HC Deb 04 June 1997 vol 295 cc307-30

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]

9.34 am
Mr. Charles Wardle (Bexhill and Battle)

I am grateful for the opportunity to draw the attention of the House to Department of Trade and Industry inspectors' inquiries. I have applied for this debate every week since the new year because I think that it is high time that something was done to ensure that DTI inquiries are conducted in a way that allows those being investigated the same protection they would be given in a court of law. That is not the situation now.

Inspectors appointed under the Companies Act 1985 can ignore the presumption of innocence. They are able to pursue their inquiries by means that are manifestly unfair, as successive Law Lords, learned review bodies and distinguished commentators have repeatedly warned. Changes are long overdue. I hope that the House will today press the Minister, whom I congratulate on his arrival at the Dispatch Box, to revise DTI inquiry procedures so that the potential for abuse and unfairness is eliminated. Too often in the past, Parliament has been left uninformed about the progress of such inquiries and, too often, the progress has been wayward.

Nobody would dispute the importance of tackling and prosecuting commercial fraud. Regrettably, business crime is a fact of life. In multinational operations with increasingly complex technology, the need for sophisticated monitoring and effective regulation has never been more important. Small investors and major institutional shareholders alike need safeguards against corrupt or careless practitioners. In a competitive world, confidence in the City of London depends on a reputation for straight dealing and vigilant control. It is equally necessary that every part of the regulatory framework, including the conduct of DTI inquiries, should be handled with complete integrity.

I should make it clear that I am not deterred from delving into the performance of the past Administration. Nobody could be prouder than I am of the Conservative record over the past 18 years, but I am aware that mistakes occur in the best-run organisations and they must be sorted out if progress is to be made. If I were content with fudge and self-deception, I would not have made a stand over the threat to our border controls in the previous Parliament.

For the avoidance of doubt, Mr. Deputy Speaker—I take this opportunity to congratulate you on your arrival in the Chair and am delighted to see you there—I hope that the House will accept that nothing in what I say today about former Ministers should be construed as an attack on any colleague. In the context of this debate, I am not in the slightest interested in the present ambitions of some colleagues. My concern, first and last, is with unsatisfactory procedures in DTI inquiries. I shall not flinch from telling the facts as I know them. My object is to put right what I consider to be some obvious wrongs.

I wish to make my position clear because persistent press inquiries in the past few days about this debate have related to the Conservative leadership contest. I have repeated time and again to journalists that I was seeking the debate months before the leadership contest was even contemplated, but the speculation has intensified to the point where it is in danger of trivialising the serious issue of DTI inquiries I wish to raise.

I have also told those journalists loud and clear that there is something far more controversial in what I shall have to say than mere gossip about colleagues' leadership chances. That is because having looked back at the vitriolic and unscrupulous warfare between Tiny Rowland and Mohamed Al Fayed, I have come to the fairly dramatic conclusion that the Al Fayeds were stitched up by a DTI inquiry.

I am only too well aware that the Al Fayeds fight with no holds barred and resort to mud-slinging at the drop of a hat. For two years, they made in the press totally false allegations about me concerning a nationality application. I do not doubt that they have often embellished the truth and made an art form of exaggeration. I can understand the general distaste for their unprincipled and unsavoury use of brown envelopes and other inducements as bait for greedy and corrupt minor public figures and hangers-on.

Yet injustice is injustice, no matter how controversial the characters on the receiving end may be. I like to think that the House would agree that an abuse of DTI inquiry procedures cannot be condoned simply because the subject of the inquiry has behaved reprehensibly in other ways.

Two inquiries launched a decade ago—Guinness and House of Fraser—involved people who still seek redress for the damage inflicted on them by the inquiries. When the House of Fraser report was published in 1990, in positively bizarre circumstances, my first reaction, like that of former right hon. and hon. Members on both sides of the House, including Peter Shore, Sir David Steel, Sir Kenneth Warren and my hon. Friend the Member for Louth and Horncastle (Sir P. Tapsell), whom I see in his place, was to criticise the subjects of the inquiry and question the takeover.

When further information came to my attention some time later, I was prompted to revisit the report and question my earlier assumptions. I felt that the Trade and Industry Select Committee's deliberations in 1990 had not reached the heart of the matter and, as I dug deeper into the events of 1985 to 1987, I changed my mind about the earlier presumption of guilt. I was struck by numerous inconsistencies in the report and the reasons for launching the inquiry in the first place—all of which, in my opinion, amounted to an abuse of proper procedures.

I wish to declare relevant past employment and acquaintance with people to whom I shall refer in the debate. Concerning the Guinness inquiry, I met Lord Spens in 1969–28 years ago—when we both worked in the corporate finance department of Morgan Grenfell. During the 1970s, when I ran a manufacturing group, Lord Spens advised me on a number of takeovers. He has recently briefed me on his claim against the Bank of England in the High Court.

With regard to the House of Fraser inquiry, I worked from 1988 to 1992 as a consultant to KPMG, the accountants, one of whose corporate clients I had been for several years previously. KPMG accountants were auditors to both Lonrho and House of Fraser, as well as personal accountants to advisers to the Al Fayeds and the Sultan of Brunei. At no stage did KPMG divulge anything to me about Lonrho, House of Fraser or, for that matter, any other client.

I have met Mohamed Al Fayed on one occasion, in the office of his solicitors last year, when I gave him the unedited version of a letter of mine that was published in The Daily Telegraph. He gave me a letter retracting a number of unfounded accusations that he had levelled against me in the press over the previous two years. There has been absolutely no input from Mohamed Al Fayed and his advisers in what I have to say and they have had no prior knowledge whatever of the content of this speech.

I have been a Minister in the Home Office and the DTI. One sequence of events in the Home Office is relevant to the debate. In January 1994, while I was the Minister responsible for immigration and nationality, I was asked to find a way of reversing a decision by nationality division officials to reject the British citizenship application by Ali Fayed. I had already accepted the decision of officials. I explained that the provisions of the British Nationality Act 1981 require officials to carry out character checks on applicants. In doing so, they could not disregard highly adverse criticism in a report published by another Department.

When I was instructed to pursue further references that might be favourable to Ali Fayed, I explained that, short of striking out the DTI report, it would still remain an insuperable obstacle for officials in the course of their statutory duties. Nevertheless, I conveyed the instructions to my private office and further inquiries were made. By the time they were completed, I had moved to another Department, but my successor, the late Sir Nicholas Baker, was left with no alternative but the one that I had originally accepted from officials.

Subsequently, there was intensive briefing of the press about the incident, and I am indebted to officials from two Departments for keeping me informed about it. On one occasion, I had to summon the permanent secretary from the Home Office to correct factual inaccuracies in a press statement that was about to be released. There is nothing further that I wish to add about that chapter of events. Perhaps the intervention was due to an incomplete knowledge of British nationality legislation.

I should like to make some general comments about the role of DTI inspectors—I hope that they will be of interest to the Minister—before I turn to two specific case study examples. In the debate on 16 February 1994 in another place, their lordships accepted that DTI guidelines for inspectors tried to strike a balance between public advantage and private rights, but expressed concern that, in practice, the inquiries were inquisitorial. What Lord Denning had said 30 years ago in the Profumo inquiry, when he described his own role as detective, inquisitor, advocate and judge … which must give rise to a serious risk of much unfairness applies equally to DTI inquiries today.

