HC Deb 26 July 1985 vol 83 cc1442-50

Question again proposed, That this House do now adjourn.

Mr. Speaker

In view of the time taken by the statement on the Okehampton bypass, I suggest that the debate initiated by the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) should continue until noon and that the debate of the hon. Member for Bristol, North-West (Mr. Stern) should conclude at 12.30 pm.

11.27 am
Mr. Brian Sedgemore (Hackney, South and Shoreditch)

Today is the last day of term for hon. Members and it ought to be the last day in public office of the governor of the Bank of England. His responsibility and culpability are awesome. He has presided over a fantasy so bizarre that it is believable only because it is true. He has supervised a bank that has financed fraud and provided money for the purposes of criminals.

It is no wonder that a number of peope to whom I have spoken in the City of London believe that the appropriate course for the governor of the Bank of England would be for him to tender his resignation. Certainly the sort of people whom I represent can only view with incredulity the behaviour in this dreadful affair of those who claim to be their betters.

My investigations have tended to show that Johnson Matthey lent money to people who were known to have been dishonest, or would have been shown to be dishonest if Johnson Matthey had carried out even the most elementary inquiries. It seems to me that all the members of the credit rating committee of Johnson Matthey Bankers are liable to be sued for breach of their fiduciary duty at common law, which duty is to act in the best interests of their company. I ask the governor of the Bank of England why the members of the credit rating committee have not been sued for a breach of their fiduciary duty and why they have not received writs of negligence.

When I said some days ago that Mr. Mahmoud Sipra, whose El Saeed empire was the basis of the collapse of JMB, had committed fraud and that JMB ought to have known about it and ought not the have lent his empire vast sums of money, Mr. Sipra appeared on BBC television and Channel 4 news and said that he was a man of great integrity. If Mr. Sipra believes that, he is living in a fantasy world of his own and his memory must be extraordinarily defective.

Only last year, on 9 October 1984, a judgment for fraud was given against him in the New York district court by Judge Kevin Duffy. I have a transcript of that judgment with me, so of course I can repeat it outside should the Whips ask me to do so. The judge said: The callous indifference to the law exhibited by Dr. Galin and Sipra from the inception of these actions in 1979 to the day of trial is only one example of their bad faith. He also said: Dr. Galin used Rascator and Sipra used Intra-Span in order to further their fraudulent plan. He began his summing-up by saying that "old-fashioned piracy" and "extraordinary greed" were at the heart of the case.

The governor of the Bank of England must explain to this House how a British bank supervised by the governor of the Bank of England could be lending money to a man who, throughout the period of the lending, was, according to the judiciary, acting with callous indifference to the law in relation to fraud. That question lies at the heart of the Johnson Matthey collapse.

When Mr. Ian Fraser, a director of Johnson Matthey, was put on warning about Sipra in 1982, he said that Mr. Sipra would perform — that the man known to his friends as the Cobra and to his enemies as the Devil would meet his contracts and repay his loans. How on earth could Mr. Fraser have said, and believed, that?

We know now, in relation to Mr. Sipra's empire, that since the collapse of Johnson Matthey these companies have been wound up or have had a receiver put in by the governor of the Bank of England: Nitemed, Monostick, Eurostem Maritime, Bulk Ferks, Trans-Gulf Lines, the Khyber Horce Company and Brooke Oil. They have all failed to perform, and Johnson Matthey must have known that they would fail to perform. Many millions of pounds have been lost to Johnson Matthey as a result. I could go on speaking about frauds by Mr. Sipra, but that might take us outside the subject.

What can one say about the behaviour of Mr. Ian Fraser, a director of Johnson Matthey? He, clearly, is in breach of his fiduciary duty at common law — I understand that he is a rich man—and should be sued for negligence because of that breach. But can we leave it there? We are talking about the loss of vast sums of money, and it seems that there are only three explanations for Mr. Fraser's behaviour. The first is that he might be a simpleton, the second is that he has turned a blind eye to fraud and the third is that he is a party to fraud. I believe that we can reject the first—that he is a simpleton—so that we are left with two alternatives. Either he has turned a blind eye to fraud or he is a party to fraud.

Mr. Fraser should be subjected to the most vigorous examination, and we may have to conduct a special investigation in this case and certain witnesses may have to be given immunity. My private inquiries into what is going on reveal that the fraud squad accepts that there was massive fraud and that the directors of Johnson Matthey were involved. However, there are enormous evidential problems and it is beginning to look as though no one will be brought to court because of those evidential problems.

