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5) ANALYSIS OF THE ALLEGATIONS
OF CASH PAYMENTS, DIRECT AND INDIRECT, RELATING TO THE HOUSE OF
FRASER LOBBYING OPERATIONS (Contd.)
Alleged Inconsistencies in
the Evidence concerning the Allegations
468. So far as Mr Hamilton's
charge of inconsistency against Mr Al Fayed was concerned, The
Guardian made the point that, on the essential aspect of cash
payments, the allegations against Mr Hamilton had remained
constant since he first made them to The Guardian in 1993
(as evidenced by the journalists' contemporaneous notes) - even
if some of the details of method and dates had changed over time.
469. A similar argument
applied to the supposed discrepancies between the individual accounts
of the three corroborative witnesses and between their evidence
as a whole and Mr Al Fayed's. The basic thrust of the allegations
was common to all four witnesses and any variations of detail
or emphasis were only such as might be anticipated after ten years.
Moreover, The Guardian argued, the very fact that these
inconsistencies existed was proof that no attempt had been made
to orchestrate the evidence - as would have been expected if Mr
Al Fayed had been true to the extremely unfavourable portrayal
of his character by Mr Hamilton.
470. The Guardian
also drew attention in this context to the fact that Mr Al Fayed
had been proved right over Mr Smith, even though the allegations
that he had received cash payments had been strenuously denied
by him when interviewed by Mr Hencke and Mr Mullin in July 1993.
The fact that Mr Al Fayed had underestimated the amount
paid to Mr Smith (he put the figure at about £10,000,
whereas Mr Smith has admitted to taking £18,000) showed
that he could be wrong on the detail but right about the broader
picture.
Other Cash
Payments
471. In oral evidence, Ms
Bozek and Ms Bond were reluctant to answer questions about which
other people, if any, had been in receipt of payments in cash
from Mr Al Fayed during the period covered by the allegations
against Mr Hamilton and the other Members.[206]
472. In a letter dated 17
February 1997 Mr Al Fayed's solicitors stated that both Ms Bozek
and Ms Bond had confirmed that they were not aware of any other
large cash payments to any Member other than those covered by
the existing allegations. This carefully worded reply left open
the question whether such payments had been made to persons other
than Members.
The Comparison
between Mr Hamilton and Mr Smith
473. Mr Hamilton
had attempted in his evidence to refute any comparison between
himself and Mr Smith which would tend to show that their
similar lobbying roles might have earned similar rewards from
Mr Al Fayed. In particular, Mr Hamilton pointed to what
he saw as an important difference - the fact that he, unlike Mr
Smith, had not been offered the possibility of becoming a
Parliamentary consultant to House of Fraser. In advancing this
argument, Mr Hamilton had relied on a letter from Mr Greer
to Mr Al Fayed of 4 February 1987 in which he had said he thought
it unlikely that Mr Smith would accept the position of
paid adviser to House of Fraser before the general election.
474. Mr Smith's evidence
on this aspect of his relationship with Mr Al Fayed was somewhat
different. He explained in his statement to the inquiry[207]
that the subject of his becoming a consultant to House of Fraser
had indeed come up, at about the time of the election, and at
his own instigation. Mr Al Fayed had not responded to this proposal,
implying that he did not see such a position as either necessary
or appropriate for Mr Smith. In his oral evidence[208]
Mr Smith indicated that he had no recollection of any earlier
discussions of the kind implied in Mr Greer's letter of 4 February
about his possible future role with House of Fraser.
475. In his written statement
for the libel action, Mr Hamilton emphasised the gravity
of the allegations against him, referring to them as tantamount
to a charge of criminal corruption. Subsequently, however, after
Mr Smith's oral evidence to the inquiry had been provided
to him, Mr Hamilton played down the seriousness of Mr
Smith's admitted misconduct, which, he argued - given that
consultancies were not prohibited - amounted to no more than a
failure to register a relevant financial interest.
