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THE OBSERVER,
Thursday, 30 March 1989
The lies told by the Fayeds
THE CONCLUSIONS
The Government, the House of Fraser Board and shareholders, the Office of Fair Trading and the Press were all misled about the Fayeds' origins, wealth and business interests.
2.1.1 THE Fayeds dishonestly misrepresented their origins, their wealth, their business interests and their resources to the Secretary of State, the OFT [Office of Fair Trading], the Press, the HOF [House of Fraser] Board and HOF shareholders, and their own advisers.
2.1.2 During the course of our investigations we received evidence from the Fayeds, under solemn affirmation and in written memoranda, which was false and which the Fayeds knew to be false. In addition, the Fayeds produced a set of documents they knew to be false. This false evidence related mainly, but not exclusively, to their background, their past business activities and the way in which they came to be in control of enormous funds in the autumn of 1984 and the spring of 1985.
2.1.3 The Fayeds had at their disposal on 31 October 1984 deposits of £50.5 million and $330 million at Royal Bank of Scotland ('RBS') in London and $225 million in cash and securities at a Swiss bank. We have seen no credible evidence to explain how the Fayeds came to control such sums. We are of the view that these sums, or at any rate a large part of them, were not beneficially owned by the Fayeds and had come under their control not long before October 1984.
2.1.4 We explain in Chapter 16 the limits to our compulsory investigative powers. Because of those limits on our powers we have been unable to discover conclusive evidence to prove the source of the funds which were used in the acquisition. We do not consider that there is any reasonable chance that we would uncover such evidence if we continued our investigations any longer. The evidence before us, however, indicates that it is likely that the Fayeds used their association with the Sultan of Brunei and the opportunities afforded to them by the possession of wide powers of attorney from the Sultan of Brunei to enable them to acquire those funds.
2.1.5 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. 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.
2.1.6 The Fayeds were allowed to proceed with the acquisition of HOF by AIT [Alfayed Investment Trust] without reference to the MMC [Monopolies and Mergers Commission] for further inquiry (or other Government hindrance) because:
It has been Government policy, following a statement in July 1984, that references to the MMC should be made primarily on competition grounds. Ministers were readily satisfied that no such grounds existed in this case. The practical effect of this policy was that references to the MMC on other grounds involving the public interest were only made in really exceptional cases. An example of such a case would be one in which vital strategic interests are at stake. HOF was not regarded as one of these.
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 recommendations of the Fayeds' bid by the HOF Board and Warburgs.
2.2 BUSINESS INTERESTS AND INCOME GENERATION
2.2.1 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.
2.2.2 We consider that two press releases which stated that the Fayed family 'has widespread international interests including, in particular, ship-owning, luxury hotels, construction, oil, oil services, banking and property', conveyed an entirely wrong impression and were likely to mislead.
2.2.3 In particular, in Chapters 11 and 12 we show that:
(i) Shipowning -- The Fayeds only owned two 1,600 ton roll-on roll-off Mediterranean cargo ferries and 14 vessels which they had recently bought as part of a small enterprise in Dubai which provided services to the local offshore oil industry.
(ii) Luxury hotels -- The Fayeds owned only one luxury hotel, the Ritz Hotel in Paris.
(iii) Construction -- The Fayeds' involvement as middlemen in connection with construction projects in Dubai and other countries in the United Arab Emirates had ended for all practical purposes at the end of the 1970s, and in 1984-85 they had no current involvement at all.
(iv) Oil -- The Fayeds had a small (6% and 16%) minority interests in two oil concessions in Abu Dhabi. These had been granted in 1980 and 1981 and their exploitation since that time had not yielded commercial quantities of oil. In 1984-85 the concessions were of no value.
(v) Oil services -- The Fayeds owned one very small British company which yielded a profit for the first time (of £8,000) in 1985 and the small company in Dubai which is mentioned under (i) above which had been loss-making prior to 1984.
(vi) Banking -- The Fayeds owned a 4.9% stake in a Texas bank with a value of $8.7 million in March 1985.
(vii) Property -- The Fayeds owned quite valuable interests in property, particularly in Great Britain, USA and France. The underlying capital value of their interests in some of these properties had appreciated since they were acquired, but none of them were wealth-producing and the Fayeds did not suggest that they were.
2.2.4 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 ('Banque Gonet') 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.
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