Focus: The Mandelson affair

Favours and calls that grease wheels of power

The Hammond Report exonerates Ministers - but deep in its pages it exposes the subtler ways in which money still buys influence. Report by Antony Barnett and Kamal Ahmed.

Special report: Mandelson resigns

Antony Barnett and Kamal Ahmed
The Observer, Sunday 11 March 2001

It was late on Friday night when Tony Blair arrived at Chequers. Tired after a long day, he reflected on the speech he had just given in Inverness on the fight for the next election, on the strength of the economy, the health service and education. He knew hardly anybody would take any notice.

In London, things were spinning out of control. The Hammond Inquiry report on the passport-for-favours scandal had created a storm of telephone calls and allegations that kept the Downing Street switchboard busy from 9.30am when the report was published.

The Government stuck to one line, the classic 'blocking tactic' employed when an issue with explosive potential requires some answers. On Thursday afternoon Alastair Campbell, the Prime Minister's official spokesman, had telephoned No 10 from Belfast to say it was vital the agreed 'line to take' was stuck to. He had just had a lengthy meeting with Blair, who was at Hillsborough for talks on the peace process. That morning they had read and digested Sir Anthony's findings. Both men agreed they had 'to close the issue down'.

Campbell told officials there was only one response to questions about how three very wealthy men had bought influence at the very heart of government: the report has cleared all involved of any impropriety. Yes, it was a tragedy Peter Mandelson had to resign but the inquiry's findings were clear. Let's move on.

Campbell knew that on a superficial reading of the report the Downing Street line would hold. Journalists were given only 90 minutes to read the 116-page document before being summoned to a briefing by Godric Smith, Campbell's deputy. Mandelson acted honestly at all times and never had any intention to deceive anybody, the report said. The Home Office acted perfectly properly and gave no preferential treatment to the controversial Indian billionaires, the report said. There was no link between the offering of passports to the Hinduja brothers and a £1 million donation to the Dome, the report said.

But a close reading of the details reveals a different picture. Sir Anthony published 21 appendices to the report, letters, memos and emails that show the real way Government operates. It reveals a portrait of rich men dazzling politicians and gaining access to the heart of Whitehall. It reveals a story that has its roots in a short letter written by a middle-ranking civil servant 10 years ago. It reveals a way of operating that, whenever a light is shone on such dark corners, always comes to the same conclusion.

The Government wants the public to know as little as possible about what it does and it will revert to seman tics, obsfuscation and omission to get its way. The Scott inquiry into arms to Iraq, the Phillips inquiry into BSE and the Hammond inquiry into passport for favours - one message is shared between all three. The public need not know what is done in its name.

In the spring of 1991, Doug McQueen of the Government's Nationality Department dictated a letter to his secretary. He had been asked to adjudicate on the application of GP and SP Hinduja who had written to the Home Office a year earlier asking about British citizenship.

'This submission recommends that we refuse [the] applications,' the letter said. The men had not satisfied the 'unwaivable requirement' of the British Nationality Act that they were in the country five years before their application. There was also a more serious problem. 'There must be some doubt in both cases as to whether they can be said to meet the requirement to be of good character,' McQueen wrote.

He had more to say. 'The Hindujas have been pressing for their applications to be dealt with quickly because they are under investigation by the Indian authorities concerning the payments of excessive commissions on a contract for artillery by the previous Indian Government to the Swedish firm Bofors.' McQueen admitted the Bofors case was a 'major scandal' in India.

'We have had to advise Ministers against accepting invitations from the brothers,' McQueen continued. Both Margaret Thatcher, the then Prime Minister, and David Waddington, the Home Secretary, had received invitations to a Diwali party hosted by the brothers. Both were told not to go.

In conclusion, McQueen wrote: 'We do not usually grant citizenship to people who are known to be the subject of criminal investigation.' The Hindujas are still under criminal investigation and are on bail in India awaiting questioning. They now have British passports.

Five years later GP Hinduja applied again. This time the British High Commission raised the issue of Bofors, saying the situation could become an embarrassment to the Government and the application should be treated 'unenthusiastically'.

In November 1996 Caroline Elmes, of the South Asian Department in the Foreign Office, agreed. 'At the very least the Hinduja brothers can be said to have sailed close to the wind in building their business empire,' she said, warning that the Bofors case 'could come alight'.

The case was being dealt with by Andrew Walmsley of the Immigration Directorate. He decided that such was the sensitivity of the case he would wait until after the election to put the matter to Ministers.

On 3 July 1997, with a Labour Government in place, Walmsley put forward a submission to Home Office Minister Mike O'Brien recommending GP Hinduja's submission be granted, this time despite the issue of Bofors which was still being investigated. Although the Foreign Office had expressed concerns only a few months earlier, Walmsley did not check with them again. O'Brien agreed to the recommendation.

It was the start of a pattern. GP Hinduja's passport application had been dealt with 'as a priority'. Why? Because he knew the right people. He had given a letter to Thatcher which had been passed on to the Home Office. Former Conservative leader Edward Heath had made inquiries on GP's behalf. Keith Vaz, then a backbench Labour MP, had also written letters. They had all been partied and wooed by the brothers. It got results because, as Hammond says, the more inquiries there are by prominent people, the quicker the Home Office operates, if only to stop the representations piling up.

In the summer of 1998 SP Hinduja began inquiring about citizenship. Again the same methods were used, methods not open to people applying for passports but who cannot hold expensive parties and private dinners with the very powerful.

