The Government offered Charilaos Costa, a Greek Cypriot fashion tycoon, more than pounds 650,000 in commercial grants and paid out more than pounds 76,000. The grants are now the subject of a secret internal inquiry in the Welsh Office and a Customs investigation into suspected fraud.
Costa fled Britain in 1991 after the collapse of his business amid claims of fraud involving as much as pounds 14m. There are at least two outstanding warrants for his arrest. Documents in the possession of the Independent on Sunday show that Costa siphoned at least pounds 300,000 off company accounts through a private London bank account. He told business associates, one of whom has provided a sworn statement, that this money was spent on Labour. The party has acknowledged receiving only two donations from him: one pounds 10,000 cheque in 1990, and one of around pounds 1,000 previously. Officials said this money will be returned.
The Independent on Sunday has been told by well-placed sources that senior officials within the Welsh Office have launched an inquiry into the award of a development grant to Costa for a factory in Pontllanfraith, Gwent. This inquiry opened recently, and has surprised some staff. Since the company went into liquidation in mid-1991, the file has lain dormant. Customs are also investigating the company.
The Welsh Office press office did not appear to know about the inquiry. A spokesman said that he believed that the file had been dormant since 1991, but added that it was not immediately available. The spokesman confirmed that development grants had been paid to Costa but could not be certain of the total amount. He said that the Welsh Office had tried to recover this money once there were suspicions that it had not been properly used by Costa. But there is no record at Companies House of the Welsh Office doing so after the company was wound up by Customs.
The factory is in the Islwyn constituency of Neil Kinnock, the former Labour leader. Mr Kinnock has previously said that he encouraged Mr Costa, whom he had known for a number of years, to invest in the area. Investigating officers have heard allegations from former business associates that Costa may have recycled some of the grant money and spent some on local Labour Party events or donations.
Islwyn Labour Party said yesterday that it had accepted no money from Costa. Mr Kinnock declined to answer a series of detailed questions regarding his role in encouraging Costa to invest in Wales.
Costa claimed to business associates that senior Labour officials had made an informal approach to the Welsh Office over the likelihood of a grant. But there is no suggestion of impropriety by Mr Kinnock.
Costa boasted to to Robinson Zymboulakis, his former bank manager: 'I will buy (the Welsh factory), and I will take grant and the grant will cover it.'
It has emerged that, in 1987, Costa was offered more than pounds 650,000 in regional development grants to set up the factory. Costa proposed to invest more than pounds 1.5m in Wales and employ over 200 people through a company called Combined Manufacturing Services. No accounts were ever filed with Companies House.
Despite this, the Welsh Office paid out at least pounds 76,000 in 1990 when Costa opened a tiny factory in Pontllanfraith's Woodfield Side Business Park. Mr Kinnock opened the plant. He described Costa as a 'man of extraordinary humanity and great generosity'. The company employed just over 50 people. The manager was Anne Wilson who was involved in some of the negotiations relating to the development grant, and was a prominent member of the local Labour Party. She is is still a member. She said last week that the grant was 'all above board, and all legal'.
Costa paid pounds 16,000 a year for the lease of the factory site, according to Islwyn Borough Council. There were substantial amounts owing to staff when he fled to Cyprus in February 1991. Customs wound up Combined Manufacturing Services later that year.
Three former associates of Costa have been charged with Vat fraud in connection with other companies and are to stand trial in September at the Old Bailey.