HC Deb 18 March 2003 vol 401 cc232-40WH 3.59 pm
Mr. Don Foster (Bath)

Notwithstanding the momentous debate taking place elsewhere in the House, I am grateful for the opportunity to raise the handling by the City of London police of the case of Colin Skellett.

Colin Skellett is a constituent of mine, and at the beginning of the saga was the non-executive chairman of Jarvis plc and chairman and chief executive of Wessex Water, whose headquarters are also in my constituency. On 22 August last year, Mr. Skellett was arrested and accused of fraudulently accepting a bribe of £1 million to influence the sale of Wessex Water to a Malaysian company. I want to state at the outset that neither I nor Mr. Skellett have any criticism to make of the principle of fraud investigations when there is sufficient evidence to justify them. I am 'worried about the insufficiency of initial evidence, the way in which the investigation was conducted and the impact that it has had on my constituent, his family, Wessex Water, Jarvis plc and the Malaysian company.

I shall describe the background to the case. Wessex Water was owned by Azurix, a company partly owned by Enron. Following the Enron scandal, Azurix, with the help of Schroder Salomon Smith Barney—SSSB—sought to sell Wessex Water. All decisions on the sale were made by Michael Anderson of Azurix, with advice from SSSB, and had to be approved by the Enron creditors committee. In January 2002, four final bidders were selected, including the Royal Bank of Scotland and the Malaysian company, YTL Power, which was part of the YTL Corporation.

Colin Skellett and the Wessex Water team preferred the RBS bid, but on 24 March last year, they were told by Michael Anderscn that an agreement had been signed with YTL. Following that announcement, Colin Skellett said that, while he would oversee the transition to the new owners, he was not minded to stay with Wessex Water in the long term. However, over the following few months, numerous discussions took place and eventually he agreed to a deal whereby he would complete the transition period and then move to a part-time chairmanship role, spending more time to help the development of YTL's wider business interests in Europe and Malaysia. An agreement for that consultancy work, including the payment of £1 million over five years, was drawn up by Slaughter and May and signed on 6 July, nearly three and a half months after the sale of Wessex Water was agreed.

Later in July, Mr. Skellett informed his bank, Barclays of Stoke-on-Trent, where his family had banked for many years, that he would shortly be paying into his account £920,000, which represents £1 million, less Malaysian tax at 8 per cent. All his dealings were open and above board. He was not responsible for the decision to do the deal with YTL. Indeed, he had preferred the RBS bid. His agreement with YTL over the consultancy arrangements came months after the sale decision and the money that he had received was placed not, for example, in some hidden offshore account, but in his family bank account with tax paid and the bank having been notified in advance. Nothing could have prepared him for what was to follow.

At 6.30 am on Thursday 22 August 2002, seven police officers turned up at Mr. Skellett's house with a search warrant, saying that they believed that he had, in effect, been bribed with £1 million to influence the sale of Wessex Water in favour of YT L. Though handled professionally and courteously, the search was extremely upsetting for Mr. Skellett, his wife Jennifer, who had just been battling with ca ricer, and his 90-year-old father. He asked the police if they had carried out basic checks on the allegations before making the dawn raid. Had they, for example, talked to Enron, Azurix or SSSB, which had handled the deal? Had they seen the sale documents? Had they seen the consultancy arrangements? They admitted at they had not. It seemed that no basic inquiries had been made. As The Guardian put it much later, It involved Enron, a Malaysian company and you put two and two together and get five. Mr. Skellett then learned that seven additional police officers were standing by to search Wessex Water headquarters. Bearing in mind the commercial implications and therefore the need for sensitive handling of such a police visit, with which the police initially concurred, he arranged for his personal assistant to rush to the headquarters to ensure smooth access to his office. An 8 am meeting time with the police was agreed.

What actually happened was that the police arrived at 7.40 am and served the search warrant on the first person they met—the head of information systems. So much for commitments to sensitive and discreet handling. Despite that, the police confirmed to Keith Harris, the director of finance and regulation, who had arrived soon after, that they were conscious of the need to keep a low profile. They were, they claimed, aware of the possible impact on the finances of Wessex Water, Jarvis and YTL, if news of the searches and planned arrest of Colin Skellett got out. It is strange that keeping a low profile meant issuing a press release, a copy of which I have here, and offering an officer for media interview. Journalists have subsequently reported that the police even rang media outlets to tell them about the press release. Interestingly, although the press release did not mention which senior Wessex Water official was arrested, I am told that Colin Skellett's name was given "off the record".

