The federal ethics watchdog will not investigate Finance Minister Jim Flaherty over allegations of Conservative ties at the newly created Oshawa Port Authority, the company building an ethanol plant on the waterfront and the business that loads and unloads ships in the harbour.

Both Oshawa City Council and New Democrat MP Olivia Chow asked federal Ethics Commissioner Mary Dawson to look into whether the Conservatives stacked the port authority's board with political allies to allow FarmTech Energy Corp., a company with Tory links, to build the plant.

Ms. Dawson told Mr. Flaherty this week her office would not be launching an investigation.

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"I informed Ms. Chow that it is not in my mandate to review government appointment processes in general, and that I could only do so if there were reasonable grounds to support allegations of a contravention of the Conflict of Interest Act," Ms. Dawson wrote in a Sept. 18 letter.

"I advised Ms. Chow that her letter did not set out reasonable grounds to believe that you had contravened the Act. …The letter did not describe any actions taken by you in connection with this matter. I informed her that I would therefore not commence an examination under the Act at this time."

The port authority's board of directors recently approved a proposal to build an ethanol refinery on Oshawa's harbour, despite opposition from the city council.

Five of the port authority's seven board members are appointed by the federal transport minister, four of them nominated by port users. The city and the province each have one appointee. Ms. Chow took issue with the fact that four of the members have ties to local Conservatives, including Mr. Flaherty and the Conservative riding association in his riding of Whitby-Oshawa. She also raised questions about Tory connections to FarmTech, the company building the ethanol plant, and Oshawa Stevedoring Inc. – the business that has an exclusive deal to load and unload ships in the harbour.

Mr. Flaherty's spokesman Chisholm Pothier welcomed Ms. Dawson's decision not to look into the matter any further. "We always believed this was a baseless politically motivated smear, and the ethics commissioner's response bears this out," he said in an e-mail. "We're not at all surprised by this outcome."

Ms. Chow said Ms. Dawson's letter underscores the need for legislative change. "There is a gaping loophole in the Accountability Act," she said.

"The government appointment process is broken and leads to rewards given to insider friends. That's why the NDP insists on toughening the Act to remove all conflict-of-interest appointments."