The origin of the money was traced three years ago and set out for the Conservatives in a secret report obtained last week by the Independent on Sunday. The report was written by a team under Christopher Morris, senior partner at leading accountants Touche Ross, the administrators of Mr Nadir's failed company, Polly Peck.
It details how pounds 365,000 out of the pounds 440,000 donated by Mr Nadir came from money defrauded from the Polly Peck empire. It states: "The evidence we have obtained to date shows that a large proportion of the pounds 440,000 donations made to the Conservative Party formed part of Mr Nadir's fraud and/or breach of fiduciary duty and/or breach of trust and/or misfeasance as a director." None of the payments was approved by the company's board, as they should have been, the report says.
The report was sent in July 1993 as part of a formal request for the cash to be returned for distribution to Polly Peck creditors. The Tory party rejected the request, despite the clear promise given to the Commons just one month earlier by Sir Norman Fowler, then party chairman. "If we receive proof from Touche Ross or any other source that the money we received was stolen, we will return it," he said.
The Touche Ross report itself stresses that the information it contains is "highly sensitive" and is "confidential to the Conservative Party Senior Treasurer and other members of staff at the Conservative Central Office, and should not be disclosed to any third party". It sets out how more than pounds 12m was defrauded from Polly Peck, routed through an offshore account and split between three beneficiaries: Mr Nadir, his mother Safiye and the Conservative Party.
After the report was sent, Paul Judge, the then director-general of the party, wrote to Mr Morris saying that the party could see no reason why it should hand back the money.
Last week, speaking from a business trip in New York, Mr Judge restated this view. "It was money that was received in good faith at a time when Polly Peck was a perfectly respected British company," he said. "Touche Ross never ever suggested that the party did anything other than act in good faith."
Conservative Central Office confirmed at the weekend that the money had not been returned. Touche Ross, now part of the merged firm Deloitte Touche, declined to comment.
The firm has not succeeded in securing the money from the Tories even though it appears that the administrators could seek a court order to recover the donations whether the money was stolen or not.
A joint trustee in Mr Nadir's bankruptcy, Neil Cooper, of the accountancy firm Robson Rhodes, said last week that this was possible under the Insolvency Act 1986. Under section 238 of the Act, he said, the administrators can apply for a court order forcing the return of gifts made by a company prior to going into administration. The clause states: "The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction."
Robson Rhodes would have recovered the money in this way on behalf of Mr Nadir's private creditors if the donations had been personal payments, rather than corporate ones, Mr Cooper said, although he added: "We normally find that court orders are not necessary."
A senior source at Touche Ross suggested that the sums involved were not worth taking such action in relation to the total losses suffered by Polly Peck creditors.
This attitude contrasts, however, with the firm's active pursuit, begun last week, of Mr Nadir's former aide, Elizabeth Forsyth, over proceeds from her new book, Who Killed Polly Peck?, though they are expected to total less than pounds 5,000.
Touche Ross attempted to serve a High Court restraining order on her solicitor, Peter Krivinskas, as a first step to recovering the payments. He refused to accept it , and told agents to serve it on Forsyth at her prison, Cookham Wood, in Rochester, Kent, where she is serving five years for handling stolen Polly Peck money.
He said Forsyth only had a pounds 1,200 advance for the book. Royalties would bring the total to pounds 5,000 at the most.
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