While all that was going on, at 10.30 am Colin Skellett was arrested and taken not to the local Bath police station but, bizarrely, to Staple Hill in Bristol. With nothing to hide, he had no big-shot City lawyer to call on and happily accepted the services of Joan Hughes, the duty solicitor. When people, bcluding Nick Hood, the former Wessex Water chairman, rang Staple Hill to see if Mr. Skellett was there, they were told he was not. He was not allowed to phone his wife until 5 pm. She did not know where he was, and as a result of the police press release she was besieged at home by journalists and film crews. Although interviewed for part of the time, for most of the day until his release, on bail at 11.15 pm, he was held in a police cell. The duty solicitor still believes that he was held for an unnecessarily long time and with inadequate evidence against him.

Of course, having been driven to Bristol on his arrest, there was no offer of a lift back on his release. The following day, on 23 August 2002, Mr. Skellett was again interviewed and released on bail. Despite the case then dragging on for months until 4 February this year, when it was officially dropped, that was the last direct contact he ever had with City of London police. Indeed, even when over five months later all charges were dropped, he heard it first not from the police but from a friend.

The case dragged on and had many worrying elements, which clocked up enormous and needless expense to taxpayers. A few examples will suffice to illustrate that. Two police officers drove from London to Bath and back to return two mobile phones taken during the initial searches. Mr. Skellett, who is frequently in London, would happily have picked them up. Police officers made the same trip merely to ask the owner of Woods, a Bath restaurant, who had paid for meals long after the YTL deal—at which Mr. Skellett was present. A simple phone call would have elicited the information. Police officers flew to and subsequently stayed longer than necessary in Houston, Texas to interview staff at Azurix. The key player, Michael Anderson, who was coming to the UK anyway, had offered to be interviewed over here.

On several occasions police officers coming to interview Wessex Water staff in Bath came and stayed overnight for interviews that commenced about 10 am and were often over by 2 pm, hardly justifying the cost of overnight stays. For two months the Crown Prosecution Service discussed the possible wording of a statement to be used when the charges were dropped. It then extended the bail period because it was awaiting information from the Federal Bureau of Investigation in America which had initially gone missing and was then apparently held up in a snowstorm. It eventually turned out that the FBI had never had it.

While the cost of those and other unnecessary activities to the taxpayer was significant, many others have lost out, too. Jarvis plc, already battered by allegations following the Potters Bar crash, suffered a fall in share prices. As a result, Colin Skellett resigned as non-executive chairman, with inevitable personal financial loss and question marks over his reputation. Senior staff at YTL were, in effect, banned from travelling to the United Kingdom to meet the Wessex Water team, for fear of being arrested. Perhaps worse, the reputation of YTL was badly dented. If evidence were needed, it is worth noting that when charges were dropped YTL's shares rose by 5 per cent.

Wessex Water was for a long time unable to go to the capital markets, and development plans had to be put on hold. Martin Bushnell, who had been involved in negotiating the consultancy deal between Mr. Skellett and YTL, offered to help the police with their inquiries and was promptly arrested, which did nothing for his reputation. The impact on Colin Skellett, his family and friends is incalculable. Fortunately, they—and the board of Wessex Water—remained convinced that he was innocent all along. Indeed, he displays in his office the furry red handcuffs given to him by colleagues, and a teddy bear, like the one I have here, which was given to him by the chairman of YTL.

That support should not mask the effects on Mr. Skellett, who lost his job at Jarvis plc and had his reputation placed in jeopardy. Dropping the charges does not wipe that away. His arrest led to acres of media coverage; the dropping of the charges led to far less coverage, as the press cuttings files before me show. Hon. Members can see the difference between the two. There is a thick wodge of press cuttings from when he was arrested, and a very small number from when the charges were dropped. That is hardly surprising, as on his arrest there was a police press release and detailed background briefings, but when the charges were dropped, there were no such briefings and no one was available to comment. No wonder, then, that there are 270 press cuttings covering his arrest and just 48 covering the fact that the charges had been dropped.

