Enron: The questions Labour must answer

LABOUR is facing an increasingly damaging scandal about its links to the world's biggest bankruptcy. The charge list is familiar. Ministers are accused of granting special influence over Government policy and decision-making to its friends and donors.

The company at the centre of the scandal is Enron, a US energy firm, whose shareholders lost some $80bn when it went broke. Debtors, including many British banks, have also lost billions.

The company's collapse began when it admitted to massively overstating its profits. It soon emerged that substantial losses - and debts - had been kept off the balance sheet by an accounting sleight of hand.

Enron's auditor, Arthur Andersen - one of the Big-Five multi-national accountancy firms, employing 85,000 people in 84 countries - is also in the dock, after it destroyed numerous documents relating to its dealings with the company. The shredding is particularly embarrassing because it continued after Andersen knew that Government regulators were planning an investigation.

In Britain, a picture is emerging of a web of influence engulfing New Labour, Enron and Andersen. It involves many of the cast familiar from past Labour scandals. There is Stephen Byers, whose decision to axe Railtrack has plunged the railways into chaos, and Peter Mandelson, the twice-disgraced former Cabinet minister and the inventor of New Labour spin.

This precious pair are joined by Geoffrey Robinson, the former minister who lent Mandelson £373,000 to buy a house, and was later exposed by the Daily Mail as a liar over his links with Robert Maxwell. Others, including the Chancellor Gordon Brown, Trade and Industry Minister Patricia Hewitt and even the Prime Minister, may yet be implicated.

The party stands accused of taking money from Enron and free advice and help from Andersen, and in exchange making significant changes to Government policy to help those two companies.

In the case of Enron, the Government reversed its much-trumpeted decision not to allow any new gasfired power stations in Britain; the US firm promptly built one. In the case of Andersen, Labour took the auditing firm off the Government blacklist where it had been put by the Tories for very good reasons, and handed it a series of lucrative Government contracts.

The Conservatives and Liberal Democrats have called for an investigation into whether the Government acted properly. So far, ministers are denying everything. Here, we pose the questions that Labour must now answer.

Why take the cash knowing the reputation?

PRESUMABLY, because it wanted the money, and didn't care too much where it came from. Labour took £36,000 from Enron, which organised a gala dinner in the Stakis Hotel, Blackpool, at the Labour conference in 1998, at which the Prime Minister was the guest of honour. Enron also paid for tables at various other fund-raising dinners.

At the time, Labour knew that Enron was vigorously lobbying Government to permit the takeover of Wessex Water and the building of a new gas power station. Labour was also aware that Enron had a thoroughly unsavoury human rights reputation. It was the only private company ever to have been the subject of a dedicated report from Amnesty International - over the activities of security guards connected to one of its Indian power plants.

It is simply misleading for Labour spokesmen to claim now that they did not receive any 'donations' from the firm. Senior Labour figures are now expressing concern at the decision to accept the money.

In the US, Enron made payments to 71 senators and 188 congressmen. As in Britain, the recipients are being asked to explain what Enron received in return.

Did company pay to meet senior ministers?

THE company certainly thought it was paying for access to the likes of Peter Mandelson, whose most recent resignation was over his meetings with those other staunch friends of New Labour, the Hindujas, who gave £1m to the Dome.

Ralph Hodge, former head of Enron in Britain, explained that he had felt obliged to give money to Labour. 'I do not think we would have been successful at getting a table without donations...It is clear that in the current climate, sponsorship and donations are the most efficient ways of getting access.'

Shortly after the 1998 dinner, Peter Mandelson, then the Secretary of State for Trade and Industry, met Enron executives. They also met Geoffrey Robinson, then a key Treasury Minister, and Helen Liddell, the Energy Minister (now Secretary of State for Scotland). Mrs Liddell, like Geoffrey Robinson, once had close links to Robert Maxwell, working closely with him on his Daily Record newspaper.

After Byers replaced Mandelson, they met him as well. Incidentally, Hodge was recently made a CBE by the Government, for 'services to the power generation and gas industries'.

In America, Vice President Dick Cheney is under pressure to release details of his six meetings last year with Enron. Here in Britain, the Tories and Liberal Democrats have called on the Government to release the minutes of its meetings with Enron, and set up an independent inquiry into the matter.

Did Labour reverse policy for the firm?

COMPLETELY. The US firm was interested in two key areas of Government policy. It wanted Labour to agree to its bid for Wessex Water, and to reverse the decision, taken in 1997, to ban new gas-fired power stations, as it was keen to build a new one.

Shortly before the 1998 party conference, Labour waved through the Enron bid for Wessex Water without the widely anticipated reference to the Monopolies and Mergers Commission. The decision was taken by Peter Mandelson.

A year later, Mandelson's successor, Byers, reversed the Government's opposition to the 'dash for gas'. This was a complete U-turn, as only two years earlier, the then Trade and Industry Secretary Margaret Beckett had hailed the gas ban as evidence of Labour's determination to protect its old friends in the coal industry.

Enron promptly went ahead with a new gas-fired power station on Teesside. It had employed a lobbyist, Karl Milner, a former aide to Brown, to help persuade the Government to take this decision.

In 1998, Milner told a reporter: 'We have many friends in Government. They like to run things past us some days in advance, to get our view.'

Why did Labour embrace shamed accountants?

IT APPEARS they did. Enron's accountants, Arthur Andersen, had been banned for 12 years from receiving any Government contracts following their involvement in a notorious fraud at the De Lorean car firm in Belfast.

John De Lorean stole large sums of Government money; his auditors, Andersen, failed to blow the whistle. The Tory Government sued them for £200m, and the case was still unresolved in 1997.

Andersen was desperate to get back into the lucrative Government contracts market, and prior to the 1997 General Election, it provided substantial free help to Gordon Brown on devising his tax policy, and in particular his two key stealth taxes, the £5bn pension fund grab, and the £5bn windfall tax on the supposedly 'excess' profits of privatised utilities.

After the election, two senior Andersen experts, Chris Wales and Chris Osborne, became advisers to Brown and Robinson at the Treasury (Wales is still a member of the council of economic advisers).

At the same time - and surely this was no coincidence - the Government's lawsuit with Andersen was settled for a mere £21m, and Andersen was taken off the Government contracts blacklist. It has since advised on numerous deals, including the London Underground, the Millennium Dome, the railways, education action zones, the air traffic control sell-off, and many more.

It has also - perhaps by way of saying 'thank-you' - published a series of 'research' reports extremely helpful to the Government, including one which claimed misleadingly that the Private Finance Initiative offered savings of more than 17% over public sector alternatives. It is no surprise that Andersen is known as 'New Labour's accountants'.

What part did Robinson play?

ANDERSEN has a long history of connections with New Labour. Patricia Hewitt, now Trade and Industry Secretary, left her job with Neil Kinnock in 1994 to join Andersen Consulting as head of research. In 1996, the firm arranged a seminar for 100 Labour back-benchers in Oxford.

Andersen also had very close connections with disgraced former Paymaster General Robinson. As the liquidator for Robert Maxwell's business affairs, it held many of the papers relating to the £200,000 payment from Maxwell to Robinson that the former minister always denied having received.

Andersen denied Parliamentary investigators access to these documents, and it wasn't until author Tom Bower tracked down the documentary proof - later serialised in the Daily Mail - that Robinson was exposed as a liar. No doubt Robinson, and his friend and protector Brown, were grateful to Andersen for trying to shield him.