The Solomon commission stated in 1966 that the inquisitorial procedure is alien to the concept of justice in the United Kingdom, but that has not deterred successive DTI inspectors. In September 1974, Lord Fletcher said that inquiries are not merely an unsatisfactory method of ascertaining truth … they can reflect adversely on the reputation of individuals and can be particularly damaging because they are promulgated by the government and assumed to the result of a judicial or semi-judicial investigation". In 1980, the law reform committee of the Senate of the Inns of Court of England and Wales said that inspectors were unable to resist passing judgements which they are not really qualified to make". All too often, inspectors, whose duty is ostensibly to establish facts, attack individuals who have no means of answering back.

The DTI's guidelines for inspectors quote Lord Justice Sachs, who said: The inspectors' function is in essence to conduct an investigation designed to discover whether there are facts which may result in others taking action; it is not part of their function to take a decision as to whether action be taken and a fortiori it is not for them finally to determine such issues as may emerge if some action is taken eventually". That advice has been disregarded.

In DTI inquiries, the British presumption that a person is innocent until proven guilty goes out the window. Inquiries are conducted in secret, without defence counsel, without one witness knowing which other witnesses have been called, without hearing what one has said of another and without the right to cross-examine other witnesses or question their motives. There is, as Lord Lester said to general acclaim in another place in February 1994, no safeguard of open justice, no presumed procedures, no rules on inadmissible evidence. Powers are vested in the Secretary of State to decide whether to publish reports, no matter how damaging they may be to individuals, who have no right of appeal or access to the courts to change inspectors' opinions and recover their reputation. That is another feature of concern.

To illustrate that, I turn first to the Guinness inquiry, which was launched on 1 December 1986 following a hostile takeover bid for Distillers by Guinness and by Argyll between January and April that year and which gave rise to numerous media stories and allegations about concert parties, warehousing and other share dealings that contravened the City takeover code and the Companies Act. Inspectors were asked to investigate and report on the membership of the company and otherwise with respect to the company for the purpose of determining the true persons who are or have been beneficially interested in the success or failure of the company. The inspectors' final report has never been published, but in 1989, an unpublished interim report was extensively circulated to defendants in the Guinness trials and, more importantly, to the regulatory bodies. The inspectors' inquiries led to a number of prosecutions and two trials. In 1990, Guinness trial one resulted in four convictions. The trial has since been declared to be unfair in the European Court of Human Rights as a result of the use of DTI interviews in the trial.

Guinness trial two collapsed, ostensibly because of the breakdown of one defendant's health, but more probably because another defendant, Lord Spens, was about to show the court that the inspectors had quickly departed from the terms of the inquiry and had concentrated instead on a highly selective assault on a limited number of City individuals named in the media. In doing so, the inspectors completely ignored a large number of highly suspect share sales by supporters of the Argyll bid.

Lord Spens was about to claim, with supporting evidence, that the inspectors' early departure from a comprehensive inquiry into all the share dealings to a highly selective examination of certain individuals had been prompted by ministerial interference. The inspectors had been told to pursue selected City individuals rather than investigate all the share transactions, as their terms of reference implied. It was a political decision to go for named individuals from the outset, but no Minister was ever accountable to the House for that decision.

The police were quite deliberately kept out of the investigation for at least four months in order to allow inspectors to take evidence from witnesses for later use in a criminal trial without the constraints of the Police and Criminal Evidence Act 1984 coming into play on the witnesses' behalf. Parliament was not told of those tactics either, but, in the preliminary hearing ahead of Guinness trial one, prosecuting counsel admitted as much when he said: It will come as no surprise … when I say that if Mr. Parnes' transcripts of evidence were not admissible, the prosecution would have to think seriously whether to proceed against him at all". Lord Denning's good advice 30 years earlier had been totally ignored and nobody told Parliament.

It is on Guinness two and Lord Spens that I shall concentrate here. In his response to the inspectors' interim report, Lord Spens showed that the inspectors failed to carry out anything like a full analysis of the 5,719 transactions in Guinness shares between the opening and closing of bids from January to April 1986. Discovered evidence from the police revealed that only those transactions relating to a few named and well-known City individuals, discussed and identified by Ministers, officials and the Director of Public Prosecutions early in the inspectors' inquiries, were analysed and considered.

Minutes of a meeting between John Wood and Rosalind Wright, of the Crown Prosecution Service, and solicitors acting for Morgan Grenfell reveal that Mr. Wood said: If other MG involvements in other share ramping came to light the DPP would be criticised for not having prosecuted Morgan Grenfell and someone else might take out a private summons. But we want to target the principal offenders. We don't want rows and rows of defendants. We are looking at major offenders as understood by the media. So much for the official public version that the inspectors would examine the whole Guinness episode as their terms of reference implied. The hidden agenda was to nail the major offenders as understood by the media. An inquisition, prefaced by ministerial claims to the press ahead of the general election that handcuffs must be put on Guinness offenders, had picked out its prey. The inquiry was a sham of ill-informed questions about little-understood market dealings put to only some of the participants about only some of the share transactions.

On 8 January 1987, the Bank of England's Board of Banking Supervision, which included among its members the Governor and the Deputy Governor, concluded that "at this stage" it was not appropriate for Lord Spens to be dismissed from his job. Within less than three weeks, however, the Governor and the Deputy Governor swung to the opposite point of view. Suddenly, they felt it was not merely appropriate but urgently necessary to dismiss Lord Spens. Why? Not, as his trial subsequently showed, because the inspectors had uncovered fresh evidence against him, but because the DTI let the Bank of England know that there was a political imperative that City heads should roll—and soon—at the merchant banks identified by the media as embroiled in the Guinness affair.

There are records of a meeting in the second week of January 1987 between the inspectors and the DTI to discuss a letter from Gerald Ronson offering to repay some fees. At that meeting, other matters were discussed. At the beginning of the following week, a note from a senior DTI official was dispatched to the Governor of the Bank of England complaining about the Bank's failure to force the dismissal of any merchant bank directors. The next day, two of the most senior directors of Morgan Grenfell were dismissed on Bank of England instructions and, two days later, Lord Spens was sacked from his job at Ansbacher. Barely a few weeks into the inquiry and long before the inspectors had been able to conduct a full inquiry designed to discover all the facts as DTI guidelines required, it seems that the inspectors and the DTI were pressing on the Bank of England the need to collect some well-known scalps.

The political pressure for scalps did not come just from the DTI. The Chancellor said publicly that the Government wanted decisive action over the Guinness affair. On 20 January, he told the House that the two resignations at Morgan Grenfell were consistent with the Government's call for positive steps. Between 21 and 24 January, the press reported that the Government were exerting pressure to obtain resignations. Thereafter, the inspectors occupied much of their time not fulfilling the terms of their inquiry, but seeking to justify the scalps for which Ministers had pressed. In Guinness two, it all came unstuck in court.

