schreiber, a German-Canadian arms dealer.

In 1996, the federal government paid Mulroney $2.1 million in an out-of-court settlement after the former prime minister launched a libel suit over allegations that he'd taken kickbacks in the 1988 sale of Airbus planes to Air Canada. The sum was intended to cover Mulroney's legal tab.

Richard Auger, Schreiber's lawyer at the Oliphant inquiry, said Wednesday his client had not asked for public funding for legal costs and is not receiving any.

Although the inquiry is not mandated to revisit the Airbus affair, commission counsel Richard Wolson has grilled Mulroney over the fact that he did not disclose the extent of his relationship with Schreiber, a lobbyist for Airbus, until long after the 1996 settlement.

Mulroney has since admitted accepting $225,000 in cash-stuffed envelopes from Schreiber shortly after he retired from politics in 1993. Mulroney insists the money had nothing to do with Airbus but was payment for his help in promoting the building of German-designed light armoured vehicles in Canada.

He says he didn't volunteer information about the payments during the 1996 court case because he was not specifically asked if money had ever changed hands.

The Oliphant inquiry heard this week that Mulroney waited six years to report the payments to the Canada Revenue Agency and wound up paying taxes on only half the $225,000.

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