DTI 'kept police out of Guinness investigation'

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Documents showing that senior civil servants had discussed how Department of Trade and Industry inspectors were confident of "breaking'' Ernest Saunders, which had vindicated their decision to keep police out of the Guinness investigations, were revealed in the Court of Appeal yesterday.

The documents also show how Michael Howard, then a Minister of State at the DTI was kept informed of the DTI stance in excluding the police from the inquiry.

Central to the appeal made by the four men who received jail sentences or fines for their part in operating an illegal share support scheme, during Guinness' pounds 2.7 billion takeover of Distillers in 1986, has been their assertion that the police were deliberately excluded from investigations to allow DTI inspectors with stronger inquisitorial powers to remain unimpeded. The documents were released in court yesterday at the start of the second week of the appeal before Lord Chief Justice Lord Taylor.

In 1990, Ernest Saunders, the former chairman of Guinness, property tycoon Gerald Ronson, and stockbroker Anthony Parnes, all received jail sentences for their behind-the-scenes activities in the Guinness takeover. A fourth man, Jack Lyons, was fined pounds 3 million and stripped of his knighthood.

They show that in late 1986, after DTI inspectors had already begun investigating a possible conspiracy to manipulate the stock market, Roger Woolman, then an under-secretary and legal advisor at the DTI (now deputy secretary and legal advisor at MAFF) wrote to Jonathan Rickford, another DTI solicitor, saying "you agreed that the first thing was to take the views of the Inspectors on the extent to which reference to the DPP would impede their investigations. My own view is that it would be likely to do so at this stage."

According to another document, which refers to a meeting at the DTI on 30 January attended by Mr Rickford, Mr Woolman, John Wood of the DPP's office and the two DTI inspectors, there was discussion of "when we can start a criminal investigation" and that there were "four counsel lined up". It lists all four appellants as "potential accused".

But in a letter dated 2 February, Gerald Clark, inspector of companies at the DTI, tells Mr Woolman that the Metropolitan and City Police company fraud department had been contacted and that "we had agreed with the DPP and the Inspectors on Friday that a police investigation at this stage was not appropriate and that the Inspectors' investigation had reached an important stage." The letter is dated three months before Mr Saunders was eventually arrested.

In March 1987, Mr Rickford, writing to Sarah Brown, head of companies division at the DTI, says "The Inspectors are now much more optimistic about breaking Saunders completely. They also feel they have made excellent progress ... in Donaldson's words he is "beginning to come apart at the seams."

The letter from Mr Rickford, which was copied to Mr Howard, goes on to state: "This development confirms the wisdom of leaving the Inspectors to get on with it rather than putting in the police and suggests that we should be hesitant to do the latter until we are absolutely convinced that there is a net advance in doing so." Police were eventually brought in to investigate in May, just before Saunders was arrested.

In February 1987 Mr Howard wrote to the then Home Secretary, Douglas Hurd, stating: "These are matters which should not be aired in public. It is essential that none of us comment publicly on how the investigation is being run or what stage has been reached unless it is agreed by all concerned that a statement is desirable."

Opening the Crown's case that the appeals should be denied, Sydney Kentridge QC said: "Nothing was being kept secret" and that all investigations had the prime purpose of the prevention of such crime. The hearing continues today