No attempt was made by the inspectors to look through the rest of the transactions. During the DTI investigation, it came to the notice of the inspectors, as a result of powerful evidence supplied by the chief executive of Montagu Investment Management—an associate of Argyll and a major fund investment company—that it had sold 4.5 million Guinness shares short in the market in the last 10 days of the bid, driving down the Guinness share price. That was more than double the size of the Ansbacher purchase for which Lord Spens was arrested, charged, prosecuted and then acquitted, but the Montagu Investment Management short sale was dismissed by the inspectors in an eight-line footnote to their interim report, completely ignoring the fact that they had been made aware of allegations of an unlawful indemnity on that short sale. Montagu Investment Management even shared a computer with Samuel Montagu and must, by any definition that the City has ever entertained, have been acting in concert.

Why was that short sale ignored? Lord Spens argues that it was because Montagu Investment Management was not on the hit list, whereas he was. The inspectors spoke to no other employee of Ansbacher besides Lord Spens, not even the securities clerk whom the inspectors had been told had been responsible for faxing a crucial letter from Lord Spens at a time when he was out of the bank.

In summary, the inspectors failed to analyse all the Guinness share transactions; failed to include any mention of the Montagu Investment Management indemnity allegations in their interim report; failed to interview anyone else from Ansbacher, any market marker or jobber in the City or any representative of the City Takeover Panel; failed to analyse the problems caused by the stock exchange's own definition of a false market compiled by a jobber practising in the marketplace at the time of the bid; failed to take account of differing views on the disclosure provisions of the City takeover code; and failed to appreciate that core underwriters to the offer, such as Scottish Widows, were also in receipt of success fees and, by the inspectors' own definition, should have disclosed share sales. They also failed to involve the police and thus allow witnesses the protection of the Police and Criminal Evidence Act 1984 at a sufficiently early stage in their inquiries.

If, as Lord Spens claims, the interim report was discussed extensively with Ministers, officials and the DPP, its shortcomings are all the more disturbing. The suspicion must remain that Lord Spens, a highly successful if, at times, unorthodox and aggressive City player, was to be made an example of during the run-up to a general election, but the case against him collapsed and he was acquitted.

The loose ends of the Guinness inquiry should now be subjected to a rigorous examination by the Minister and a report should be made to Parliament. The Bank of England, or perhaps the regulatory arm that is to be hived off to the Securities and Investments Board, should now offer to settle Lord Spens's court action for wrongful dismissal from Ansbacher and his exclusion for more than a decade from his rightful employment as a merchant banker.

I now turn to the House of Fraser inquiry which was astonishing for the manner in which it was commissioned in 1987; for the line of inquiry that the inspectors subsequently chose to pursue, which bore little relationship to the basis on which the bid had originally been cleared by the Secretary of State in 1985; and, not least, for the way in which the inspectors' report came to be published. New light has been thrown on the events leading to the appointment of the inspectors and the conduct of the inquiry by the publication of a biography of Tiny Rowland by Tom Bower, the investigative journalist. Bower contends that Rowland embarked upon a hunt which was frenetic, erratic, costly and occasionally illegal … to prove a conspiracy". The conspiracy was that Mohamed Al Fayed, lying about his past, had used the Sultan of Brunei's fortune to buy the House of Fraser, with the collusion of senior Government Ministers. Bower also contends that Rowland's efforts led directly to the appointment of inspectors and provided much of the evidence, directly or indirectly, that they subsequently considered.

On 11 March 1985, Mohamed Al Fayed and his two brothers had acquired a controlling interest in House of Fraser in the stock market and prepared to bid for the balance of the shares. On the same day, Mohamed Al Fayed had been interviewed at the Office of Fair Trading, and Sir Gordon Borrie had advised the Secretary of State for Trade and Industry that there were no grounds for a referral of the bid to the Monopolies and Mergers Commission.

Sir Gordon's deputy at the OFT had listened to the Al Fayeds and their City advisers telling of their wealth and background, but Sir Gordon had advised the Secretary of State that their background was irrelevant. He said: It's a cash bid and as long as the shareholders receive their money the OFT has no further interest". Nevertheless, the Secretary of State wished to speak to the Al Fayeds himself and he received similar assurances of substantial wealth at a meeting on 12 March, which he sought to verify by telephoning the chairman of Kleinwort Benson. Later, the Secretary of State was to respond exactly as the Director General of Fair Trading had done: I didn't care who owned Harrods or House of Fraser. I was only interested in takeovers on competition grounds and there was no competition element involved". He also said: What does it matter who brings in the money providing it's brought in? The Al Fayeds were already known to the Government because they had made helpful representations that persuaded the Sultan of Brunei to retain large currency deposits in sterling that helped the strength of the pound. In January 1985, Mohamed Al Fayed had visited 10 Downing street with the Sultan and, just after he acquired control of House of Fraser, he lunched at No. 10 with the President of Egypt.

The fact that, between March 1985 and the appointment of DTI inspectors in April 1987, the Al Fayeds' relationship with the Government slid from that of favoured investors to wanted suspects was due to just one man and his company—Tiny Rowland and Lonrho. It was Rowland who aspired to own House of Fraser and its star subsidiary, Harrods. It was Rowland who had warehoused his House of Fraser shares with the Al Fayeds, confident that they did not have the money to make a full bid. It was Rowland who was wrong-footed when the Al Fayeds did precisely what he never imagined was possible. It was Rowland, tainted permanently himself by an adverse DTI inspectors' report in the 1970s, who now sought to wreak the same vengeance on the Al Fayeds. Rumours in the media prompted by Rowland and his associates that the Al Fayeds were using the Sultan's money to buy assets in the UK have never been substantiated. Having falsely claimed that he had been prevented from making a counter-bid until it was too late—in fact, Lonrho had been cleared to bid the previous Friday—Rowland and various of his associates kept up a relentless barrage, to which the Al Fayeds replied in kind. The general view of the public—a view to which subscribe—was that Rowland and the Al Fayeds deserved each other.

I shall not detain the House with a blow-by-blow account of the unprincipled and vicious propaganda war that followed. Three examples will do. A story linking Mark Thatcher, Al Fayed and the Sultan of Brunei was exposed as baseless. A self-styled holy man, the Swami, was paid $5 million by Rowland to give the appearance of authenticating accusations against the Fayeds that also proved false. An allegation of anti-semitism against the Fayeds came to nothing when it became clear that it had been planted in an American newspaper by an associate of Rowland's, without a shred of evidence in support.

That allegation was repeated to a Department of Trade and Industry Minister in a telephone call from the Minister's cousin, Harry Landy—a man who had embezzled millions from the Israel British bank, and had then been employed by Rowland. The Minister has said that he dismissed his cousin's remarks as irrelevant. That is entirely understandable. It is not clear whether officials considered the telephone call a declarable conflict of interest.

What is clear is that nobody, other than the Rowland faction, objected to the bid. There was no obvious reason for doing so. A cash bid had been cleared by the Secretary of State on advice from Sir Gordon Borrie that the sole basis for refusal would have been on competition grounds, and no such grounds existed. The cash to pay the selling shareholders materialised and more cash followed to fund the acquired company's requirements.

Neither that Secretary of State nor his two successors in the job found reason to launch an inquiry. But Tom Bower argues in his book that, as a general election grew closer and Rowland's noisy vendetta against the Government intensified, the next Secretary of State gave way to Lonrho pressure.

In April 1987, inspectors were appointed to inquire into the circumstances of the Fayeds' purchase of shares in House of Fraser in 1984 and 1985". No matter that the Al Fayeds had answered questions at the Office of Fair Trading on the very day in 1985 that they had acquired a controlling interest in the shares; no matter that the then Secretary of State had given the bid an unqualified clearance; no matter that nobody other than the discredited Rowland had objected. The Secretary of State now put the full force of the Government's authority behind an inquiry that quickly degenerated into a farcical and damaging witch hunt.

