Who pays the piper?: Stephen Castle and Nick Cohen on the secret world of offshore banking and free lunches that fund the Tory party

HOWEVER Asil Nadir funnelled Polly Peck money to the Conservative Party, the proceeds would have passed through a gloomy, musty-smelling office on the second floor of the party's headquarters in London's Smith Square. In the 1980s heyday of Tory fund-raising this - the office of the Treasurers - was the most secretive, and anachronistic, domain of Tory Central Office, staffed largely by retired army officers aided by spinsterly secretaries using manual typewriters. All other staff were forbidden entry.

Occasionally, however, a party official would get a summons from the Treasurers. The Treasurers would state that Company X - a donor to the party - had a 'difficulty' with Government Policy Y which threatened its commercial interests. A meeting with the relevant minister was suggested. Money was never mentioned but a request of this sort from the Treasurers' department was seldom declined. Sometime later the party official might receive a card from the Treasurers stating that the 'difficulty' had been overcome and that Company X had decided to continue its pounds 100,000 donation to the party.

It was a very English set-up and one that Nadir - who, the Tories admit, contributed pounds 440,000 from 1985-90 - may never have fully understood. As the Polly Peck tycoon discovered, donations to the Conservative Party do not guarantee a knighthood let alone immunity from the attentions of the Serious Fraud Office. But they are rarely made out of altruism. Nadir's flight from the country has therefore exposed the strains in a system that has become a growing embarrassment to the Tory party.

THE extent of the potential scandal emerged not from last week's House of Commons select committee investigation, but from Venice, where Lord McAlpine of West Green, party treasurer from 1975 to 1990 and close aide and confidant of Baroness Thatcher, gave a television interview. Secrecy has long been the hallmark of Conservative fund-raising and, while much has been written about Lord McAlpine, this was the first time he had publicly discussed the millions of pounds he raised for the Tories.

Lord McAlpine admitted to ITN that he had been wrong to accept pounds 440,000 from Nadir, adding that he had also taken money from American businessmen and Hong Kong nationals. 'There are tons of offshore accounts,' he said.

Although the Conservative Party publishes accounts of its income and expenditure these are not audited accounts in any normal sense. Donations remain anonymous and the figures do not even add up. There are wide disparities between the amount of money Conservative Central Office admits to having raised, and the donations that can be traced through the accounts of the top 1,500 UK companies. According to Labour Research, a trade union-funded body, the discrepancy amounted to at least pounds 21.9m between 1988 and 1991 - or more than half of the money that had been donated.

Lord McAlpine, throughout the 1980s, was the brains behind Tory fund-raising. He was aided by the more blimpish figure of Major-General Sir Brian Wyldbore-Smith, former director of the Conservative Board of Finance. Sir Brian is perhaps best known for his appearance in the Henry Root Letters, a collection of spoof letters compiled in the late 1970s and early 1980s. Mr Root posed as a Tory loyalist and wrote to Major-General Wyldbore- Smith: 'I'm a blunt man, accustomed to plain-speaking, so I'll come straight to the point. What's the price for getting an honour?'.

The major-general sent a rather brief reply making it 'absolutely clear that there is no question of buying Honours from the Conservative party' but adding that he was 'most grateful to you for the support which you have given to the Party'.

CONSERVATIVE politicians vehemently deny any link between cash and titles. Sir Norman Fowler, the party chairman, said last week that he never accepted donations with strings attached. Responding to the allegation that honours were for sale he said: 'It is inconceivable that anyone would offer honours in that way. To offer honours (for sale) is a criminal offence.'

He added that there was no correlation between honours and companies that made donations. And, indeed, two of the 12 biggest commercial contributors to the Conservative Party - George Weston Holdings and Western United Investment - have no knighted or ennobled executives.

But a fuller look at the evidence shows that Sir Norman's protestations are a little disingenuous. There may be nothing as vulgar as an honours market operating today, but it is indisputable that industrialists significantly increase their chances of getting a title if they contribute to the Conservative Party.

In 1991, the last year for which reasonably full figures are available, Labour Research found that 42 of the top 100 companies in the country had given money to the Conservatives since 1980. Of these, 28 - or 67 per cent - had directors and senior executives who had been awarded honours. But, of the remaining 58 companies which made no donations, only 23 (40 per cent) had figured on honours lists.