The governor of the Bank of England may bear some responsibility for that—for giving these people nine months in which to lose documents, to sort out affairs with their accountants and get their alibis fixed up. It is an appalling state of affairs and the governor of the Bank of England is the man who primarily should answer for that.

I come to the case of a loan made to Ravensbury Investments to purchase Provincial Properties Wales, to enable that company to develop a piece of land in Barry and carry out a property development. Mr. Michael Hepker, who is the beneficial owner of Ravensbury Investments and Provincial Properties, has publicly said that I am being unfair to him, that he, too, is a man of great integrity and that he is a respectable business man.

What kind of respectable business man, when he is reported to the takeover panel and evidence is given against him to that panel—as it was on 12 July 1985— has friends who will telephone the person giving evidence and say that his legs will be blown off if he does not behave himself? What kind of respectable business man makes a fool of 12 police officers and sends them on a bogus raid to discover illegal firearms? That was last Friday.

What kind of respectable business man tries to ruin a man's life by reporting him to the licensing authorities when he has previously worked for Mr. Hepker? What kind of respectabley business man makes allegations of fraud and then has to withdraw them in writing to the police? What kind of respectable business man so frightens solicitors for the companies to which I referred that they must put the documents in a safe because, on Mr. Hepker's record, they fear that they will be raided?

It has been put to me that some attempts might be made to shut me up or encourage me not to talk in the House. People such as the Whips say, "Say it outside." The Islington police have been warned in relation to one of the men. Yesterday I took the trouble to warn Commander Hunter at the Hackney office about any possible consequences for my ex-wife, my son and myself.

Mr. Hepker's background, which Johnson Matthey apparently never investigated, is that he is a tax expert and drew up schemes originally on tax avoidance and then went massively into tax evasion. He set up a company called Marchmont Associates Ltd, which at one time shared offices with Rossminster, a company advised by the Chief Secretary to the Treasury. That company is massively involved in tax evasion—in shipping large sums of money out of the country to offshore islands— and the non-payment of tax. Marchmont Associates is also associated with a company called Supersaver.

Only yesterday, Mr. Hepker appeared in the Companies Court. This case will smash offshore lax evasion. Mr. Hepker's time is running out. Indeed. he is under investigation and there are several files inches thick in the possession of the special investigations branch of the Inland Revenue. The special investigator who is hunting him down is Mr. Bryn Jones, who works for the Treasury, so no doubt the Minister can confirm that those investigations are taking place.

Mr. Hepker goes to Johnson Matthey and says, "I want to borrow this money. Provincial Properties will cany out a property development in Barry." What he forgot to tell Johnson Matthey was that the Tesco property development fell through before he borrowed the money. In other words, he borrowed the money by fraudulent misrepresentation and committed an extraordinarily serious crime — in effect, the theft from Johnson Matthey of £1.5 million.

How can I prove that Mr. Hepker knew that the Tesco deal had fallen through? I can prove it because I have counsel's opinion — not counsel for Mr. Hepker's enemies, but counsel for Mr. Hepker. He had to admit to counsel that he knew that the deal had fallen through. Worse than that, he not only knew that it had fallen through, but he went to Johnson Matthey and said that the deal was still on. That was a major fraud.

Matters become even more extraordinary because, once Tesco had withdrawn from the deal, the price of the land plummeted. The price that it had been agreed should be paid for the land was ridiculous, but Mr. Hepker carried on with the deal and bought the land. Why? The only money that has been passed over in this case—£393,310 —was passed over on 8 July 1981. That was over the odds because another £110,000 should have been paid later. It was not.

That still leaves £1 million-plus, which was borrowed. hThat £1 million-plus has never been used for the benefit of Ravensbury Investments Ltd or of Provincial Properties Wales. It has been transferred through a series of companies for Mr. Hepker's personal use. That is a massive fraud. There are two frauds — a fraud on Johnson Matthey and a massive fraud on Ravensbury Investments.