There is speculation in chapter 12 of Tom Bower's book that the DTI succumbed to an inquiry only after Rowland had taken up Ernest Saunders, the sacked head of Guinness, in April 1987. Bower claims that Rowland then renewed pressure on the Secretary of State, who was a member of the Guinness family.

Other sources suggest that the contingency of appointing inspectors in order to prevent Rowland from becoming a loose cannon in the run-up to the general election had been mooted earlier that year, and was nothing to do with Bower's theories. The whole truth may never be revealed, but the inspectors seem to have been appointed out of sheer expediency.

I have never believed the defamatory stories that surfaced in the press about a Minister and a million pounds in a suitcase. There is no proof of any such wrongdoing, as Sir Gordon Downey confirmed in the fourth report of the Select Committee on Standards and Privileges for 1996–97.

A more plausible explanation is that Ministers and officials, confronted with Rowland's persistent pressure, were anxious to find a legitimate way of sidelining him. The appointment of inspectors was seen by those on the inside as satisfying ministerial ambitions to keep Rowland quiet for a while, at the same time as protecting civil servants from Rowland's threat of an awkward judicial review.

Two things were patently wrong with that proposition. First, Rowland's application for leave to apply for judicial review had already been dismissed three weeks before the inspectors were appointed. Secondly, a reference to the Monopolies and Mergers Commission, as Rowland wanted, on the ground that Kleinwort Benson had changed its mind about the Fayeds' financial and business pedigree, was entirely spurious.

When the bid was cleared in 1985, the then Secretary of State, advised by the Director General of Fair Trading, had acted on competition grounds. The Al Fayeds' financial status mattered only to the extent that they could pay the vendor shareholders, and that they had done.

In April 1987, Ministers and officials should have told Rowland unequivocally to get lost. The fact that they did not do so has fuelled accusations of political expediency that bring discredit on a distinguished Administration. The inquiry and report that followed were a downright abuse of the very kind that the DTI's own guidelines for inspectors warn should be avoided.

Because I do not accept that the shift in Kleinwort Benson's assessment of the Fayeds was germane to the principles on which the bid was cleared in the first place, I am not convinced that paragraphs 30 to 37 and 224 to 225, and part of paragraph 259, on the appointment of inspectors, in Sir Gordon Downey's otherwise excellently thorough report, paint the whole picture

Kleinwort Benson's belated diligence concerning the Al Fayeds' background—which, by the way, appeared only after it had charged its clients a £3 million advisory fee—was due, like so much else in this murky saga, to Rowland's unrelenting hostility towards anyone who had sided with the Fayeds. Kleinwort Benson's second thoughts did not constitute grounds for a reference to the MMC, as Sir Gordon Borrie made clear in 1987; nor were they sufficient to trigger a section 423 inspection.

Sir Gordon Downey's report does not clarify the genesis of the memorandum dated 27 March 1987 from a named official, Mr. Allen, which discussed options for responding to the Lonrho pressure. In my experience, officials tend to put up submissions in response to ministerial requests. Which Ministers prompted Mr. Allen, and to which Minister did he report within the DTI organisation?

In all other respects, I accept Sir Gordon's findings, especially the rest of his conclusions, and am grateful for the time that he spared me after the publication of his report to discuss the views that I am conveying to the House today.

Once launched, the House of Fraser inquiry became a travesty. The inspectors openly admitted that Rowland's pressure led to their appointment: it was, as they put it, a consequence of two years of unrelenting pressure by Lonrho". However, they promptly contradicted themselves by saying that the direct part which Lonrho and Mr. Rowland played was a comparatively small one". Pull the other one. For the duration of the inquiry, the inspectors were led by the nose by Rowland and his stooges, and no one at the DTI shouted stop.

Inexplicably, the inspectors chose not to interview Lord Tebbit, the Secretary of State who had cleared the bid in 1985. They said: We have not taken evidence from the then Secretary of State or from his junior minister". But they blatantly disputed Lord Tebbit's reasons for clearance on competition grounds, wrongly asserting that representations made by the Fayeds … had led the then Secretary of State to allow them to acquire control unimpeded by any inquiry". Can we square that with the then Secretary of State's own words: I didn't care who owned House of Fraser. I was only interested in takeovers on competition grounds"— or with those of Sir Gordon Borrie: The Commission does not exist to punish people for lying. The shareholders got cash"? It was not the Fayeds' grossly exaggerated claims about their wealth and background that had won them the day in 1985 when the bid was cleared. It was the absence of any objection on competition grounds and the availability of some £615 million of their money.

The inspectors, having set off like bloodhounds to find what clearly they, like Rowland, hoped would be incontrovertible proof that the takeover cash did not belong to the Fayeds, later had to admit grudgingly: We are not providing any independent confirmation of the ownership of any shareholding and … we were unable to establish how and when the Fayeds came into possession of the very large funds with which they were to buy House of Fraser". So the inspectors never proved that the money did not belong to the Fayeds, but that did not deter them from taking a swipe in chapter 2 of their report: The Fayeds dishonestly represented … their wealth … and their resources". Undismayed by those discrepancies, the inspectors ploughed on. They said that at the time of their appointment they had been told that an area of particular concern was the validity of the assurances given by the Fayeds in 1985". That was clearly a departure from the published terms of reference of their inquiry, but the inspectors failed to disclose who gave them that additional steer. We do not know whether it was a Minister or an official, but it enabled the inspectors, as in the Guinness inquiry, to leap clear of their original terms of reference in one bound, without disclosing their intentions to Parliament.

Having failed to throw further light on the provenance of the takeover cash, the inspectors said: We were not concerned with simple questions relating to the direct control of the purchase money used to buy House of Fraser. We were concerned by the statements the Fayeds made … English law has always frowned on those who obtain valuable benefits from others by dishonest representations". That was not what the then Secretary of State or Sir Gordon Borrie had said at the time of the bid.

The inspectors embraced with uncritical enthusiasm an offer of help from an Egyptian—the late President Nasser's son-in-law, Dr. Ashraf Marwan, who, at the age of 27, had been Nasser's public relations chief. They approved of him because he had a clear understanding of civil administration in Egypt". The inspectors cast aside doubts arising from the fact that Dr. Marwan had a high regard for Rowland, had done business with him ever since 1971 in places such as Libya, and was in dispute with the Fayeds over an aircraft supplied to the Sultan of Brunei. They even disregarded the published report of an earlier DTI inspector, John Griffiths, dated March 1984, which plainly accused Marwan of lying. Mr. Griffiths said in 1984: Dr. Marwan's evidence did not carry to me the ring of truth. I certainly felt I cannot rely upon it as the whole truth … he was not frank … I found two matters in Dr. Marwan's evidence impossible to believe … Dr. Marwan had a closer liaison with Mr. Rowland than he sought to convey to me. Yet the inspectors conducting the inquiry in question blithely asserted: Mr. Marwan played an important role in uncovering the Fayeds". It seems that much of Dr. Marwan's so-called evidence against the Al Fayeds came in fact from Adnan Kashoggi, the Al Fayeds' disaffected brother-in-law.