As Anthony Hilton said in the Evening Standard on 5 February, the story of the dropping of the charges was clearly intended to make no more than a couple of downpage paragraphs, which just shows how unfair these things are. Everyone sees the arrest; no-one sees the dropping of the charges. From the beginning, with the failure to carry out the most basic checks before the dawn raid, the handling of the whole business has been inept. It was prolonged for an inexcusable time—five and a half months. It has wasted huge amounts of taxpayers' money. In the end, there was not even an apology.

Huge questions remain about how such cases are handled, the accountability of the City of London police, and the support offered to those wrongly accused. Colin Skellett is not a vindictive man. He has gone out of his way to make it clear that he accepts the need for fraud investigation, and despite all that has happened to him he has no intention of suing anyone or seeking compensation. Despite all that has happened, Dato Hong Yeoh, the chairman of YTL, has demonstrated his forgiving nature by making generous donations to charities and events in Bath. We are delighted that he is already playing an active role in the city after initially being denied access not only to Bath but to the UK.

Colin Skellett is hugely respected in Bath and plays an enormous voluntary role in the life of the city and the surrounding area. He is also an active supporter of the charity WaterAid. Indeed, even during the dawn raid on her house, Jennifer Skellett, ever hopeful of donations, handed out WaterAid leaflets to the police. I hope that, if nothing else comes of raising this issue today, the City of London police will offer a full apology to Colin Skellett and will make a donation to WaterAid out of their own pockets.

4.14 pm
The Parliamentary Under-Secretary of State for the Home Department (Mr. Michael Wills)

I congratulate the hon. Member for Bath (Mr. Foster) on securing this debate. I fully understand the importance of the matter to him, his constituent and his constituency. These matters are never easy or pleasant for anyone involved. We all understand that.

Before I deal with the substance of the hon. Gentleman's remarks and his account of the case, I should say that the actions and decisions taken by police officers in the course of their duties are, constitutionally, the responsibility of the chief officer of the force involved. Ministers do not have the authority to intervene in operational matters, or powers to act as an avenue of appeal against decisions by chief officers. In formulating my response to the hon. Gentleman's speech, I hope that he understands that I will give the police account of how the investigation was carried out. I hope that that will at least provide some background to and clarification of the reasons why matters proceeded as they did.

It is important to understand the background to the sale of Wessex Water. That private company was owned by Azurix, which was a subsidiary company of Enron Corporation. In November 2001, before the announcement of the now well-known problems associated with Enron, Azurix had decided to put Wessex Water up for sale. At that time, Azurix provisionally appointed a merchant bank to facilitate the sale. According to police investigations, Mr. Skellett was not given the task of facilitating the sale; that was to be undertaken by the merchant bank. I think that the hon. Gentleman referred to that. Later that month Enron went into bankruptcy, so the sale was supervised by the Enron creditors committee.

In December 2001, the merchant bank approached some 50 companies in Europe, the United States of America and Asia that it believed might be interested in purchasing Wessex Water. That was the start of a two-stage auction. The first stage was bidding based on limited information, and the second stage was bidding involving a reduced number of serious bidders, who would be provided with briefings and all the appropriate information.

Four companies participated in the second stage, and bids were concluded on 1 March 2002. The leading bidder—the Royal Bank of Scotland—was confident that it would succeed, but the merchant bank, on behalf of Azurix, negotiated a better deal with YTL, the Malaysian company to which the hon. Gentleman referred. Again, according to the police investigations, Mr. Skellett was not involved in that and was in no position to sign a deal with the Royal Bank of Scotland. On 22 March 2002, the leading offer by YTL was accepted.

On 3 July 2002, the City of London police were made aware of a transaction that appeared to be suspicious, which I shall describe. On that basis, the police conducted an investigation into the sale of Wessex Water and, in particular, the part played by Mr. Skellett. I should make it clear at the outset that, as a result of the investigation, the City of London police are now satisfied that Colin Skellett was unable directly to influence the outcome of the sale, but he had been involved in giving management briefings to prospective bidders during the second stage of the process, and he had knowledge of matters that could have been valuable to prospective purchasers.

In April 2002, an offshore company, which I need not name but which the police inform me is a legitimate company, was informed of an impending deposit of £1.2 million into its bank account. In compliance with money laundering regulations, the company inquired into the source of the money and was told that it was payment in respect of consultancy and associated services, and that a large percentage of it was to be paid to a United Kingdom resident employed to assist.