Mr Hamilton's
Financial Affairs
476. In testing the allegations
against him, I thought it right to examine Mr Hamilton's
financial affairs, even though - given the comparatively modest
nature of the total sums supposed to have been paid to him over
a period of some 2½ years - I was not necessarily expecting
to find evidence which would significantly advance the inquiry.
477. The difficulty for
the inquiry was that whilst, if cash payments had been received
and banked it was probable that there would be some record of
credits to one or more of Mr Hamilton's bank accounts,
the absence of such indications could not be conclusive. This
is because, if cash had been received, it could either have been
paid into some other account or accounts to which I did not have
access, or into no account at all.
478. During the course of
the inquiry I have had access to the following bank or savings
account statements:
- a
National Westminster current account in the joint names of Mr
and Mrs Hamilton for the period 29 May 1987 to 5 December
1991;
- a
National Westminster deposit account, in the same joint names,
for the period 29 May 1987 to 15 February 1989;
- a
National Westminster special reserve account (the successor to
the Deposit Account) for the period 14 February 1989 to 3 February
1992;
- a
dormant account with Hoare & Co for the period 20 May 1987
to 21 February 1992;
- a
Midland Bank current account in the name of Mr Hamilton
for the period 27 May 1987 to 30 July 1987 (when it was closed);
- a
Midland Bank Number 2 current account in the sole name of Mrs
Hamilton (under her maiden name) for the period 27 May 1987
to 27 June 1991;
- a
Robert Fleming/Save & Prosper high interest account in the
sole name of Mrs Hamilton for the period 3 August 1987
to 24 February 1989 (when the account was probably closed).
479. In addition, I have
seen the statements of the mortgage account with the Yorkshire
Building Society which relates to the purchase by Mr and Mrs
Hamilton of their homes, Laburnum Cottage in Davenham, followed
by The Old Rectory in Macclesfield (together with an apartment
in London).
480. I have also inspected
Mr Hamilton's tax returns (with supporting consultancy
accounts) for the financial years ending 5 April 1986 to 5 April
1991.
481. Finally, I have examined
Mr Hamilton's credit card statements of account for the
period said to cover the alleged payments made to him by Mr Al
Fayed.
482. Mr Hamilton
has assured me that he has never had any bank accounts abroad
and that I have seen every account in his or his wife's name,
or their joint names - current, deposit, and savings - for the
relevant period.
483. The main bank accounts
listed above have been the subject of a large number of transactions
- deposits, transfers and payments - over the period in question.
A considerable amount of time has been spent by me, by my assistants,
and by a member of the Government Accountancy Service in examining
these accounts and in attempting to identify and establish the
reasons for the more substantial transactions. Mr Hamilton
has provided explanations for various transactions which I identified
as requiring further elucidation. In addition, and with the express
authorisation of Mr and Mrs Hamilton, the NatWest Group
has supplied me with details of deposits and credits in respect
of the relevant accounts.
484. In particular, in a
letter dated 10 March 1997 the NatWest Group informed me:
- that
no credits paid in at the bank where the NatWest accounts were
held (rather than at another branch or by post) comprised any
cash (as opposed to cheques);
- that
there were 313 `cc'[209]
credits for these accounts over the period covered by the statements;
- that
of these 313 credits it could be stated with certainty that 295
consisted of cheques only, with no cash element;
- that
of the remaining 18 it was impossible to say what the nature of
the transaction was (ie. whether it was cash, cheque, or a mixture
of both).
485. Additionally, however,
the various statements which I examined threw up a number of matters
which appeared to require further explanation. For example, although
Mr and Mrs Hamilton made foreign trips during this period
- in particular those to France in September 1987 (which included
the stay at the Ritz hotel in Paris) and to America in August
1988 (which included a trip to New Orleans using airline tickets
provided by Mr Greer or IGA),[210]
there is very little evidence of payments during these trips using
the credit cards, or of the purchase of French francs, or US dollars.
