House of Commons - Standards and Privileges

Select Committee on Standards and Privileges First Report

VI. SUMMARIZING THE EVIDENCE - Continued

5) ANALYSIS OF THE ALLEGATIONS OF CASH PAYMENTS, DIRECT AND INDIRECT, RELATING TO THE HOUSE OF FRASER LOBBYING OPERATIONS (Contd.)

Mr Tim Smith

307. The allegation that Mr Smith received a number of cash payments direct from Mr Al Fayed is now admitted by Mr Smith, although that was not always the case.[119]

308. Two issues remain outstanding against Mr Smith, however, and these have been put to me as formal complaints by The Guardian. The first is that Mr Smith acted corruptly in accepting the payments, knowing that they were a reward for lobbying services rendered on behalf of Mr Al Fayed. This is denied by Mr Smith. The second concerns the failure by Mr Smith to comply with the rules for registration in relation to the payments, either by failing to register them at all or, subsequently, by making an incomplete and misleading disclosure. Mr Smith admits the first of the two aspects of the allegation relating to registration, but he denies the second. These are examined in the later section of my report devoted specifically to complaints involving non-registration.

309. Mr Smith was, throughout the period of Mr Greer's commercial association with Mr Al Fayed, either a Vice-Chairman or Secretary of the Conservative Party backbench Trade and Industry Committee. It is acknowledged on all sides that it was primarily in that role that he was a useful recruit to the House of Fraser lobbying team following his introduction to Mr Al Fayed by Mr Greer in March 1986.

310. The documentary evidence from both Mr Greer's papers and departmental records indicated that Mr Smith played a full and active part in the lobbying operation until early January 1989. The course by which he severed his links with Mr Al Fayed and subsequently admitted to having received cash payments was not a straightforward one; indeed the process of establishing the truth has gone through a number of stages. Because of the light this sequence of events casts on Mr Smith's conduct and possible motives, it is described in some detail in the following paragraphs.

311. In a press release dated 15 July 1988, Mr Rowland criticised Mr Smith for making allegations, under cover of Parliamentary privilege, against two Lonrho subsidiaries. The press release contained the following veiled reference to Mr Smith's financial relationship with Mr Al Fayed: "It has become clear that Mr Tim Smith is an associate of the public relations expert and Parliamentary lobbyist, Mr Ian Greer, who in turn is connected with the corrupt and corrupting Mohamed Fayed".

312. On 23 January 1989, Mr Smith asked a supplementary oral question in the House in which he suggested ironically that Mr Rowland's recently published book entitled A Hero from Zero, a critique of Mr Al Fayed's business record, should be recommended for the Booker prize for fiction. This prompted an open letter to Mr Smith from Mr Rowland, dated 28 January 1989, in which he put his previous accusation in a much more direct way: "For some little time I have been puzzling over why you should want to make supportive remarks in Parliament about the Fayed brothers, and offensive ones about Lonrho, but I don't think I have to puzzle any longer. As usual with the Fayeds, it's just a case of how much and in what way".

313. Just over a week later, on 6 February, Mr Smith wrote to the Registrar of Members' Interests to register an interest as a consultant to House of Fraser. Shortly afterwards, in order to indicate that his relationship with Mr Al Fayed had now ended, he sent the Registrar a revised list of his interests which, this time, omitted the reference to House of Fraser. (The correspondence with the Registrar is described in more detail in a later section of the report dealing specifically with allegations of non-registration).[120]

314. At the same time, according to Mr Smith's written statement to the inquiry,[121] he informed the Government Chief Whip, Mr David Waddington,[122] of what he had done and he [Mr Waddington] confirmed that "this was the appropriate action to take to put matters right". Mr Smith also wrote in the same terms to the chairman of his local association and its secretary (also Mr Smith's agent).

315. Some dispute has arisen over what exactly Mr Smith told the Chief Whip and, in particular, whether, at that stage, he admitted to having received cash payments from Mr Al Fayed or whether he merely acknowledged in general terms an interest with House of Fraser which he had failed to register. The position is further clouded since Lord Waddington has been quoted as saying that he has no recollection of the conversation with Mr Smith. At all events it appears that the Prime Minister was not aware that Mr Smith had accepted any money from Mr Al Fayed when he appointed him a Minister in early 1994.