On 17 May 2002, the company received unsigned documents from YTL purporting to be an invoice and agreement in respect of the purchase of Wessex Water. On 27 May, the company was advised that £1.2 million was expected in the next two days. Also received was an unsigned agreement, dated 10 January, between Mr. Skellett and the second man▀×that is, before the second stage bids in respect of the sale of Wessex Water.

The company required the documents to be signed, but was told that that would not be possible, as it had been a "handshake deal". The money had been sent by YTL. Police inquiries later established that £1 million was intended to be forwarded to Mr. Skellett, and the remaining £200,000 was for the second man, for his part in facilitating the payment.

On 29 May the company was advised by e-mail—I quote loosely—that there was a problem with Skellett receiving the advisory fee via the draft agreement as he is a director of Wessex Water and has to report to them in the accounts … Mr. Skellett did not want his fellow directors or the rest of the company to know that he was to receive the money and that Mr. Skellett was the only person who could get done what needed to be done. The company was asked to re-draft the agreement to show that the fees were for a fictitious transaction in south-east Asia, but it said that that would not be possible.

Having become suspicious about the true nature of the transaction, the company refused to conduct a transaction without sight of signed and appropriate agreements and said that the money should be returned—it subsequently was. The police were satisfied that all their information came from a legitimate source. On 9 or 10 July 2002, Mr. Skellett contacted his branch of Barclays and informed them that he was about to receive a substantial sum from Malaysia. On 11 July, £919,994 was credited to the account. That was later found to represent £1 million, less 8 per cent. Malaysian tax and bank charges.

Initial inquiries revealed that market commentators were surprised that YTL was the successful bidder. Inquiries were made via the FBI, to establish whether the officers investigating the collapse of Enron could find any legal purpose for the payment of the funds to Mr. Skellett—for example, whether the sum was a retention bonus. They were unable to find any trace of such a payment. In view of all the attendant circumstances, the suspicion remained that the £1 million was associated with criminal activity. Having exhausted covert investigations and in order to further the inquiry, the police found it necessary to embark on overt investigations. In order to reduce the risk of potential evidence being destroyed or concealed, it was decided to mount an arrest and search operation on 22 August. On that date, two officers went to secure potential evidence from the offices of Wessex Water and from Mr. Skellett's home address.

I shall now deal with the release of information by the police, because that matter greatly concerns the hon. Gentleman. Wessex Water is privately owned, but it is a public utility company. Consequently, it was inevitable that the police investigation would arouse public interest and give rise to intense media speculation. The presence of police officers at both locations would almost certainly lead to information about the arrest coming to the attention of the public and the media. In order to allay consumer fears, and so that the normal operation of the company and its ability to provide water would not be jeopardised, it was important to emphasise publicly that Wessex Water was not directly the focus of a fraud investigation.

On the morning of 22 August, the City of London police released a press notice to the effect that fraud squad officers had arrested a senior official of Wessex Water Ltd., who was suspected of receiving a corrupt payment of almost £1 million in respect of the recent takeover of Wessex Water by a Malaysian company. The offences were being investigated under the Prevention of Corruption Act 1906. The press notice said that a senior official was being held at a police station of the Avon and Somerset constabulary and that he would be interviewed later that day. It made it clear that the investigation was focused only on the suspected payment to the official, and that there was no suspicion of general mismanagement within Wessex Water.

Later that day, the City of London police issued a second press notice to the effect that a second man, who had no direct connection with Wessex Water, had been arrested after voluntarily attending a City of London police station in connection with the arrest of a senior official from Wessex Water. The second man—I shall continue to refer to him as the second man—was to be interviewed in relation to a questionable payment of almost £1 million allegedly received by the senior official. The police released the information about the arrest with the knowledge and agreement of Wessex Water to prevent any media speculation that could damage the company.

Mr. Foster

I have been studiously trying to avoid intervening, but the Minister has raised many points with which I have a problem. Will he confirm that the police informed him that Wessex Water agreed to the issue of the press release?

Mr. Wills

My information is that the police released the information about the arrest with the knowledge and agreement of Wessex Water. I understand that Wessex Water also issued its own press notice to that effect. I am given to believe that at no time did the police reveal the identity of either man. However, during the afternoon it became apparent that the press had discovered that Mr. Skellett was being interviewed at a police station near Bath. Later, following his release, I understand that Mr. Skellett gave a wide range of TV and press interviews.