486. In a supplementary
statement,[211]
Mr Hamilton told me that he and his wife had incurred very
little expenditure on the trip to France in 1987 since they had
stayed either with friends or at the Ritz in Paris. It was their
practice not to reconvert currencies they frequently used so that
it was quite possible that they had "a reasonable quantity
of francs remaining from a previous visit to France". In
relation to the trip to the USA in 1988, Mr Hamilton made
a similar point, namely that as all expenses had been paid by
the Republican Party there would have been very little need to
purchase a large quantity of dollars.
487. A second point was
that there did not seem to be any correlation between the payments
into Mr Hamilton's credit card account and debits from
any of the bank statements. This suggested at first sight the
existence of an undisclosed bank account. However, Mr Hamilton
has explained (with supporting examples from cheque book stubs)
that it was the practice for him to write one composite cheque
to cover the total amounts outstanding on both credit card accounts.[212]
488. A third matter of interest
to the inquiry was that Mr Hamilton's bank and business
accounts revealed that in the spring and early summer of 1987
- when it is alleged that Mr Al Fayed first made cash payments
to him - he had only very modest financial assets. (Mr Hamilton
stated in his written submission: "We have tended to spend
what we earn").[213]
I noticed in this context that although Mr Hamilton's
earnings from consultancies had reached over £20,000 a year
by April 1990, his total fees from that source for the year ending
5 April 1987 were only £4,000.
489. In the process of examining
Mr Hamilton's financial records, it became clear that money
and payments in kind received from IGA for introducing two new
clients, the National Nuclear Corporation (NNC) and US Tobacco
(UST),[214]
had not been declared to the Inland Revenue in Mr Hamilton's
tax returns for the relevant financial years (1988-89 and 1989-90).
490. Mr Hamilton
claimed that this non-declaration was based on the advice of his
accountant, Mr Walmsley of King & Co[215],
and was supported by case law according to which introduction
fees were, in certain circumstances, treated as unexpected or
ex gratia payments.
491. However, Mr Hamilton
informed the inquiry that in October 1996 he had made a voluntary
disclosure of the payments to the Inland Revenue. The reason
for this change of mind was that the publicity attracted by the
libel action had caused him to review the position and seek further
advice.
492. It seemed to me important
- not least because The Guardian thought it relevant to
Mr Hamilton's standing and credibility - to seek to establish
the exact circumstances surrounding the original non-declaration
for tax of the commission payments received by Mr Hamilton
from Mr Greer.
493. The two payments totalled
£10,000 in value (£4,000 in respect of NNC and £6,000
in respect of UST), but Mr Hamilton did not receive the
full amount by cheque. Instead goods (antiques, paintings and
air tickets) were purchased for him by Mr Greer, on behalf of
IGA, to a total value of £3,253.95. The residue of £6,746.05
was then paid to Mr Hamilton by cheque in July 1989. (A
detailed breakdown of the dates and values of the various payments
in kind is set out in the later section of the report dealing
with registration issues).[216]
494. In his submission to
the inquiry[217]
and again in oral evidence,[218]
Mr Hamilton explained the advantage to him of receiving
payment in kind rather than in money, namely that goods taken
in payment achieved a lower taxable[219]
value.
495. Mr Hamilton
was asked by Counsel to the inquiry why, in that case, instead
of taking the full £10,000 in kind, he opted to accept a
cheque for the remaining £6,746.05, which was paid on 13
July 1989. Mr Hamilton's initial explanation was that
by that date he had received advice from his accountant that the
commission payments were not taxable and that there was therefore
no remaining point in continuing to receive goods rather than
a cheque.
496. Counsel to the inquiry
then put it to Mr Hamilton that this explanation could
not be reconciled with the fact that the advice to which he had
referred from his accountant was not given until 24 July, eleven
days after he received the cheque for £6,746.05.
This fact was evidenced by a note, bearing that date, made by
Mr Hamilton's accountant of a telephone conversation with
Mr Hamilton in which the tax status of the payments was
discussed and the possibility of their being treated by the Inland
Revenue as ex gratia was mentioned.
497. The relevant part of
the accountant's note read as follows:
"Case for saying
£4,000 is ex gratia from Ian Greer (who gives 10 per
cent of 1st yr charges)
`worth a try' KW[220]
said not at all hopeful. MNH[221]
said no expectation of commission, just good fortune.