316. Mr Smith's written statement to the inquiry did not mention the letter from Mr Rowland as a factor in his decision to end his relationship with Mr Al Fayed. Rather, according to Mr Smith, by the latter part of 1988 he had already begun to harbour concerns about the Al Fayeds' evidence to the DTI Inspectors and he had "started to feel uncomfortable about the uncritical support" he had given them. He accepted, however, when the point was put to him by Counsel to the inquiry, that Mr Rowland's letter had given his decision a further "kick".[123]

317. Mr Smith also acknowledged that, even after the letters he sent in February 1989 to the Registrar and to the officers of his local association, his role in the lobbying operation did not cease completely, although it was now "muted, in the background", and it was no longer remunerated.[124] Mr Smith's diary indicated that contact was maintained with Mr Al Fayed at least until November 1989.

318. Although by early 1989 Mr Smith had taken steps to bring to an end his financial relationship with Mr Al Fayed, he was still, as late as the summer of 1993, concealing the fact that he had received cash payments. This was confirmed by the former editor of The Guardian, Mr Peter Preston, and by The Guardian journalist Mr David Hencke in their written statements for the libel action. Mr Hencke, together with another Guardian journalist, Mr John Mullin, had interviewed both Mr Smith and Mr Hamilton at the House of Commons following the original conversation between Mr Preston and Mr Al Fayed during which the latter first made allegations about payments to Members.

319. Mr Hencke's statement records Mr Smith as denying that he had received payments from Mr Al Fayed in exchange for asking questions on behalf of House of Fraser. According to Mr Hencke, Mr Smith added that "he had not received any money for the conduct of any Parliamentary business".

320. It was not until October 1994 that Mr Smith acknowledged to the Secretary to the Cabinet, Sir Robin Butler, that cash had indeed been passed to him by Mr Al Fayed. This admission was made in the context of Sir Robin's inquiry into allegations against a number of Ministers, which had been conveyed to the Prime Minister through an intermediary. When Sir Robin suggested to him, on the basis of information passed to him by the intermediary, that the total he had accepted from Mr Al Fayed was £25,000, Mr Smith agreed that it could have been of that order. He told Sir Robin that the amounts received had been declared for income tax purposes as part of a general entry relating to "fees" on his tax return.

321. Following his admission to the Cabinet Secretary, which was coupled with offers of his resignation, Mr Smith eventually left the Government on 20 October 1994. Sir Robin's report, which also dealt with the allegations against other Ministers, including Mr Hamilton, was published on 25 October. Although the report disclosed for the first time publicly that Mr Smith had accepted cash payments, no figure was given for the total amount. It has always been Mr Al Fayed's recollection that Mr Smith received significantly less than Mr Hamilton is alleged to have done. In the absence, therefore, of Mr Smith's own estimate, The Guardian relied in its defence to the libel action on a figure of £6,000.[125] Mr Al Fayed, in his oral evidence, put it at nearer £10,000.[126] In his written statement to the inquiry,[127] Mr Smith quoted yet a different figure of "probably about £18,000".

322. In his description of the background to his financial relationship with Mr Al Fayed, Mr Smith gave somewhat divergent accounts of the way in which the subject of payment first arose.

323. In his written submission Mr Smith stated that, after Mr Al Fayed started paying him in May 1987, he had asked for his position to be placed on the same footing as his other consultancies, which were the subject of a written agreement involving the regular payment of fees. Mr Al Fayed had not responded to this suggestion and Mr Smith, to use his own word, "naively" allowed the matter to drift.

324. In oral evidence, however, Mr Smith denied any knowledge of a letter written by Mr Greer to Mr Al Fayed in February 1987 in which Mr Greer said of Mr Smith: "I think it is unlikely that he will accept the position of paid adviser to the House of Fraser before the General Election is over. However, we can touch on this matter again when we next meet together". Nor did Mr Smith have any recollection of any discussion of the sort implied in the letter about the possibility of his becoming a consultant to House of Fraser.