What the inspectors undoubtedly did show was that the Al Fayeds had talked up their past business activities and their family background to the point of fantasy or, if one prefers it—and sometimes I do—deceit. But for all their unsavoury faults, they will not have been the first people in public life to have dressed up their origins. Hon. Members need look no further than Parliament itself for examples of politicians who employ a slightly cosmetic touch to their CV. There are many other examples of people in high places who feel sensitive about their beginnings.

The Al Fayeds had at first been welcomed with open arms into the highest strata of British society, but had then been dumped unceremoniously purely because of pressure from Rowland. What should be remembered, however, is that they did come up with the cash for the takeover bid, and nobody—not even the inspectors—has proved that the money was not theirs to spend.

If Lord Young, yet another Secretary of State at the DTI, had had his way, none of this confused and largely irrelevant report—wrongly conceived and clumsily produced—would have seen the light of day. But Rowland's men stole the report from the DTI, and Rowland published it. This meant, by a further irony, that the statutory requirements for character checks in the British Nationality Act 1981 would prevent civil servants from being able to process the Al Fayeds' citizenship applications without taking the report into account. Rowland's skulduggery, having already compromised the DTI in 1987, was therefore going to throw a road block in front of the nationality division of the Home Office when the Al Fayeds applied for British citizenship.

There is only one solution. It is not the one recommended to me in 1994 at the Home Office—that officials might simply turn a blind eye to the report if more favourable references were to be found. Not only would that have been unlawful and have offended the high standards of civil servants at the nationality division of the Home Office, but it would have left the law open for all manner of future abuses of the British Nationality Act. It simply would not have done.

The only way now is for the DTI to re-examine this flawed report, recognise that it was conceived from Rowland's malice out of short-term expedience and conclude that it ought to be struck off the record in the interests of natural justice and the DTI's good name.

As to any future application by the Al Fayeds for British nationality, that is not my concern. I have no idea whether they would make such an application. I have no idea—the House may have its own view—whether their other actions, including offering inducements to individuals, would be regarded as sufficient objection by nationality officials. That is for the Home Office to decide if the case ever comes up.

Throughout this murky saga, a string of mistakes have been made and the best thing to do is to get to the bottom of it and sort out the mistakes. In the best-run organisations, such mistakes occur. It is better to deal with them, rather than allow a string of further abuses to continue and for the truth never to surface.

10.12 am
Mr. John Maxton (Glasgow, Cathcart)

I have to tell the hon. Member for Bexhill and Battle (Mr. Wardle) that I wish to make my remarks entirely about the Guinness affair in which, far from being over-zealous, DTI inspectors appear to have done very little. Certainly, little has been done after the initial burst of the interim report, to which he referred. By the way, the report is not readily available to Members of Parliament because it has never been published.

In case anyone believes that my actions are politically motivated, I should point out that my interest in the affair come from a constituent and friend—although not necessarily a voter for me—Robert Jack. A distinguished Glasgow lawyer until his retirement, he was a professor of mercantile law at Glasgow university and was used by the DTI in the early 1980s on the advisory panel on company law. Between 1987 and 1989, he chaired the review committee on banking services law. He knows a great deal about the world of company law and is a director of the Bank of Scotland.

Mr. Jack's persistence in asking me to raise this matter meant that I asked the previous Government a series of questions and wrote a series of letters to Ministers about why the DTI inspectors never published a report on the Guinness affair. It may be that the hon. Member for Bexhill and Battle thinks that Ernest Saunders and his friends and cronies were all very clean in terms of that affair, but most Scottish Members of Parliament at the time felt that the Guinness bid to take over United Distillers—which was not initially considered hostile by United Distillers; it was the Argyll bid that was considered hostile—bore the hallmarks of Thatcherism and the way in which the economy and industry were being run in Scotland and the rest of the United Kingdom. There was ruthlessness, and promises were made which were not kept. The bid was organised in such a way that shareholders were undermined and it was not to the benefit of the work force.

In making the bid, Ernest Saunders made certain promises to the shareholders of United Distillers. He said that the existing chairman of United Distillers would remain. He did not. He promised in shareholder documents that Sir Thomas Risk would become chairman. He did not, and was elbowed aside by Saunders himself. Saunders said that the United Distillers board would remain the same. It did not, and six members had to resign. He said that Guinness would change its name and move its headquarters to Edinburgh. None of that happened.

There were criminal cases and, eventually, Ernest Saunders—having found a cure for Alzheimer's disease that no one else in the world has managed to find—went to the European Court and received his judgment last December. But the real point that I would like my hon. Friend the Under-Secretary of State for Trade and Industry to answer—unlike previous Ministers—is why on earth, more than 10 years later, the inspectors have never published a report.

Lord Spens was the last to raise the matter, asking the previous Government whether the inspectors, appointed in December 1986, to investigate the affairs of Guinness plc have completed their report and, if not, what are the reasons for the delay; and when do the inspectors expect to be in a position to complete their Report. The then Minister of State, Lord Fraser of Carmylie, replied: The inspectors appointed to investigate and report on the affairs of Guinness plc have not yet completed their enquiries which were suspended during the Guinness criminal trials. Following the conclusion of the last of those trials the inspectors are working towards completion of their final report."—[Official Report, House of Lords, 28 January 1997; Vol. 577, c. 88–89.] The last criminal trial in this country on the matter has been completed for nearly six years. Why on earth have the inspectors still not published a report? In addition, the report should have been published following the European Court decision last December. More importantly, why were the inquiries suspended during the criminal trials? I can understand that it might not have been possible to publish a report while trials were taking place, but to suspend the inquiries is beyond belief.

Will my hon. Friend the Minister tell us whether he has received a report on the matter? If so, will he publish it? The previous Government said that they had not received a report, but gave no promises that when they did, they would publish it. I hope that my hon. Friend the Minister will tell me whether he has received the report and will make it clear that he intends to publish it.

I want to make a little point about the way in which Mr. Ernest Saunders operated at United Distillers. That company is the proud owner of the famous Landseer painting, "Monarch of the Glen", which stands in the stairwell of its headquarters in Edinburgh. When the incoming chairman, now Lord Macfarlane, took over at Guinness and United Distillers, he had some job persuading Sotheby's that the "Monarch of the Glen" was not for sale. That is how Mr. Ernest Saunders operated. I think that we are entitled to know exactly what happened in the bid.

10.19 am
Mr. Quentin Davies (Grantham and Stamford)

The whole House must be grateful to my hon. Friend the Member for Bexhill and Battle (Mr. Wardle). It will have been a difficult decision on his part to undertake the considerable work that he has obviously done in preparation for his speech today. I say that without making any presumption about the facts of the three matters that he has raised. But one of the two essential roles of the House—the first being our role as a legislature—is to act on behalf of the public as a watchdog over the whole apparatus of our administrative, including quasi-judicial, procedures to ensure that their integrity is safeguarded and that when questions need to be asked they are duly asked, and answers insisted upon, so that the public can have confidence in the openness and integrity of the procedures by which we are governed.

Everyone who knows my hon. Friend will agree that he has acted in the highest traditions of the House in deciding to draw public attention to the three matters that he has laid before us. The first is whether there was improper pressure on him when he was taking a decision as a Minister in a nationality case. I have absolutely no knowledge of any matters relating to that issue, and no comments to make on it.