Seventeen of the 27 industrialists the Thatcher governments turned into peers were connected to companies that had given money to the Conservative Party and Tory-supporting organisations. A total of 68 knighthoods went to industrialists from companies that were Tory donors. The industrialists from contributing companies elevated during the Thatcher years included Sir James Hanson, chairman of Hanson plc, and Sir Gordon White, chairman of Hanson Industries, and Sir Hector Laing, president of United Biscuits, who all received peerages. United Biscuits is the Tories largest commercial donor since 1979, and Hanson is the second largest. Sir Charles Forte, from the Forte group, the Conservatives ninth largest industrial donor was also enobled. Glaxo, the 10th largest donor saw its Paul Girolami and Anthony Bide knighted.

Despite his promises that he would create an honours system fit for a classless society, John Major has done nothing to change this pattern. Since taking over as Prime Minister in 1990, Mr Major has given one peerage and 16 knighthoods to the leaders of firms that have publicly acknowledged contributing to Tory funds. Among these have been David Lees, the chairman of GKN, and Anthony Gill, the chairman of Lucas Industries.

Often, contributing companies have clusters of honoured industrialists in their boardroom.

P&O, the shipping group - which according to Labour Research's analysis of company accounts has given pounds 727,500 to the Tories since 1979 - now has three titled executives. In the Thatcher years, Jeffrey Stirling, P&O's chairman, became Sir Jeffrey Stirling in 1985, and Lord Stirling of Plaistow in 1991. P&0's executive dircetor, Frank Lampl, received a knighthood in 1990. Under Mr Major, Bruce McPhail, the company's managing director, was knighted in 1992.

In this month's Queen's Birthday Honours List, Ronald Miller, the executive chairman of Dawson International, Britain's third-largest textile company, and a contributor to the Conservative Party in the 1980s, received a knighthood. Alan Smith, the company chairman, was knighted in 1982.

It is doubtful that any of these companies donated money with the deliberate aim of securing knighthoods for their board members. But, as one former Central Office official put it: 'Donations get you on to the inside track, they win you access to ministers, to ministerial advisers and invitations to No 10. If an honour comes at the end of that process - that's not surprising because you have brought yourself to the attention of the most senior figures in the party.'

ALL this, it must be emphasised, covers only the part of Tory fund- raising we know about. At least as much money comes from other, hidden sources, which Lord McAlpine and Sir Brian Wyldbore-Smith were assiduous in tapping. Among those were Nadir, whose pounds 443,000, which he now says he expected would get him a knighthood, was not recorded in his companies' accounts.

According to an investigation by the magazine Business Age, money often arrived at both men's private addresses, sometimes with cheques made out to them personally; both had a number of accounts, including Sir Brian's, at Barclays in Jersey. They also used four nominee accounts at the British Overseas Bank and a company called GCTC Nominees, which guaranteed anonymity of investments.

Much of the 'missing millions' must now be assumed to have come from abroad, via Lord McAlpine's offshore accounts. At the select committee hearing last week Sir Norman declined to say whether money had been taken from John Latsis, the Greek shipowner reputed to have stumped up pounds 2m. The party chairman also declined to be drawn on alleged contributions from the Hong Kong billionaire Li Ka-shing, thought to have parted with more than pounds 1m.

Other domestic donations from business have been chanelled through organisations such as British United Industrialists, an estimated 80 per cent of whose corporate donations end up in Tory party coffers. 'River' companies, which exist to channel money to the Tories from wills, trusts and deeds of covenant, also make up some of these 'missing millions'.

There are other ways of evading the Companies Act, which obliges firms to list their donations in their accounts. As the Independent revealed last week, the Tories at one time encouraged companies to lend money and allow the party to use the interest without having to declare the loans to shareholders. (No company took up the scheme, which has been withdrawn). Sympathetic companies also sponsor publications or conferences organised by the Conservative Political Centre, and hire commercial stands at the party conference (worth, perhaps pounds 1m to the party). None of these counts as a donation and most can be listed by the firms under miscellaneous expenses.

