(Continued from overleaf)

    "If it was conceivable that a large fraud was being perpetrated the advisers at least had put their very high reputations at risk," say the inspectors.  "It was not the Secretary of State's job to do the City's work for it, and if it was reasonable for the City to rely on the word of its own members based upon their inquiries, there was little more that the Secretary of State could do." 
    The fact that the DTI and the OFT believed what they were being told by Kleinworts and Herbert Smith turned out to be crucial in deciding the destiny of the Harrods group.  On the strength of the assurances being given, the takeover was cleared while Lonrho, which wanted Fraser, was still constrained by a previous promise not to increase its holding above 30 per cent. 
    The DTI was unwilling to believe what Lonrho was saying about the Fayeds.  The report says: "In one sense, Mr Rowland and other directors of Lonrho turned out to be their own worst enemies.  They had so badgered and berated everybody over the years on the board of HoF and what they said was so heavily discounted amongst those who had formed their own images of the Fayeds but did not have the advantage of any hard facts, that there was a limited willingness to accept what Lonrho said at face value and an inclination to view evidence delivered by Lonrho as of dubious quality.  Moreover, because of the speed of events it was delivered in a way in which it could not be handled properly.  There was no time to sort it, put it to the relevant parties and seek an orderly response.  Perhaps this could have been achieved by referring the whole proposed merger to yet another inquiry." 
    Advisers to the Trade Secretary doubted whether a further investigation would achieve anything. 
    The House of Fraser board believed what the Fayeds told them.  So did Mr David Scholey at Warburgs, the merchant bank for the stores group itself.  Hence the DTI was being told by four respected bodies the House of Fraser board, Kleinworts, Warburgs and Herbert Smith that the Fayeds would be acceptable as proprietors of Harrods.
    Warburgs relied heavily on the very fact that Herbert Smith and Kleinworts were involved with the Fayeds. 
    The Aldous/Brooke report reveals an extraordinary willingness by the Fayeds to persist in their lies even when they were giving evidence to the inspectors under oath. 
    "The evidence that they were telling lies to us was overwhelming," says the report.  The brothers' response was to launch attacks on journalists who had tried to establish their true background. 
    "They were still determined to counter-attack and try to pretend that they were the innocent victims of some gigantic conspiracy," say the inspectors. 
    The notion that part of their money had come from oil trading - dismissed as incredible by the inspectors - was introduced only at a late stage of the inquiry. 
    The brothers said they could give few details because of the secretive nature of the deals.  The inspectors calculated that to accumulate the sort of sums which the brothers claimed, they would have had to have traded around 500 million barrels of oil between 1979 and 1984. 
    The inspectors did not have the powers to require the Fayeds to produce all their bank statements.  Where the brothers' consent was given, "the Fayeds only showed us such entries in their personal Swiss bank accounts which they chose to show us and no more".

Diary of events

THE following are some of the central events in the Lonrho- Fayed feud over House of Fraser
April 1975: Mohamed Al Fayed joins Lonrho board, later resigns. 
July 1977: Lonrho buys 29 per cent stake in Suits, which owns 10 per cent of House of Fraser. 
September 1977: Lonrho takes direct 19 per cent stake in Fraser. 
July 1978: Lonrho bids for Suits.  Monopolies and Mergers Commission (MMC) allows bid in March 1979.
August 1980: Professor Roland Smith appointed to Fraser board. 
January 1981: Lonrho bids £226 million for Fraser but is blocked by MMC in December 1981 on public interest grounds.  Lonrho promises not to bid again without permission. 
May 1984: Office of Fair Trading investigates Lonrho attempt to pack Fraser board. 
June 1984: The Trade Secretary, Norman Tebbit, asks MMC to examine Lonrho's battle for boardroom control at Fraser. 
August 1984: DTI investigation clears Lonrho of secretly buying shares in House of Fraser group. 
November 1984: Lonrho sells its 29 per cent Fraser stake to the Fayeds for £138.3 million, then buys a new 6 per cent holding.  Rowland leaves Fraser board. 
March 1985: Fayeds bid £615 million for Fraser.  Lonrho sells its Fraser shares in the market, which are bought by the Fayeds.  Mr Tebbit drops 1981 bar on Lonrho bid three days after Fayeds gained control.  He decides not to refer Fayed deal to MMC. 
November 1985: Trade Secretary, Leon Brittan, rejects Lonrho request to reconsider Government's approval of the Fraser takeover by Fayeds. 
April 1987: Trade Secretary, Paul Channon, appoints DTI inspectors to look at "circumstances surrounding the acquisition of shares in Fraser in 1984 and 1985". 
July 1988: Inspectors' report given to the Trade Secretary, Lord Young.  He calls in Serious Fraud Office.
November 1988: Lonrho asks courts to force Lord Young to publish report and consider referring takeover to MMC. 
January 1989: High Court backs Lonrho demands; Appeal Court immediately overturns decision.  Fayed bid technically referred to MMC pending House of Lords ruling, but no Commission inquiry started. 
March 1989: Observer newspaper publishes extracts of DTI report.  Lord Young and Fayeds obtain blocking injunctions. 
April 1989: Lord Young admits report discloses wrongdoing. 
May 1989: Law Lords uphold appeal decision against Lonrho demand for publication of DTI report and for MMC referral. 
March 1990: Serious Fraud Office and Director of Public Prosecutions find insufficient evidence for any criminal proceedings over the House of Fraser takeover.  Trade and Industry Secretary, Nicholas Ridley, releases the DTI inspectors' report and says he intends to take no further action.