How did Johnson Matthey behave? How did that British bank under the supervision of the governor of the Bank of England behave? It never discovered that the Tesco deal had fallen through. There is no Tesco store on the land in Barry. Johnson Matthey never checked, either then or in the years that followed, on the value of its security. It was told that the land was worth £1 million. When the bank was recently forced by the company to carry out a survey, it appeared that the land was worth £200,000. The bank never monitored the activities of Ravensbury Investments Ltd or of Provincial Properties Wales. Business men all over this country who have borrowed £50,000 from a bank, who have to fill in debenture forms every three months and whose companies are rigorously monitored will gawp at the fact that Johnson Matthey did no monitoring in relation to these loans.

The loan was made by way of overdraft and was on call. At no time in all those years did Johnson Matthey ask for the money back or ask for a repayment schedule. In other words, the bank handed out £1.5 million and then forgot about it. It did nothing. It provided no banking services whatsoever. This is a disgrace. It is not just negligence; it is very suspicious.

It is no wonder that the solicitors to these companies have been saying to Mr. Graham Mark and Mr. Robin Collier, "What does Mr. Hepker have over Johnson Matthey? Why do you not call in these loans?" When Johnson Matthey Bankers collapsed, the chief executive of Ravensbury Investments Ltd and the solicitors to that company wrote to Johnson Matthey saying, "Both these companies are insolvent. They have been insolvent for a long time, and there is no possibility of their ever making money. Why don't you get back your security?"

I have a file containing a bundle of the correspondence going backwards and forwards between the solicitors, the chief executive, Mr. Michael Hepker and Mr. McGregor from Johnson Matthey. Mr. Hepker has said, "Give me a fortnight and I shall stitch up a deal for you." Then he has said, "Give me another fortnight," and "Give me another fortnight." That is what I meant when I told the House that we were being taken for a ride.

At one stage, Mr. Hepker said that he would come up with another property deal. The only problem is that he would have to borrow some money to carry out that deal. What kind of negligent fantasy world is this? This point has been put to me by professional advisers to the company. In the first place, they thought, "Perhaps there are bigger and more serious cases than this £1.5 million loan from Johnson Matthey and that in the end these people at the Bank of England will deal responsibly with it." They have not dealt responsibly with it, because they have done two things. First, by not winding up the company, they have put the other creditors of the company in jeopardy. The other creditors who are owed £300,000 will never get a penny of the money that Mr. Hepker has taken. They have put them in jeopardy by not winding up the company. Secondly, there is roll-over interest on this loan and, in the end, that will increase the amount of money that the Bank of England has to write off. That money is being written off on our behalf. It is a loss not to the Bank of England but to the members of the public. I want to know how the governor of the Bank of England has justified the behaviour of his staff during the last few months.

It goes without saying that I have letters from the companies registration office showing that Mr. Hepker was in breach of section 1(7) of the Companies Act 1976 and sections 124 and 126 of the Companies Act 1948 over the production of documents. That is, however, a minor point.

What happened when the solicitors started to put pressure on Johnson Matthey to get Mr. Hepker to pay the money back? Mr. Hepker took out a curious option agreement and then tried to dismiss the solicitors and chief executive. In the middle of all that, he produced a document that showed a photostat copy of a Bank of England one pound note. I do not know what hon. Members know about criminal law, but it is illegal to photocopy Bank of England one pound notes and to produce bogus option agreements to silence solicitors. I gather that Mr. Hepker will come back to that aspect in time.

Where do we stand in relation to these matters? People have made large sums of money fraudulently and companies have gone bankrupt. There is Mr. Hepker and his company. Johnson Matthey was not performing any banking service. It was not carrying out its duty. There are also the directors of Johnson Matthey who were responsible for the preparation of the accounts. It is not the auditors but the directors who are responsible for the preparation of those accounts. The auditors merely say whether the accounts present a true and fair picture. Under section 393 of the Companies Act 1985 it is a criminal offence if a director knowingly or recklessly makes to a company's auditors a statement … which … is misleading, false or deceptive in a material particular. Anyone who cares to study Johnson Matthey's accounts will know that, whether or not the directors knew that they were making misleading comments, they were certainly reckless, because there is barely a statement in those accounts that has not been made recklessly. Why has not criminal action been taken against those directors who were responsible for the preparation of the accounts?

It is up to the governor of the Bank of England to decide whether he has the integrity to resign. We need an independent wide-ranging inquiry into an extraordinary act that has led to the loss of £248 million and to the public having, in effect, to put up £100 million to bail out a bank. I have taken the House into a fantasy world. It has nothing to do with banking but is about fraud and greed. If we believe that the integrity of public and private life is important, we cannot just let this matter rest. We must ensure that it is investigated ruthlessly so that all the facts are known.

