Andersengate and the accountant who came back to haunt New Labour

AS the Enron scandal threatens to engulf the Government, one question refuses to go away. Shortly after winning power in 1997, why did Labour suddenly end a long-running legal dispute with accountancy firm Arthur Andersen over the De Lorean sports car debacle?

Whitehall departments were ordered not to hire Andersen 20 years ago by the then Prime Minister, Margaret Thatcher. She was furious that, as auditor at De Lorean, it had failed to blow the whistle on a fraud at the Belfast company that cost the taxpayer £77 million.

In 1985, three years after American John De Lorean's dream of building a futuristic, gullwinged car crumbled as he was arrested in California on drugs charges, the Tory Government launched a £200 million lawsuit against Andersen, claiming conspiracy, fraud and negligence. But just months after winning office in 1997, Labour settled the case for a mere £21 million and allowed Andersen once again to bid for lucrative Whitehall contracts.

Since the Enron affair has blown up, Labour has been at pains to play down the Blair administration's links with Andersen. Downing Street has claimed that the Tories had already set in

train the legal process that led to the De Lorean case being settled.

When the dispute was resolved six months after Labour's landslide victory, it merely marked the end of that process, Number 10 has maintained.

This has been central to Labour's denial that its links with Andersen have been unhealthily close.

But Financial Mail has unearthed facts completely demolishing its claim.

In June 1997, just weeks after Blair entered Number 10, Andersen countersued the Government. Far from a settlement drawing closer, as Downing Street suggested last week, Andersen had in fact gone on the offensive and the two sides seemed further apart than ever.

So what was in the Andersen counterclaim that may have prompted Labour to drop the ban on awarding it Whitehall work and agree a settlement that barely covered legal costs?

New evidence uncovered by Financial Mail puts the spotlight on accountant Shaun Harte, named as a co-defendant with the Government in Andersen's counterclaim. The truth behind his involvement in the De Lorean affair - and the new Blair administration's eagerness to push ahead with the Northern Ireland peace process - could explain why Labour was so eager to sue for peace with Andersen.

Nicknamed 'Two Books' by associates because of his creative accounting methods, Harte had been instrumental in introducing John De Lorean to ministers in Jim Callaghan's Labour government in the late Seventies.

And as the Northern Ireland Economic Development Office's representative on the De Lorean board, he played a key role in convincing successive Labour and Tory governments of the economic and political benefits of creating thousands of jobs in mainly Catholic west Belfast.

Secret Cabinet papers released by US courts show that in 1978, Ulster Secretary Roy Mason thought the project-would deal 'a hammer blow to the IRA'. Cabinet minutes three years later reveal that the Thatcher Government thought De Lorean had become ' something of a symbol of (our) commitment to Northern Ireland'.

Throughout the long legal dispute, Andersen repeatedly claimed that the prospect of bringing the project to an unemployment black spot in Belfast had blinded successive governments to the risks. It said it, too, had been misled by De Lorean - codenamed Mr Primrose by Andersen lawyers - and his accomplice, the late Lotus car designer Colin Chapman - codename Mr Daffodil.

But both Labour and Tory administrations said internal Andersen documents showed that it twice failed to pick up the trail of fraud at De Lorean.

After 12 years in US courts, the case seemed deadlocked. Then in early 1997, Andersen found new information to bolster its cause.

Financial Mail has established that just before naming Harte as co-defendant, Andersen received a secret dossier about him and his new role as finance director of Mackie, a textile machinery firm floated on the stock market three years earlier.

Like De Lorean, Mackie was a showcase company based in west Belfast that had received millions of pounds of public money (see below). The dossier made allegations about the conduct of Harte and Mackie chief executive Pat Dougan. It drew parallels between De Lorean and Mackie, and named Harte as the common denominator.

Andersen is said to have found the information 'most interesting'. Above all, it meant Andersen had fresh ammunition with which to fight the Government's claim and pursue its counterclaim - which may explain Labour's sudden willingness to settle the dispute. Labour, newly-elected and desperate to avoid doing anything that could scupper a peace deal, would not have welcomed any new De Lorean-style scandal.

The dossier was compiled by Roy Parker, a Bolton businessman who wanted to oust Harte and Dougan from the Mackie board. Parker passed details of his allegations to Mo Mowlam, then Ulster Secretary. 'They made clear the De Lorean connection of Shaun Harte,' he says.

In June 1997, the month that Andersen filed its counterclaim, Harte and Dougan resigned from Mackie. New management had discovered a black hole in the accounts. A loss of £400,000 for the year had been reported. In fact, the deficit was £7.2 million.

Suddenly, hundreds of jobs were at risk in west Belfast at a crucial stage in the peace process. The Government and IRA were in secret ceasefire talks.

'Ministers feared they had another De Lorean scandal on their hands,' said a source close to Andersen. 'The revelations about Harte clearly strengthened Andersen's case against the Government.'

Five months later, Andersen settled the case for a tenth of what the Government was claiming, and without admitting liability.

The counterclaim against Harte was never resolved. After an illness, he died in 1999 aged 61. Andersen will not discuss the case.

Two years after the De Lorean settlement, Mackie collapsed. Since 1990, £32 million of public money had been pumped into Mackie in a vain attempt to keep it afloat. It seemed as though history had repeated itself.