The Attack on Sleaze: Mystery origins of brothers' paper fortune: James Cusick looks at the revelations of the DTI investigation into the Fayed family's business affairs
Wednesday 26 October 1994
The bankers Kleinwort Benson had once estimated that the family was worth 'several billion dollars'. The Department of Trade and Industry report which investigated the Fayeds in 1988 shattered the myth of their wealth.
The 750-page report damningly said the Fayeds had 'dishonestly represented their origins, their wealth, their business interests and their resources to the Secretary of State, to the Office of Fair Trading, to the House of Fraser board and shareholders, and their own advisers'.
The investigators, led by Henry Brooke QC and Hugh Aldous, said that the evidence they had received from the Fayeds was 'false' and that the Fayeds 'knew it was false'. Documents produced, relating to how they had come to be in control of enormous wealth, were false.
In a submission to the OFT, the Fayed brothers claimed at the time of the bid that they were worth dollars 1bn, later revised to dollars 760m.
'Frankly we don't believe their stories,' said the report.
Their actual wealth in 1984- 85 was based on cargo ferries, the Ritz Hotel in Paris, a stake in a Texas bank and film profits. But their claim to be oil- rich was rejected.
The report asked how they came, on 31 October 1984, to have at their disposal pounds 50.5m and dollars 330m at the Royal Bank of Scotland in London and a further dollars 225m in cash and securities in Switzerland. The source of the money was never proved. However, the report said it was likely that they had used their association with the super-rich Sultan of Brunei.
The report appeared amazed at the occasional 'quantum leap' in their wealth, which at one point included a plan to buy the Savoy hotel group. Although the Fayeds were accused of using the Sultan's association to acquire the House of Fraser, there was no evidence that the Sultan knew he was being used.
The Fayed wealth, they claimed, was based on riches from cotton dating back in their family to 1876. Their Anglicisation was 'completely bogus' said the report. In reality their father was a teacher of Arabic. The brothers were born in a poor district of Alexandria, in Egypt, and their first business was set up in 1956. In 1964, the DTI report alleged, Mohamed al-Fayed 'perpetuated a substantial deceit on the government and people of Haiti', over an oil refinery and port development.
Although the report acknowledges that they were genuine over their management concerns at the House of Fraser, it said that Mohamed al-Fayed's leadership at Harrods was 'mercurial'.
The complex network of financial deals which enabled the brothers to take over the House of Fraser, was partially unravelled by the DTI inspectors.
Funds used in acquisitions were gradually replaced by bank borrowing. In April 1988 bank borrowing reached pounds 870m.
In one of its most damning conclusions the report states that 'the comfort taken by the OFT from the assurances' given to it by one bank (Kleinwort) and by the Fayeds' lawyers, 'were greater than those advisers thought they were giving'. The report went on: 'This lack of meeting of minds . . . must be overcome in future if healthy government/city reliance and trust is to prosper.'
Six years after its publication, ripples from the DTI report can still feel like waves.
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