11.48 am
Mr. Dennis Skinner (Bolsover)

I am pleased that my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) has extended some of the arguments that he put forward some days ago in a brief statement. It is important for us to make it absolutely clear that the British taxpayer is likely to foot the bill not only for all the money that has already been lost and put in by the Bank of England but for other bills. It now transpires, from some of the comments made by my hon. Friend, that the bills will get even larger. As I said some days ago, the chances are that, because of the dilatory fashion in which the Chancellor and the governor of the Bank of England have acted, many of those people to whom hon. Members and the newspapers have referred are likely to get off scot free, as has happened in many other City scandals of the past two decades.

Who will pay these additional bills? Will the Economic Secretary ask the parent company what happened? Will he say, "Why did you allow your errant youngster, Johnson Matthey Bankers, to run wild and deal with all these people? Why is it that you are not taking some responsibility for these massive losses to the taxpayer?"

What about the governor of the Bank of England? Should he not be personally responsible for some of the money that has been lost and the ensuing losses that are likely to occur? My guess is that we shall not be talking about £100 million from the taxpayer; the eventual sum may be double that.

My hon. Friend referred to Mr. Fraser. Should he not bear some responsibility, instead of lumping it all on the taxpayer? I thought that this Government believed in the policy, "You make a profit or you die." I thought that they believed in market forces and entrepreneurs. What was the purpose of all the argument about closing pits, steel works and the rest of the manufacturing base? Was it not all part of the policy, "If you can't make a profit, don't come to the Government for a subsidy. Don't expect us to bail you out. You make a profit or you die"?

There are now more than 3 million unemployed people on the scrap heap. They are witnesses to the Government's policy of making a profit or going under. Yet the crooks in the City can somehow or other launder their way from one fraud to the next, getting away with it, with tax avoidance schemes, and running to Johnson Matthey Bankers and saying, "Give us some more money—at the end of the day the taxpayer will bail us out".

Will Mr. Shamji—the friend of the Prime Minister—pay some of his money back? He should. He has companies up and down the land. I discovered another that he set up not long ago in Strood. Will the Economic Secretary to the Treasury make inquiries about that? If Mr. Shamji can find his way into an enterprise zone at Strood before it is announced in Parliament, somebody must have tipped him off. He already had a derelict factory there months before the area was declared an enterprise zone on 16 November 1982. Mr. Shamji's firm is Gomba UK, and he turned up at the factory in a Rolls-Royce one day early in 1982. Did he get the money from Johnson Matthey? Is that part of the £20 million that he owes? It has been a litany of scandal from one end of the story to the other.

The British people should demand that, instead of the taxpayer being called upon to foot the bill, it should be paid by the people to whom I have referred. The British taxpayer should not be expected to bail out the Chancellor of the Exchequer for all his legal expenses. They should be paid by him or some of the culprits who have been referred to this morning.

11.52 am
Dr. Oonagh McDonald (Thurrock)

A large number of questions remain unanswered about Johnson Matthey Bankers and the Bank of England's supervision of that bank, and the subsequent problems.

I will take one example of the bank's main debtors— Mr. Abdul Shamji's Gomba group of companies. As the Financial Times reported last Saturday, several companies in the Gomba group face court actions over debt claims and Mr. Jim Sharp, the group's financial controller, is urgently seeking a refinancing package.

Since the master company in the United Kingdom was incorporated in May 1982, companies associated with Mr. Shamji have amassed large borrowings. Accounts up to 1982 of the companies in the group show borrowings of £32.5 million. There may have been other loans from JMB since then, but without up-to-date balance sheets it is impossible to know. Accounts have not been filed in Companies House since 1982. Mr. Shamji also has loans from the Credit and Commerce International Bank, Barclays and the Punjab Bank. His assets are said to be worth about £40 million.

One of the companies, Gomba Stonefield, based at Strood, Kent, in an enterprise zone, was bought from the receiver in 1981. It ran up net losses of £2.7 million in the three years 1982–84, according to Price Waterhouse's special audit. It owed £100,000 PAYE in June, but after a threat by the Inland Revenue to auction 32 containers arid their contents, the debt was paid. It is possible that other PAYE debts are outstanding, and also that Gomba did not pay national insurance contributions and PAYE contributions for employees, now redundant, of one of his Scottish companies. Its asset base is strong but earnings of many of the companies in the group are low, suggesting low returns on assets. That could mean that Mr. Shamji now has very real problems. He will need either a refinancing package or a major programme of disposal of assets.