The second matter is whether the Department of Trade and Industry inspectors' inquiry into the House of Fraser was properly conducted. Again, I must make it absolutely plain that I have no personal knowledge of that matter, but there is one comment that I would like to make. Merely as a matter of personal interest, I read the report of the inquiry, and it made quite exciting bedside reading—rather more exciting than one is accustomed to receiving from the Department of Trade and Industry, or indeed any other Department of State.

I was struck at the time, as a former merchant banker and corporate financier, by the disproportionate attention paid to the issue of the Al Fayeds' personal wealth. As my hon. Friend pointed out, the issue of the personal wealth of a bidder in a cash bid is relevant only in so far as there may be doubts as to whether he has the means to purchase the shares for which he has tendered. There was never any question about the Al Fayeds duly paying on time and at the price offered.

The other great issue on which the inspectors spent, as I thought, a disproportionate time, was the Al Fayeds' family background. I have not had occasion to look at the document since I read it many years ago, but that still sticks in my mind, as it seemed so surprising. The issue concerned whether the Al Fayeds were the sons of some poor teacher in Alexandria or came from a wealthy Egyptian family.

Again, it seems astonishing that anyone should be concerned with the family background of a bidder in a public bid, except in so far as it related to the ability to pay for any shares for which he was tendering. We have all agreed that there was no link there. The extraordinary implication was that there was some shame attached to being the son of a poor teacher.

I have no knowledge of the Al Fayeds; I have had no business dealings with them, have never met them, and know absolutely nothing about them except what has been published in the media over the years—and we all know that some of that has been extremely lurid.

The other fact that struck me, as a corporate financier, was that the representations in the offer document—the prospectus issued on behalf of the Al Fayeds in connection with the bid—were regarded as a matter that was germane to their reliability. One can have some understanding of why that was the case, but it must be emphasised—as was not done in the report—that responsibility for the accuracy of statements made in an offer document lies with the person who signs it, and that is the bidder's merchant bank adviser.

I have signed prospectuses and listing particulars myself and I am well aware of the substantial responsibility that one has in such circumstances for the accuracy of every statement made, which is why I would always conduct verification meetings, sometimes over several days, with all the various advisers and parties concerned. If someone made a statement in the draft that he had, say, the highest market share for widgets in California, I would ask how he knew that and how the statement could be verified, and I would not accept that it should be included in the offer document unless I was persuaded that it had been properly justified.

Therefore, if there is criticism about statements that were untrue—whether about the essential issues in the financial decision that would have to be made by shareholders or even about peripheral issues, such as the family background of the parties involved—it should be directed at the merchant bank concerned and in particular at the director who signed the relevant documents. As I recall the inspectors' report, responsibility was not laid where it should have been.

The third matter is the Guinness bid for the Distillers company. I must say at once that I do have personal knowledge of the matter and of many, indeed all, of the principal players involved. At the relevant time, I was a director of Morgan Grenfell, the merchant banking adviser to the bidder, Guinness plc. Morgan Grenfell is now a subsidiary of the Deutsche bank, but was then an independent British bank.

I had absolutely no personal involvement in the transaction, which was being handled by a colleague, but I remember that at our morning meetings throughout the spring of 1987 statements were made about how many Distillers shares we had purchased and what the Guinness share price was. Unlike the House of Fraser bid, this was an exchange offer rather than a cash bid, so the price of the bidder's shares was of the essence in determining whether it would succeed.

The stock exchange was extremely buoyant at the time, but I remember thinking that we seemed to be extremely lucky in the support that we were receiving from around the world for our client's shares. Frankly, it never dawned on me or on any of my colleagues, who are people of the greatest professionalism and honesty, or indeed on anyone in the City, including the stock exchange and the regulators and others who monitor such matters, that that strong share price was not simply fortuitous or the result of objective assessments around the world of the potential attractions of Guinness, but was engineered by a co-ordinated share support operation.

My main point of substance here is that it would probably never have dawned on anybody, other than those who were a party to the illegal share support operation, that anything untoward was going on, had it not been for the fact that in the United States the various regulatory authorities, the Justice Department, the Attorney-General's office in New York state and the Securities and Exchange Commission were conducting an investigation into insider dealing on Wall street, which resulted originally from the Levine affair.

The United States authorities make much more imaginative and better use of plea bargaining than we ever have in Britain. Through the Levine affair, they succeeded in breaking into a much more important insider dealing ring run by Boesky; through plea bargaining with him, they succeeded in convicting the biggest insider dealer of all time, Milken. It was not until Boesky did his deal with the American regulatory and investigative authorities that anything came to light. As part of his plea bargain, he was committed to revealing all his insider deals. So far as I know, he did so, but who knows whether he finally made a comprehensive confession? One of the important deals in which he had been involved that he revealed was the Guinness insider dealing operation. It was at that point that our authorities were alerted and investigations began in Britain.

I recall very well the first that I and my colleagues knew of the matter. At 9 am on 1 December 1986, DTI inspectors arrived at my firm, seized documents and began their investigations. A few weeks later, the director responsible for the Guinness transaction, Mr. Seelig, was required to resign at an emergency board meeting held that day. As my hon. Friend the Member for Bexhill and Battle said, it was not until a month or so later, at the end of January, that to our great amazement, the chairman of our holdings board, Lord Catto, was summoned to the Bank of England and told that the chairman of the bank, Christopher Reeves, and Mr. Graham Walsh, the head of the corporate finance department, must immediately leave the firm or we would be deprived of our accepting house status. That, of course, led to another emergency board meeting where the head of our treasury operations said that we should suffer distinctly in the markets if we lost accepting house status. There was no practical alternative to agreeing to the demands made of us by the Bank of England.

Mr. Maxton

Given the hon. Gentleman's experience of the investment world and his story about how the Guinness affair came to light, will he comment on the difference between self-regulation in Britain and Government regulation in the United States?

Mr. Davies

No, because while that is an important subject, it cannot be properly fitted into the speech that I intend to make this morning, which will be limited to the issues raised by my hon. Friend the Member for Bexhill and Battle. I have dealt with the matter that the hon. Gentleman has raised in many contexts, including that of the Treasury Committee.

We were all surprised in January 1987 when the Bank of England suddenly demanded the resignation of Mr. Reeves and Mr. Walsh. My understanding from the report put to us by Lord Catto was that there had been much concern in Government circles. The implication was that Whitehall may have had a role in the decision. But the impression we were given was that the Bank of England had not resisted any pressure that might have come from this end of town. In any case, we decided that we had no alternative but to accede to the demands made of us. During that day, Mr. Reeves and Mr. Walsh left the firm.

As my hon. Friend the Member for Bexhill and Battle said, elsewhere in the City over the next few days as a result of similar initiatives of which I have no direct knowledge, other people left their firms, including Lord Spens, whom I know personally. He had been a colleague when he was a director at Morgan Grenfell. I did one major transaction with him after he went to Ansbacher which was not related in any way to any of the matters under discussion this morning. I have not seen him for many years; I do not think that I have seen him since I have been in the House.

I felt it necessary to make that personal statement to corroborate, so far as I can, in one small particular at least, part of the story that my hon. Friend set out. I want to draw one clear conclusion from what I have said, which I believe follows from the whole of this debate. We live in a democracy; we are proud of living in an open society. We live in a country that has always been well governed by international standards, and I trust that it will remain so. We must have confidence in the integrity, honesty and openness of all our procedures.