Having put on record my understanding of what happened as far as the police were concerned in relation to the release of information, I return to the question of the investigation. At his house, Mr. Skellett produced a copy of a contract dated 3 July 2002, which he claimed was a contract between him and YTL for "the provision of services" and that the £1 million represented five years' payments in advance. The contract clearly stated: YTL should pay the consultant (Skellett) subject to the receipt of appropriate invoices, a fee of £200,000 per annum. The fee shall be payable calendar monthly within three days after the end of the calendar month to which it relates". However, attached to the contract was a short letter dated 8 July. It stated: As discussed, we are agreeable at your request to make payment of the £1,000,000 fees payable under the Consultancy Agreement in one lump sum. The payment will be subject to 8 per cent. Malaysian withholding tax in respect of which we will in due course provide you with certificate issued by the Malaysian inland revenue for your tax purposes. Kindly acknowledge receipt once the payment has been credited into your account. The letter was signed on behalf of YTL.

The police still doubted the veracity of the contract, but thought that the letter fundamentally altered a crucial element of the contract rendering it invalid. In response to police questions, Mr. Skellett admitted not having engaged a lawyer to assist in the drafting of the contract or its amendment, although the police felt that, as an experienced businessman, he would normally do so. Later that day, officers made contact with the second man who had just arrived in London and asked him to attend Wood street police station, where he was arrested. As with Mr. Skellett, he was taken to Staple Hill police station on the outskirts of Bath and Bristol.

Examination of the second man's laptop computer revealed attempts to purchase properties apparently in an effort to pay Mr. Skellett in kind by providing him with a flat in London, which could later be transferred into his name. Inquiries with estate agents have established that the second man viewed properties for that purpose.

The police inform me that, in interviews, Mr. Skellett only mentioned the successful payment into his Barclay accounts and made no mention of the attempts to make the payment to him via the second man's offshore route until he became aware that the police had evidence of that. He amended the dates of the attempts to transfer money each time the police proved that they were aware of an earlier involvement, and did not volunteer any information about the attempt to reward him with the purchase of a property until the specific evidence was presented to him by the police.

Faced with the suspicious nature of attempts to transfer money via the offshore route, what appeared to be efforts to hide payments from his fellow directors and what appeared to be a lack of forthrightness in the interview, the police had no alternative but to continue with a thorough and extensive investigation. I hope that the hon. Member for Bath can now see that it was not simply a case of making inquiries of Mr. Skellett's bank—the investigation needed to be wider than that.

The police wish to make it clear that Mr. Skellett was in custody for two periods—12 and a half hours on the day of his arrest and two and a half hours the following day. A significant percentage of that time was spent out of the cell being interviewed by officers. The police released him at the end of the first day precisely to prevent his having o spend the night in a cell.

On the question of checking with YTL, the police wanted to investigate the chairman of YTL who had authorised the payment and engaged the second man. They spoke to him over the telephone, but he declined to attend the UK for formal interview. The police inform me that the constraints of cost and time required to obtain authority through legal channels for officers to visit Malaysia prevented that course of action. However, the chairman provided his version of events through his UK lawyers.

On completion of the investigation, the police concluded that the payment to Mr. Skellett was not a bribe relating to the sale of Wessex Water, as was originally suspected, and no other criminal offences were revealed. City of London police issued a press release on 4 February this year to the effect that, after discussion with the Crown Prosecution Service, the fraud squad was satisfied that no criminal offences were committed in relation to the payment received by the official, and that the Wessex Water senior official and the second man had been released from police bail without charge. They went on to say that the investigation was extensive and thorough, and involved the assistance of financial regulators and international law enforcement. Despite the initially suspicious nature of the payment, City of London police state that it did not constitute a criminal offence in this or any other country.

Everyone accepts that the City of London police fraud squad has a duty fully to investigate any reports of suspected financial irregularities. The hon. Member for Bath mentioned wasting money. Of course, all police officers and public servants have to operate cost-effectively and efficiently. In relation to the return of the mobile phone—

Mr. Deputy Speaker (Mr. John McWilliam)

Order. Time is up.

It being half-past Four o'clock, the motion for the Adjournment of the sitting lapsed, without Question put.