Labour helped Abrahams set up secret cash transfer

baalhadadThu 06/12/07 01:29

From the Guardian

http://politics.guardian.co.uk/labour/story/0,,2222809,00.html

Labour officials helped lawyers acting for David Abrahams to draw up complex covenants that allowed the millionaire businessman to pay up to £650,000 indirectly to the party, the Guardian has learned.

The arrangement, which was set up four years ago, was regarded as a "loophole" that allowed Abrahams to lawfully pay the money and remain unidentified.

The Guardian understands it was drawn up in 2003 through John McCarthy, the Newcastle solicitor acting for Abrahams, and put to two middle-ranking Labour officials at the party's London headquarters.

Sources close to the party say the officials are said to have taken legal advice from Labour solicitors and sought approval from other senior party members. Lord Triesman, who was general secretary at the time, has categorically denied that he had any knowledge of the agreement.

Under the arrangement, Abrahams is said to have covenanted the money to his close associates and fellow company directors Janet Kidd, Ray Ruddick and McCarthy, the solicitor.

They then used the cash to donate to the Labour party in their own names. It is understood that Labour officials were well aware that the arrangement exploited what they believed was a loophole in Labour's recently passed legislation, the 2000 Political Parties Act, so as not to reveal Abrahams' identity.

In the words of a Labour insider, the two officials were then "given the job of shepherding the cash", aware that the arrangement was technically legal, even though it went against the spirit of the legislation which is to ensure transparency for all donations to political parties.

Peter Watt, Labour's general secretary, resigned from the party last week following fresh legal advice suggesting the arrangement broke the law.

According to sources, the reason for the covenant or bond was to ensure that Abrahams' associates only used the money paid to them for the purpose that he intended.

He also wanted to ensure that neither he nor his associates would have to pay tax on what were technically personal gifts to his associates. Abrahams' office said it would not comment on the disclosures.

A Labour party spokesman added: "We cannot comment on this because of the ongoing police and internal investigations into the matter. This will all be examined during the inquiry."

However, details of the legal pact will raise further questions about who in the party knew what was going on and when. It may also help to explain why so many officials in the party appear to have been convinced that the proposal did not breach the Political Parties, Elections and Referendums Act.

Since the crisis broke, the party has taken legal advice as to whether the liaibilty might lie most with the donor, the agent or indeed the recipient in the shape of the party.

It raises questions about who thought of the idea in the first place - whether it was Abrahams himself or whether the idea had been put to him in 2003. Abrahams had high-ranking friends among the Labour Friends of Israel and the charitable world, where many of Labour's donors come from.

The arrangement also shows that Abrahams bypassed Labour people in the north-east to deal with officials at Labour's London HQ. Neither of the two London officials aware of the covenant had direct dealings with senior figures in Newcastle. North-east MPs say that if regional party officials had been informed they would have immediately raised questions about the wisdom of taking cash from the property developer .

The developments came in the week that Lord Whitty, the former Labour general secretary, heading the internal party inquiry into the fiasco, met with the Metropolitan police to discuss how his inquiry could still be pursued. He told the national party executive at the weekend that he would have to curtail aspects of his inquiry since the police were taking a lead in investigating a report from the Electoral Commission that the law on disclosure of donations had been broken.

Whitty has been told that if his inquiry is too wide-ranging, it might pre-judge the outcome of a possible criminal trial. He had been planning to complete his report before Christmas, but that timetable now seems less likely.

Delays have also been caused by the need to ensure that party staff are properly represented by their union in case there are any disciplinary hearings.

Some Labour MPs are complaining that Gordon Brown acted too quickly in denouncing the Abrahams arrangement as unlawful, and in effect telling Watt to go. It is being argued that Watt should have been suspended pending an investigation. Later, Brown simply described the donations as unjustifiable.

However, supporters of the prime minister argue that Watt had to go since he had never taken proper independent legal advice and should have understood a clear law.

It is now likely that the Electoral Commission will apply to the court to reclaim the £650,000 from the party, and then hand the cash to the taxpayer.

The law gives political parties 28 days to return unlawfully received donations, including donations from third party agents.

Could things get any worse for Labour?