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Index to Guardian articles on the Fayeds' purchase of Harrods

The Guardian 
Thursday, 8 March 1990

Ben Laurance, Michael White and Mark Milner

REVELATIONS that the Fayed brothers won control of the Harrods group House of Fraser by lying to the Government, their own advisers, and the directors of the company left the Trade Secretary, Nicholas Ridley, looking increasingly isolated last night after he refused to take any action. 
    A long-awaited report by government inspectors on the way the Harrods group changed hands five years ago concluded that Mohamed Al Fayed and Ali Fayed fabricated a story that they came from a wealthy Egyptian family, and that they were buying the company from their own funds. 
    The inspectors, Sir Henry Brooke, QC, and Hugh Aldous, found that the Fayeds could not possibly have bought Fraser with their own resources.  They must have paid with someone else's funds and used their links with the Sultan of Brunei.  The report stops short of concluding that it was the sultan's money which was used for the £615 million purchase.

    The inspectors concluded that since the Fayeds' takeover, the Fraser group has built up huge debts to pay off whoever put up the original funds.  Interest on those debts has outstripped profits and development of the group would require selling off stores. 
    Five years after the takeover, it is still not clear who really bought Harrods, Dickins & Jones, D. H. Evans and the other stores in the Fraser group.  The inspectors were hampered by being unable to demand information from Swiss bank accounts.
    After a bitter campaign by Lonrho, the international combine headed by Tiny Rowland, the Department of Trade ordered an investigation three years ago.  But even then, the Fayeds continued to lie; they even presented the inspectors with false birth certificates.  Mr Ridley told the Commons that he was waiving his right to apply to court for the disqualification of any Fraser directors.  "I have concluded that it would not be in the public interest to do so," he said. 
    He defended the refusal of his predecessor, Lord Young, to ask the Monopolies and Mergers Commission to reopen the issue of who should own the company. 
    MPs on both sides of the house greeted Mr Ridley's statement with anger and astonishment.  As the Fayeds were denounced as lying and cheating crooks who had perpetrated a huge fraud against the government by senior ex-ministers of both main parties and respected Conservatives, not a single voice was raised to support Mr Ridley. 
    Even Norman Tebbit, who, as Trade Secretary in 1985, made the crucial decision to allow the Fayed bid to proceed, last night questioned why Mr Ridley was not asking for disqualification. 
    Two other former DTI ministers, Paul Channon and Labour's Peter Shore, joined criticisms of what Labour's City spokeswoman, Margorie Mowlam, called "a massive fraud against this government" in which no one was being punished and the DTI had failed to protect the public interest. 
    Labour demanded an emergency debate on the affair after Mr Ridley described the controversy as "not a heavyweight one". 
    The inspectors called for a tightening of rules under which merchant banks and solicitors vouch for their clients when mounting a bid.  The Fayeds' merchant bank, Kleinwort, and their lawyers, Herbert Smith, uncritically repeated the Fayeds' version of their business history when arguing for the takeover to be cleared by the DTI. 
    John MacArthur of Kleinwort said on television that the brothers were worth billions of dollars.  Whitehall officials and the Office of Fair Trading wrongly assumed that the bank and the solicitors had checked the Fayeds' story, and they approved the bid.  That clearance was crucial in allowing the brothers to win control while Lonrho was still prevented from mounting a full bid. 
    Lonrho yesterday threatened a huge campaign of legal action against parties involved in the takeover.  It is considering a private criminal prosecution. 
    The House of Fraser's press officer, Michael Cole, said the report was "shocking in its wrong-headedness and it is shocking in its injustice".  He repeated the story rejected by the inspectors that the Fayeds paid for the stores group with their own money. 
    Sir Henry and Mr Aldous found that the Fayeds consistently lied to the two inspectors during the investigation.  Their report says: "We uncovered more and more cases where the Fayeds were plainly telling us lies…  We became reluctant to believe anything they told us unless it was reliably corroborated by independent evidence." 
    They suggest that lying to inspectors should in itself become sufficient ground for disqualifying a company director. 
    They noted that under the Companies Act lying to inspectors appointed under Section 432, the section used for the Fraser inquiry, was not a statutory offence. 
    The brothers claimed at the time of takeover that they had inherited a small fortune from an established and successful family business.  They said they had global investments embracing oil, construction, oil services, banking, and property. 
    In fact, their father was a teacher, and they were rich by most people's standards but had nothing like £615 million in ready cash.
    Towards the end of the inquiry, the Fayeds invented a new story: that their money came from secret oil deals.  The inspectors said this was rubbish. 
    During the inquiry, it emerged that Mohamed Al Fayed had absconded from Haiti with more than $100,000 from the harbour authority there.

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