The most common tool of Conservative money-raising is lunch or dinner, usually hosted by a Conservative peer. A group of wealthy industrialists will be invited, either to a country house or a private room in a top hotel. A minister will combine the lunch with a government visit to the area (ministers' advisers always send Central Office their diaries). According to one source: 'Sometimes cheques for anything between pounds 2,000 and pounds 5,000 would be written out over lunch; if not, the meals are followed up by a fund- raising drive. Lunches are hosted by peers or major-generals because there is nothing the nouveau businessmen like better than hob-nobbing with the gentry.'

A Conservative peer who has hosted many such events said last week that they are designed to give those who work outside Whitehall a feeling of access. The atmosphere is one of 'plain speaking, not quite bun-fighting, but people can put pressure on the visiting speaker'. The financial follow-up is usually lucrative.

When elections approach activities are stepped up. In the run- up to 1992 former ministers in economic departments were deployed to woo the industrialists with whom they had become acquainted. One former minister, who went on a dining offensive just before the last election, bragged that he had raised enough money to fight three marginal constituencies.

The Treasurer himself would play an important role, stroking a small coterie of rich industrialists, again deploying that most crucial of Tory fund-raising weapons: lunch, usually at the Garrick Club. Given the closeness of his relationship with Lady Thatcher, Lord McAlpine was in a strong position, an important contact for business. He could fix those all- important invitations to Downing Street receptions.

The proceeds of all this fund- raising are funnelled through something akin to accounting anarchy. Few details are available to Conservative Party members, let alone the wider public, about how the Conservatives raised the pounds 20m or so that came to them last year. The Treasurer's department, although now refurbished, is no less secretive, and even members of the Conservative Board of Finance find it difficult to keep track of donations given entirely legitimately by party members.

Eric Chalker, a member of the Conservative Charter group, which is pressing for more openness in funding, sat as an elected representative to the Board of Finance for four years. He has told the House of Commons home affairs select committee of how one donation, passed to area party officials, was unacknowledged and thought to have been lost. Only later was it discovered that it had been paid into a previously unknown account.

DESPITE the secrecy, chicanery and size of its financial dealings, the Conservative Party is in dire financial straits. According to the party chairman, it had a deficit this spring of about pounds 19m and in February more than 50 redundancies were made at Central Office. Yet the Tories raised pounds 50m in the four years to 31 March 1992.

So what do the Tories do with all their money? Part of the answer lies in a lavish refurbishment of Central Office started in the late 1980s, by Peter Brooke, when he was party chairman, then by his successor, Kenneth Baker. The latest computers were installed, offices were remodelled and thick carpeting was laid down, prompting jokes about the 'boudoir pink' tones that crept into the designs. Not only was the old office, 32 Smith Square, done up, but the adjacent number 34 was bought for an undisclosed sum. At the nadir of the party's post-poll tax fortunes Mr Baker invested in the services of the American Republican Party's favourite pollster, Richard Worthlin. He was paid a reputed pounds 1m and flown regularly on Concorde. Modernisation extended to shaking up the staff of the building, hiring fewer 'dippy daughters of generals and MPs' and paying 'proper wages to people who had worked in the commercial sector', according to one member of staff.

But the problems went deeper than Mr Baker's profligacy. Central Office's financial structure was chaotic, with the head of the party's departments - campaigns, research, local goverment, press etc - each authorising apparently limitless expenditure with no reference to the party's financial predicament. As one senior official put it: 'I was told I could do anthing as long as it was within my budget, which was fine because I was never given a budget. I don't suppose anyone actually knew how much we owed.'

With the loss of Lord McAlpine as Treasurer, the recession and the resultant loss of several donations, including most publicly that of British Airways, the position worsened. An unpopular party, which spent money for example on Norman Lamont's legal fees, was regarded with less sympathy by the constituency activists. The constituencies, which traditionally regard Central Office with suspicion, guard their independence jealously. They are also apt to want to know how their money is spent.

What corporate and individual donors want in return for their favours we may never know. Many probably expect nothing more than a government more inclined to make life comfortable for big business and rich individuals than the potential alternative. Others, like Nadir, may expect something but not get it. In politics, he who pays the piper does not always call the tune. But, if he has dug deep into his pocket, he can at least expect a sympathetic ear.

(Photographs omitted)

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