It follows that I must disagree with my hon. Friend, who at one point appeared to regret that the DTI inspectors' report into the House of Fraser, which had had an impact on decisions taken in relation to that bid, had been published. When a decision is taken that impacts on the freedom of individuals—in this case the right of shareholders to accept a higher offer for their shares—or the freedom of any of our citizens to conduct his or her business in the way that he or she thinks fit, it is right that the grounds for such a decision should be made public. Irrespective of whether the procedures of the DTI inspectors investigating the House of Fraser matter were flawed—they may have been; I have no comment on the merits of the arguments of my hon. Friend the Member for Bexhill and Battle—the report should have been published. It should have been open and available so that we could question any flaws in the report or in the procedures of the inspectors who produced it and so that we could have seen the relation between the report and the decision subsequently taken by Ministers or others that affected the conduct of the bid or the rights and property of individuals.

Equally, in the case of Guinness, it is wrong that after 10 years we still have not seen the report of the DTI inspectors. I have not seen it. As far as I know, none of my fellow directors at Morgan Grenfell has seen it; and nor has anyone else. Some of those involved in subsequent legal actions may have seen part of it. That is not satisfactory. In my days in the financial markets—this is still very much the case—we were trained to be suspicious of anything that looked like a false market, anything that looked like a market in which information was not openly available to everyone who was taking decisions and who was involved in that market. Similarly, in politics there are great dangers in decisions being taken on the basis of information that is available only to some of the parties or to those taking decisions. Others cannot then understand the basis of decisions, which may be arbitrary or unfair. We do not know whether they are unfair or arbitrary because we do not know the information on which they were taken.

So far as I know, all the criminal investigations that arose from the conduct of the Guinness bid for Distillers have been concluded. It is time that the report and all relevant information was published. I know this is controversial, but I have always supported a freedom of information Act. The new Government promised one before they were elected, but have been remarkably silent since coming to power.

Mr. Maxton

It will be implemented.

Mr. Davies

I fear that it may not be the last promise made by the Labour Government that is likely to be buried. I leave that party political point aside. If we had a freedom of information Act, it would be possible for citizens to demand to see information where there was no explicit judicial or national security reason for withholding it.

The onus in the successful freedom of information Act in the United States is on the Administration to justify withholding information. They have to produce specific justifications in each case. That is not the case in Britain, but it should be. Even if the Labour party will not fulfil its electoral commitment to introduce such an Act—

Mr. Maxton


Mr. Davies

I am about to finish. I hope and trust that, even in that event, it will be possible at least to publish the Guinness report after what has been too long a delay. I hope that, in future, it will be a matter of good practice that any reports that form the basis of decisions that interfere in the markets and the freedom of individuals to conduct their business in the way that they choose should be made publicly and freely available.

10.39 am
Mr. Richard Page (South-West Hertfordshire)

Occasionally, debates in the House lift the various motions above the mundane. We are grateful to my hon. Friend the Member for Bexhill and Battle (Mr. Wardle) for launching such a one today and livening up our Wednesday morning activities. I am glad that he started by putting some distance between what he had to say and some leadership contest that I understand is currently taking place in the Conservative party. My hon. Friend the Member for Grantham and Stamford (Mr. Davies) broadened the debate into the United States dimension. For a moment, I thought that we were about to be diverted into the advantages or disadvantages of self-regulation in the City. I am glad that he resisted the inducements of the hon. Member for Glasgow, Cathcart (Mr. Maxton) to take us down that path. Nevertheless, he corroborated part of the speech of my hon. Friend the Member for Bexhill and Battle and gave some substance to what he had to say.

My hon. Friend the Member for Bexhill and Battle lifted a corner of the veil over certain Department of Trade and Industry inquiries. For me, it was a journey down memory lane. All of us who were Members of Parliament when the events to which he referred took place remember being deluged by highly expensive, glossy publications in which claim and counterclaim were made by Messrs Rowland and Al Fayed when they were having their lovers' tiff. Since then, they have kissed and made up and are once more good friends—or so they say. I kept and filed away all those publications. They will undoubtedly have some historic interest. For me, they are a marvellous example of the vanity and perhaps ruthlessness of wealthy men who are frustrated when what they want to achieve is no longer put in their hands. There is a great similarity with the behaviour of a child of four or five who has a toy taken away and drums his heels into the ground in frustration.

My hon. Friend the Member for Bexhill and Battle made a number of points and focused on the Guinness and House of Fraser affairs. I do not intend to comment on those cases. Once or twice, he extrapolated a point or two, but that was up to him. It is his debate. The question for me is the worries that he expressed about the guidelines for DTI inquiries and the inquisitorial style that has been used by the inspectors. My hon. Friend gave examples to buttress his concerns about the impact on the individuals who have been touched in these affairs, so it is right that I should ask the Minister to examine the guidelines and the methods of investigation. The investigators have not always covered themselves in glory, not only in the affairs that have been mentioned, but in others. A fresh look would not go amiss.

10.42 am
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Nigel Griffiths)

May I add my congratulations to you, Mr. Deputy Speaker, on your elevation to office. I also congratulate the hon. Member for Bexhill and Battle (Mr. Wardle) on securing the debate. I pay tribute to my immediate predecessor, the hon. Member for Solihull (Mr. Taylor), whom the House acknowledges to be a gentleman, and I thank hon. Members on both sides of the House who have been so helpful and supportive to me in my first weeks in office.

The debate is a serious one. I wish to cover as closely as possible the points that have been raised by my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) and various other hon. Members, but it is important in the short time available to me to give my first impressions as a Minister of dealing with the Department of Trade and Industry investigations and enforcement directorate. I have taken the opportunity to meet as many of the staff as possible, and I am impressed by the commitment that they have shown and the depth into which they go into matters. Some of the remarks that were made earlier should not be allowed to detract from the tremendous work which all hon. Members believe the directorate does. The staff of the directorate are charged with investigating allegations of wrongdoing in companies, and we all agree that they have a difficult job.

The subject of today's debate is the inspectors' inquiries, which are more narrowly focused than the work of the investigations and enforcement directorate using its powers under section 447 of the Companies Act 1985.

The DTI has appointed 20 sets of inspectors under the Financial Services Act 1986 to investigate suspected contraventions of insider dealing law. The hon. Member for Bexhill and Battle concentrated his attention on the Companies Acts powers today. The powers are wider than those granted to section 447 investigators. Inquiries are usually announced and there is an expectation that in most cases there will be a published report. It is inevitable that the wider inquiries take longer to complete and are much more expensive, as they rely mainly on the appointment of external inspectors.

The hon. Member for Bexhill and Battle expressed a valid fear that the examination of witnesses under our system was unfair and oppressive. He quoted Lord Justice Sachs, and I should like to quote him back to the hon. Gentleman. He said: In the application of the concept of fair play, there must be real flexibility, so that very different situations may be met without producing procedures unsuitable to the object in hand … So many are the permutations and combinations that may arise in an investigation that it seems to me quite plain that it is impracticable and indeed ill-advised to attempt to lay down a set of rules applicable to all witnesses at all times. There can be little doubt among hon. Members that, without flexibility—although there must be proper safeguards, and I believe that there are—and the considerable powers that are available, it would be simply impossible to amass the evidence that is required to bring the perpetrators of some of the complex City frauds and insider dealing share transactions to justice.