JMB now has problems with Gomba. The Financial Times reported last Saturday, and The Observer on Sunday, that Gomba missed the first payment under the debt rescheduling agreement, and that this still has not been paid.

With regard to loans made to Gomba by JMB, Gomba's accounts filed at Companies House go up only to 1982. What information did JMB have about the accounts of Gomba companies when loans were made? What information was made available to them then?

Is the Bank of England satisfied with the security for the loans? Gomba engages in the not unusual practice of buying property, revaluing it upwards and then borrowing against the new value. Did JMB put its own valuation on Gomba's assets. Has the Bank of England carried out its own valuation since then?

Why should companies such as Gomba Stonefield that default on payments be allowed to continue in existence when so many other companies are forced by the bank into liquidation for similar faults?

Not only Gomba's loans may be doubtful. There is a vague reference in the Bank of England's report describing four anonymous doubtful loans totalling £119 million. There was also very little information about the remaining £129 million. That makes a total of £248 million in doubtful loans, some of them very large. What action is the Bank of England taking to recover those loans? Is £248 million still the correct figure? After all, that figure was given when the Bank of England said that there was no fraud involved. Then the Chancellor of the Exchequer last week announced a fraud investigation. What guarantee have we now that £248 million of doubtful loans is the correct figure, and that it will not continue to grow and grow with further recourse to the taxpayer?

I turn to the question of the Bank of England's supervision both then and now. Is it true that the Bank of England had, in effect, restricted its monitoring programme, before the collapse of JMB, to the clearing banks? Is it true that its supervision of the smaller banks was lax?

In the autumn we expect a White Paper proposing to give the Bank of England new powers, but it will take time for legislation to go through Parliament. May we be sure that the measures that the Government have taken so far —strengthening the banking supervision department at the Bank of England—are sufficient? Will the Minister give his assessment of those new procedures? May we be assured that there is no other JMB in the offing?

As the public have a right to know what happened with JMB, will the Minister arrange for the publication of the Price Waterhouse report? That report should, at the very least, be made available to a suitable committee, and the Minister should reconsider setting up a committee of inquiry under the 1921 Act. No doubt the Minister will recall that two days after the Prime Minister refused an inquiry in a letter to me dated 15 July the Chancellor of the Exchequer announced the fraud investigation. The Prime Minister said that she could see no purpose in such an inquiry, but on the very day that the letter was written the governor of the Bank of England said that fraud was suspected. We need a thoroughgoing inquiry. Will the Minister assure us that, once the police investigations are carried out, we shall have that proper full public inquiry?

11.59 am
The Economic Secretary to the Treasury (Mr. Ian Stewart)

I have only a very short time in which to respond to the debate. I cannot, of course, comment on the affairs on individual customers of JMB or of any other bank. I am sure that the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) knows that. Equally, I cannot comment on whether or not a particular person is being investigated by the Inland Revenue.

The hon. Member has produced a great deal of information about customers of JMB, much of it in the form of allegations. I should draw the attention of the House to the difference between information and allegation. If the hon. Gentleman has information that he believes to be relevant to the police inquiry, I hope and assume that he will pass it on, because it is important to follow up any available information.

My right hon. Friend's and the Treasury's response is the subject of the debate. My right hon. Friend has reported promptly and fully on matters that are his responsibility. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) welcomes the fact that he reported last week at the first opportunity.

The decision to mount the rescue operation was taken by the governor of the Bank of England on his own authority. He was acting correctly within his discretion and has since published an account of events leading up to the collapse and his reasons for undertaking the rescue. That is a reflection of the traditional relationship which exists between the governor and the Chancellor of the Exchequer. It is a point which some hon. Members appear to have found difficult to grasp.

I have no further time to respond to the points which have been made, but I repeat that there is a considerable difference between allegation and information and between information and evidence upon which fraud can be pursued.

I hope that, having taken the opportunity of this debate to put forward those matters, the hon. Gentleman will be equally diligent in ensuring that he and any other hon. Member who has information will provide it to the police so that the police inquiry, as the hon. Member for Thurrock (Dr. McDonald) asks, can be as effective as possible and can deal with all the relevant matters.