325. Mr Smith was asked in October 1994 by the Cabinet Secretary (and by the Chief Whip) whether he had solicited payments from Mr Al Fayed. Mr Smith could not recall having done so, although he had enquired whether their arrangement could be put on a more formal basis. Mr Al Fayed's response, according to Mr Smith's reply to Sir Robin, was that he was unwilling to do so and that "he would prefer Mr Smith not to register their association in the Register of Members' Interests".[128]

326. So far as the details of the payments themselves were concerned, Mr Smith claimed that it was Mr Al Fayed himself who offered money at the meeting in May 1987, in the form of £5,000 in a single envelope, possibly denominated in £50 notes. Thereafter, Mr Smith recalled that money was either handed over by Mr Al Fayed or, more rarely, couriered to Mr Smith's home address, on about seven or eight occasions in all. This implies that, to reach a total somewhere near £18,000, after the first tranche of £5,000 the later payments must have been for significantly smaller amounts.

327. Mr Smith's belief was that while most of the meetings at which money was handed over had been at 60 Park Lane, neither Ms Bozek nor Ms Bond had been involved. As Mr Smith put it: "My recollection is that if [Mr Al Fayed] did not already have the envelope immediately to hand, he had it close by. He went to a cupboard and gave it to me".

328. Mr Smith denied having received Harrods vouchers from Mr Al Fayed, but he admitted accepting two Harrods teddy bears, two Christmas hampers, and, for his wife, a Harrods staff discount card which she used once "to purchase goods to a value of less than £50".

329. Mr Smith told Sir Robin Butler during the 1994 inquiry, that in his tax return he had declared a global amount under the general heading of "fees" under Schedule D, of more than enough to cover the payments received from Mr Al Fayed.

330. Asked to elaborate by Counsel to the inquiry, Mr Smith explained that at the relevant time he had been operating a partnership with his wife. She was self-employed and they had "both put our Schedule D income through that partnership".[129] A global figure covering fees earned by both Mr and Mrs Smith had appeared in the income side of the partnership accounts submitted to the Inland Revenue. Internal accounting papers showing a breakdown of these fees were, however, no longer available.

331. In order to try to clarify the position, I asked Mr Smith to supply me with the partnership VAT returns for 1987, 1988 and 1989 and to answer certain specific questions relating to the tax treatment of the payments from Mr Al Fayed.[130]

332. In a letter dated 20 March 1997, Mr Smith replied enclosing the income and expenditure account of the partnership for 1989-90 (those for the earlier years having been disposed of by his accountant in accordance with normal procedure). Mr Smith told me that he had written to the Inland Revenue requesting copies of the accounts for 1987-88 and 1988-89. He explained that he had also requested from Customs and Excise the partnership VAT returns for 1987, 1988 and 1989. These were expected to be received by him shortly. However, they had not been supplied to me by the time this report was completed.

333. Mr Al Fayed made no formal complaint against Mr Smith, principally on the grounds that, in his opinion, Mr Smith "did the decent thing" by admitting the cash payments and subsequently resigning as a Minister. Nevertheless, Mr Al Fayed remains an important witness in relation to Mr Smith's conduct.

334. Most importantly, Mr Al Fayed contradicted Mr Smith's assertion that it was Mr Al Fayed who initiated their financial relationship by offering money to Mr Smith. As Mr Al Fayed put it: "He [Mr Smith] gave the ... impression that he was doing a lot of work and it would be nice if I gave him some more fees".[131] Mr Al Fayed's account of the opening moves is consistent with the claim in his witness statement for the libel action that Mr Smith (and Mr Hamilton) had been put forward by Mr Greer "as MPs who would agree to be paid in exchange for asking questions, lobbying and other Parliamentary services".[132]

335. Asked why he should be willing to pay Mr Smith (and Mr Hamilton) separately when, as he alleged, he was already paying them indirectly through Mr Greer (as well as paying Sir Peter Hordern £24,000 a year as a Parliamentary consultant), Mr Al Fayed answered "because they showed more interest and more aggressiveness in following up my cause". And he agreed with the suggestion of Counsel to the inquiry that the cash payments represented a "performance fee".[133]

336. The allegation that the payments to Mr Smith were a direct reward for services rendered rests on the level of work undertaken by Mr Smith on Mr Al Fayed's behalf before, during and after the period when he received money.