Declare as ex gratia
payment".
498. Mr Hamilton's
response[222]
to the point raised by Counsel was that he must have had a preliminary
discussion with his accountant earlier in the summer, the substance
of which was then confirmed in the telephone conversation of 24
July. In his final written submission,[223]
however, Mr Hamilton said he thought the real explanation
for the timing of the cheque was that Mr Greer had wanted to "clear
his books" at about the end of the first year's contract
with UST.
499. Counsel also pursued
with Mr Hamilton the meaning of the word "declare"
which appeared in his accountant's note of 24 July. Asked whether
this indicated that it was his accountant's advice to him to declare
the commission fees as ex gratia payments, Mr Hamilton
said that the reverse was the case - the note recorded his own
instructions to his accountant.
500. Mr Hamilton
added that, having disclosed the payments to his accountant, he
was entitled to rely on his expertise and experience in dealing
with the Inland Revenue. As Mr Hamilton put it: "I
pay him to prepare my tax returns. I rely upon his advice, he
is a professional man, and I sign the form and he sends it off."
501. I also wrote to Mr
Hamilton's accountant seeking his recollection of the significance
of the word "declare" in his note of 24 July 1989.
By the time this report was completed I had received no reply.
502. Mr Hamilton
was questioned about a further aspect of the tax treatment of
the commission payments from Mr Greer. Mr Hamilton's tax
return for the year ending 5 April 1989 showed that he had claimed
as a tax offset against consultancy fees the sum of £1,430
as "travel and subsistence - travel overseas to New Orleans
to develop business contacts." (The cost of the Hamiltons'
air tickets, £1,594, had been paid by IGA as part of the
commission owed to Mr Hamilton for introducing new clients.
Hence, according to Mr Hamilton, he was in the same position
as if he had purchased the tickets himself from money paid to
him by Mr Greer).
503. The sole purpose of
the Hamiltons' visit to New Orleans in August 1988 was to attend
the Republican Party convention. Mr Hamilton supplied
me with a detailed programme of events and hospitality for the
visit,[224]
which appeared to leave very little spare time.
504. Asked why he was setting
off as a business expense against tax almost the entire cost of
his attendance at a political conference, Mr Hamilton said
the justification was that given to the Inland Revenue, namely
that the purpose of the trip was "to develop business contacts".
He accepted that this had "nothing whatever" to do
with the consultancy fees. It was for his accountant to present
his tax return to the Revenue and conduct negotiations on his
behalf.[225]
The Diaries
for 1987, 1988 and 1989
505. I would have been assisted
in assessing the evidential value of the entries in Mr Al Fayed's
diaries and message books if I had been able to obtain access
to the personal diaries of Mr Hamilton and Mr Greer for
the relevant years. Unfortunately, both have mislaid their diaries
for 1987, 1988 and 1989.[226]
(Although Mr Greer's diaries for these years had been available
to The Guardian when they compiled their chronology of
events for use in the libel case, it would have been helpful if
the inquiry could also have had a sight of them).
206 See
paras 370 and 377. Back
207 See
Appendix 42. Back
208 Q
1027-8. Back
209 ie.
cash or cheque. Back
210 See
paras 502-4, and 602. Back
211 See
Appendix 36. Back
212 See
Appendix 33, para 753 and Q 2202. Back
213 See
Appendix 33, para 693. Back
214 These
payments are examined in more detail later in the report (see
paras 594-612). Back
215 Q
2188-94 and Appendix 39. Back
216 See
para 602. Back
217 See
Appendix 33. Back
218 Q
2120. Back
219 Emphasis
added. Back
220 Mr
Walmsley. Back
221 Mr
Hamilton. Back
222 Q
2183. Back
223 See
Appendix 33, para 759. Back
224 See
Appendix 33. Back
225 Q
2152-55. Back
226 Q
1919 and 1401. Mr Greer told the inquiry that he had lost his
diaries for 1987 and "two or three" other years. Back
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