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(Continued from overleaf)
According to the inspectors: 'The lies which the Fayeds were telling about themselves and their resources were given a credibility they would not have otherwise attained when they were repeated by their very reputable advisers.' For reputable advisers read merchant bankers Kleinwort Benson -- starring former chairman Michael Hawkes and corporate finance director John MacArthur -- and solicitors Herbert Smith, led by Edward Walker-Arnott and Richard Fleck.
To quote the inspectors: 'Their advisers accepted at face value what they were told by the Fayeds. In our opinion they did not take sufficient steps to check the accuracy of what they were told.'
It was Norman Tebbit, the incumbent Secretary for Trade & Industry who now graces the board of Blue Arrow, who chose not to refer the Fayeds' controversial £615 million takeover bid for the Harrods store combine, to the Monopolies & Mergers Commission.
According to the inspectors: 'The Secretary of State saw no practical alternative but to accept the representations and assurances which were made to him, and in particular those which he and his officials saw as having been made by the Fayeds, Kleinworts and Herbert Smith, coupled with the comfort he derived from the recommendation of the Fayeds' bid by the HOF board and Warburgs.
The inspectors add that the OFT and subsequently the DTI, were left with a seriously misleading impression of the Fayeds' business interests and wealth after an oral session at the OFT on 11 March 1985 attended by the Fayeds, Kleinworts and Herbert Smith which was followed by 'a factually wrong written submission' accompanied by qualified letters of support from Kleinworts and Herbert Smith.
But it is the following conclusion which fully vindicates The Observer's claims, through articles written by myself and my colleagues Michael Gillard and Lorana Sullivan. I quote the inspectors conclusion in full. 'The Fayeds represented in March 1985 that they were international businessmen who, from the profits of their businesses, had accumulated in their central bank accounts at Compagnie de Gestion et de Banque Gonet SA in Switzerland sufficient funds to acquire HOF without having to borrow any money at all. We are of the very clear opinion that none of the activities of the Fayeds of which we have been told generated sufficient cash for the Fayeds to have been in a position to acquire HOF, or any substantial part of it, with their own funds.'
This, I might add, is a finding which I personally take comfort in. It was way back in November 1985 when The Observer -- owned by Lonrho -- stood alone in Fleet Street in arguing that Tebbit's successor Leon Brittan (his knighthood was yet to come) should either refer the Fayed/House of Fraser take-over to the Monopolies & Mergers Commission or appoint DTI inspectors to investigate the affair, that I wrote an open letter to the Secretary of State. The letter began: 'I read with interest (as you might expect) your letter of 6 November to Sir Edward du Cann, Lonrho's chairman, in which you declare that Sir Gordon Borrie, the Director General of the Office of Fair Trading, is 'making no further enquiries' into the Fayed/House of Fraser affair; that the 'possibility of a reference' to the Monopolies Commission is 'not under consideration,' and that you see 'no grounds whatever' for a Companies Act investigation.'
My final words were: 'I would like to stress that I am a financial journalist of 20 years standing -- 16 of them under the proprietorship of companies other than Lonrho -- and would hardly have written the articles, had I not wholeheartedly believed in my premise; namely that the Al-Fayed takeover was not wholly financed with their own funds. I would go so far as to say that should it eventually be proven to my satisfaction that the Al-Fayed takeover was financed entirely out of their own so-called vast resources I would tender my resignation to my editor Donald Trelford. I would like to think that, should you prove wrong, you would consider similar action.'
Brittan, as we now know, was wrong. In the event Brittan did resign but over his role in the Westland affair rather than the House of Fraser fiasco. He, like Tebbit and Sir Gordon Borrie, presumably listened to the wrong people.
In the body of the report the inspectors admit that they did not take evidence from Tebbit. In the inspectors' words: 'This is not an inquiry into the merits of political decisions. We are aware of the steps which officials and the Secretary of State took at that time.' According to the inspectors, after meetings on 12 March 1985, first with the Lonrho team and then with the HOF board and the Fayeds and their advisers, at which 'very direct questions' were asked, the Secretary of State 'sought further assurances.'
It transpires that later on 12 March, Tebbit 'took the unusual step' of calling Kleinwort's chairman Hawkes. To quote the inspectors: 'Such a call was unique in Mr Hawkes's experience. He was told that Kleinworts' involvement in the bid by the Fayeds was an important consideration and would influence the Secretary of State.'
The inspectors reveal that, during the course of the next 24 hours, the Secretary of State received, via Kleinworts, glowing testimonials about the Fayeds from Terrel Wyatt, chairman of Richard Costain and John Sunley, chairman of Bernard Sunley.
Miss Llewellyn-Smith, the then Deputy Director-General, informed the inspectors that in her view the assurances given by Kleinworts through MacArthur and subsequently Hawkes, were 'central to the decision not to refer the Fayed bid. In the inspectors' words: 'In the final resort, the issue before the Department was whether or not it could rely on the City. It decided that it could and should do so.'
Put another way: 'It was hardly conceivable to officials and ministers that disreputable people would be represented by such reputable advisers.'
We also learn that at a late stage of the inspectors' investigations they were informed by the Fayeds that 'the monies deposited in Royal Bank of Scotland were their share from the dissolution of a secret oil trading syndicate.' The inspectors declare: 'We examined this possibility very carefully. We have no hesitation in concluding that this story is untrue.'
Once and for all the inspectors proclaim that the Fayeds are not 'members of an old established Egyptian family who for more than 100 years were shipowners, landowners and industrialists in Egypt.
'After very detailed inquiries which were confirmed by a visit by a member of our staff to Egypt we conclude that they came from respectable but humble origins and are the sons of a teacher.'
The final words, in a report which is utterly damning for Mohamed Fayed, are: 'As a result of what happened, the lies of Mohamed Fayed and his success in "gagging the press" created…new fact: that lies were the truth and that the truth was a lie.'
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