337. The documentary evidence (again a combination of departmental records, Mr Greer's papers and Hansard) gives the following pattern of activity by Mr Smith:

1986

- January: raises the subject of the Al Fayeds with the Conservative Trade and Industry Committee

- March: attends briefing lunch with Mr Al Fayed at Harrods

- April: agrees to apply for Adjournment debate

- May: attends briefing for Adjournment debate with Mr Royston Webb

- June: attends further briefing meeting with Mr Webb

- 17 June: initiates Adjournment debate

- August: writes to Secretary of State for Trade and Industry

1987

- January: attends briefing with Mr Al Fayed at Harrods

- February: attends meeting with Mr Greer

- March: tables 6 questions

- 12 March: takes part in delegation to Secretary of State for Trade and Industry

- 27 March: attends briefing meeting with Mr Greer and Mr Webb

- 9 April: attends briefing meeting with Mr Greer, Mr Webb and other Members

- May: tables 3 questions

- 13 May: takes part in delegation to Secretary of State for Trade and Industry

- 19 May: writes to Secretary of State for Trade and Industry

- July: attends meeting with Mr Al Fayed at 60 Park Lane

- 29 July: takes part in delegation to Secretary of State for Trade and Industry

- October: tables 1 question

- November: tables 6 questions

- November: attends briefing meeting with Mr Greer and Mr Webb

- 23 November: writes to Secretary of State for Trade and Industry

- 14 December: takes part in delegation to Secretary of State for Trade and Industry; writes to junior Minister at Department of Trade and Industry

1988

- January: attends meeting with Mr Greer and Mr Webb

- February: writes to Secretary of State for Trade and Industry; tables 6 questions

- May: tables 3 questions

- July: tables 6 questions

- 18 August: writes to Secretary of State for Trade and Industry

- November: tables 5 questions

1989

- January: asks supplementary oral question

- April: attends meeting with Mr Al Fayed and other Members

- May: signs EDM

- 7 November: attends meeting with Mr Al Fayed

338. This list is not exhaustive: other meetings, recorded in diary entries and probably attended by Mr Smith, also took place.

339. Against this background, the first payment was thought by Mr Smith to have been made in May 1987 and the last in January 1989. This assumption, particularly as regards the first payment, was accepted as correct by Mr Al Fayed.[134]

340. Mr Smith categorically denied any connection between the payments he received and the work he undertook on Mr Al Fayed's behalf. His position was that he was being paid, in effect, as an adviser to Mr Al Fayed.

341. Counsel to the inquiry pursued with Mr Smith exactly what he felt his misconduct consisted of and, in particular, whether he regarded his failure as one solely relating to non-registration of a financial interest. Mr Smith's reply indicated that, in his view, no question of corruption arose since he believed that he had acted in the public interest in championing the cause of House of Fraser.[135] Pressed as to whether he had had any qualms about receiving payments in cash from an officer of a company rather than through the company's accounts, Mr Smith replied: "I did not consider that".[136]

342. A separate allegation against Mr Smith, denied by him, was mentioned in the book Sleaze,[137] namely that he was paid to initiate the Adjournment debate which took place in June 1986. Since this predated by some 11 months the first acknowledged cash payment from Mr Al Fayed, and Mr Al Fayed has confirmed that no such payment was made by him to Mr Smith before about May or June 1987, I assumed that the sole source of the cash referred to in the context of the Adjournment debate must have been the `slush fund' allegedly operated by Mr Greer.[138] I sought confirmation on this point from Mr David Leigh, one of the co-authors of the book.

343. In a letter dated 5 March 1997, Mr Leigh informed me that the allegation concerning the possible role of the `slush fund' as a source for a payment to Mr Smith to initiate the Adjournment debate had been a "matter of speculation". He added: "We do not have any fresh evidence to controvert Mr Smith's present denial, particularly if it is now accompanied by a corroborative denial from Mr Fayed". Mr Leigh concluded, by way of explanation: "As you will know, at the time we wrote the book neither Mr Smith nor Mr Fayed had produced any account at all of in what manner, or at what times, Mr Smith had got his money".

119 See paras 177; and 318-9. Back

120 See paras 631-633. Back

121 See Appendix 42. Back

122 Now Lord Waddington. Back

123 Q 1120. Back

124 Q 1124. Back

125 Sleaze, pp 106-7. Back

126 Q 601. Back

127 See Appendix 42. Back

128 Source: Draft of Sir Robin Butler's report to the Prime Minister (not appended to this report). Back

129 Q 1087. Back

130 See Appendices 43 and 45. Back