Mr. Page

My hon. Friend raised a valuable point when he asked that the guidelines be examined. The Minister mentions bringing the perpetrators to justice, but the Department has not covered itself in glory in past years. I earnestly ask the Minister not merely to read his brief but to re-examine the guidelines to see whether they are as effective and correct as they could be.

Mr. Griffiths

I am trying to keep party politics out of this. What we have really had is an assertion that, for 18 years, there has been some form of corruption at the heart of government in the investigations. The hon. Member for Bexhill and Battle shakes his head, but he used words which he may regret. He said that DTI inspectors led Ministers by the nose and he made more serious allegations. He referred to sinister motives and suggested that the Department was flawed and corrupted. He said that civil servants had taken sadly flawed judgments.

Mr. Page


Mr. Griffiths

The hon. Gentleman implied that. Let us be frank with each other. Those are the serious allegations on which I as a Minister now have to satisfy myself and answer.

I have looked into the matter in some detail. I know that the hon. Member for Bexhill and Battle has been in discussions with my office and I am grateful for the information that he gave us. As for sinister motives, let us consider what the Parliamentary Commissioner for Standards said when he published part of the fourth report in March this year: From my examination of the DTI papers, I think it likely that the Lonrho campaign was, indeed, one of the factors affecting the advice given to Ministers … It was not, however, the only consideration and, in the end, probably not the main one. Hon. Members have asked whether the inspectors' reports were unfair. I do not see any evidence of that. For instance, Lord Denning concluded: Inspectors should be masters of their own procedure. They should be subject to no rules except this: they must be fair. This being done, they should make their report with courage and frankness, keeping nothing back. Public interest demands it. I believe that the inspectors have met that obligation. As the European Court said of the Al Fayed case: Whilst inspectors are accorded broad freedom in reporting on the affairs of public companies, the performance of their investigation function is attended by not inconsiderable safeguards intended to ensure a fair procedure and the reliability of findings of fact. At the heart of the debate is the question whether the DTI will review the House of Fraser report. I must tell the hon. Member for Bexhill and Battle that the answer is no. The European Court of Human Rights was extremely complimentary about the procedures followed by the inspectors when it gave judgment on the Al Fayeds' claim that the publication of the report was damaging to their right to a fair hearing. The court stated: Considerations of public interest dictate both the appointment of Inspectors and the publication or not"— I stress the word "not"— of their report. The court also quoted from an earlier European Commission of Human Rights hearing: It is necessary in a democratic society that governments exercise statutory controls over large commercial activities in order to ensure good management practice and the transparency of honest dealings.

Mr. Quentin Davies

No one would disagree with that quotation, but as for publication, does the Minister appreciate that at the moment and for the foreseeable future he will bear the responsibility if the Guinness report is not published? He cannot lay that responsibility on to anyone else. After such a long delay, will he or will he not now publish the DTI inspectors' report into the Guinness bid for Distillers?

Mr. Griffiths

The hon. Gentleman has repeated a point raised by my hon. Friend the Member for Cathcart, which I was about to answer.

The inspectors have not yet completed the Guinness report, but it is expected shortly. That is not my fault. It should be noted that the inspectors have been constrained—I will not use the word hampered—by the judicial procedures. They were guided by the need to ensure that while court proceedings were in train they were not open to accusations of harassing witnesses and pursuing matters that were before the court. I am sure that that is a cause of frustration to DTI inspectors and former Ministers, as well as to me and my hon. Friend the Member for Cathcart, who has taken such a direct interest in the case for so many years. Everyone in Scotland and elsewhere who has taken an interest in the Guinness affair wants to see that report concluded as soon as possible. I am advised that it is expected shortly.

When the report is received, it will be given due consideration. It is the usual practice to publish reports into public companies, but a decision on whether to publish this one or any other such inspection can be made only after careful scrutiny of the signed report.

My hon. Friend the Member for Cathcart rightly asked why the Guinness inspection has taken so long. I gave him one reason. I am sure that he knows more about the chronology of events than most, but I shall go through them for the benefit of the House.

I attach great importance to inspections being conducted as quickly as possible. As for the Guinness inspection, inspectors were appointed in November 1986. They submitted their interim report in November 1988. By that time, Ernest Saunders had been arrested. The first Guinness trial started in January 1990 and convictions were obtained in August 1990. In March 1991, the inspectors were directed to limit their work while the criminal proceedings against other defendants were in train. They resumed their work in March 1993. In March 1994, the inspectors went to court to certify Thomas Ward's failure to attend for interview. Ward was sentenced to six months' imprisonment for contempt. He is currently in the United States and contempt is not an extraditable offence.

Following the evidence gathering part of the inspection, the inspectors have spent most of the remaining time writing their report and, significantly, applying the fairness procedures. That process is commonly referred to as Maxwellisation and involves inspectors' putting the substance of their criticisms to those whom they are minded to criticise in their final report. That important procedure was highlighted by the hon. Member for Bexhill and Battle.

The process takes time and it is sometimes open to abuse. It involves trying to balance the need to produce a quick report as efficiently as possible against the need to apply fairness by offering those likely to be criticised an opportunity to seek to dissuade the inspectors from their critical opinions.

I do not believe that any of the parties in the relevant cases have been denied that fairness. The delays in the publication of the report are, however, one reason why we want such powers to be used sparingly in the future.

Hon. Members have expressed their concerns this morning. I pay tribute to the hon. Member for Bexhill and Battle for being honest enough to admit that he has suffered a change of mind. In March 1990 he criticised the then Secretary of State for Trade and Industry, Nicholas Ridley. He spoke of hon. Members' frustration that what the DTI inspectors described as the Fayeds' deceit and lies has not been met with their immediate disqualification as directors or, at the very least, with a bar from directorships of other United Kingdom companies".—[Official Report, 27 March 1990; Vol. 170, c. 250.] In common with other hon. Members, I have looked at the evidence. I must tell the hon. Gentleman that I do not believe that there was any conspiracy or any incompetence on the part of DTI inspectors. It is a problem for all of us to ensure that public servants act in the best interests of the public. We in the House must safeguard that. I will of course consider any of the points raised that I have not so far answered and which the hon. Gentleman considers require further explanation.

It is vital that the Companies Acts are operated effectively. None of us takes any satisfaction from the lengthy delays in the Guinness trial or the rather unsavoury activities of Al Fayed and Lonrho. As a young, new Member, I, too, was subjected to their glossy publications. I learnt to use the circular filing cabinet and I put "From Hero to Zero" in the bin. I gather that they are not collectors items.

We cannot base what we do in government solely on the authority of investigative journalism. Any allegations must be considered. I assure hon. Members that officials at the DTI have given the case the closest consideration. That has been done not merely by one or two officials, but by a number who have cross-checked each other's work. They have advised Ministers accordingly.

We want the Guinness report to be concluded quickly. I have given an undertaking to the House that I want that done. We are also a Labour Government who want a flourishing corporate sector. We want it to deal honestly and fairly with its customers, suppliers, shareholders and, most important, employees. Those objectives go hand in hand and we cannot have one without the other. The Government will use all the powers at their disposal to deter, detect and punish wrongdoing.

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