Mandelson was contacted. Vaz was brought in again. SP received his passport in a quarter of the time it would normally take. The rules say an applicant must have been physically present in the country at the beginning of the five-year qualification period. This is 'unwaivable'. Yet in the case of SP Hinduja he would have had to have been in the UK on 22 October 1993, but Hammond finds that according to the records he was not in the UK between 15 September and 26 October. It also turns out that during this five year period SP Hinduja was out of the UK for 819 days, almost twice as long as is normally permitted.

There were other favours. SP Hinduja was allowed to resubmit his original passport application form which had been rejected under the Tories. Hammond was told by a number of people in the Nationality Directorate in Liverpool that although this was lawful it was 'unusual'.

I've just spoken to Peter Mandelson.' Matthew Laxton turned to his colleague with a look of surprise. One of the Government's most senior figures had just rung up inquiring about a certain SP Hinduja.

It was June 1998 and Mandelson wanted to ask Laxton, O'Brien's assistant private secretary, if there was any point in SP Hinduja applying again for a passport. Mandelson was concerned because SP Hinduja had spent a lot of the time out of the country and he didn't want to be embarrassed by being turned down a second time. Mandelson's call produced a flurry of activity. It is remarkable what a 30-second conversation can achieve.

Later that day O'Brien called his private secretary, Jon Payne, into his office and said he had received an inquiry from Mandelson about SP Hinduja. Payne told Hammond that O'Brien asked him to deal with Mandelson's inquiry 'sensitively and to ensure that he gave an accurate response'.

At 11.20am on Thursday 2 July, Laxton emailed the Immigration and Nationality Directorate making clear O'Brien had a personal interest in the case of SP Hinduja and wanted to know whether he would benefit from a 'positive approach to citizenship'. It is undisputed that this email had been written as a result of the contact from Mandelson and his office.

Laxton's email was received by Walmsley, who replied on 14 August that O'Brien should 'indicate to Mr Hinduja that we would be inclined to look favourably on his application'.

On 5 October O'Brien wrote to Mandelson relaying the information. Sixteen days later, SP Hinduja re-applied for a passport, armed with interesting information from his friends in Government.

Five miles away from the Home Office's ugly, concrete offices is the gleaming roof of the Dome. In the summer of 1998, 18 months before opening day, Jennie Page, chief executive of the New Millennium Experience Company, was beginning to have jitters about the Hindujas who had pledged to underwrite the Faith Zone to the tune of £3 million.

She wanted checks on their background and financial status. On 3 November she sent a submission to Mandelson, now Secretary of State for Trade and Industry and in charge of the Dome. This included material from intelligence services reporting allegations the Hindujas were involved in 'improper, and is some cases criminal, behaviour'. She also prophetically warned there was a 'risk of adverse publicity if any of the various proceedings or inves tigations currently under way abroad were to become public, but on the balance the risk was worth taking'.

Mandelson then writes back to Page saying: 'I agree that they are an above average risk but without firm evidence of wrongdoing how could we bar them from involvement in sponsorship?' He signs off with a revealing statement: 'Incidentally, if Mr S P Hinduja wished to pursue his citizenship application he can do so without further involvement or commendation from me!'

Why, unprompted, did Mandelson talk about Hinduja's citizenship and why did he use the word 'commendation'. Hammond does not come up with any answers.

Yet incredibly, despite knowing all this, 18 months later, after Mandelson returns to office following the home loan scandal, he is ready to help those he knows are alleged to be involved in 'criminal activities'.

On 18 May last year Mandelson, now Northern Ireland Secretary, received a letter from GP Hinduja asking for 'help and advice' for a third Hinduja brother, Prakash, then living in Switzerland.

The letter starts off: 'It has been a long time since we last met but I am following the progress in Northern Ireland with great interest.'

Despite his brother not living in the UK, GP Hinduja tells Mandelson'the benefits he would bring as a UK citizen would far outweigh any hurdles that there might be'.

The move set off chain reactions that raise awkward questions for the Home Secretary, Jack Straw, and show the donors to the Dome were able to pull important strings.

Straw wrote a handwritten acknowledgment to Mandelson on 25 May, which said he was 'following the matter up personally and will be back in touch as soon as I can'. The letter was marked 'personal'.

Straw also gave the letter to his private secretary, Dr Mara Goldstein, who sent an email with the Hinduja letter asking Walmsley to 'look at this request and provide advice as soon as possible and certainly by 15 June'.

Having not heard from Walmsley by 31 May she telephoned him and spoke to one of his senior colleagues, Tony Dalton. Dalton took a message of this conversation and emailed this to Walmsley.

This states: 'The Home Secretary would like the case to be dealt with "helpfully".' He said 'the case should be dealt with quickly'.

Straw has argued that the word 'helpfully' meant properly and did not mean preferential treatment. Hammond, a Home Office barrister, accepts Straw's definition. Despite these interventions by two senior Ministers, Walmsley cannot help, because a key requirement for anybody wanting a British passport is that they live here. As Prakash Hinduja was a resident in Switzerland this was a problem and on 22 June Walmsley writes to Straw telling him.

Four days later, Straw writes a letter to Mandelson telling him the situation. At the end is a handwritten note: 'I hope this is helpful. I'd be happy to have a further word with you.' Despite the evidence of high-level ministerial interventions, Hammond manages to conclude that 'no improper pressure was brought to bear by any Minister in respect of these applications'.

Definition of the word 'representation' would not usually cause a crisis in Whitehall. Not unless the definition were being disputed by Peter Mandelson.

On 18 December last year the Government had to answer a question from Norman Baker MP on 'what representations [the Home Office] has received on the applications by GP Hinduja and SP Hinduja for British citizenship from the Right Honourable Member for Hartlepool'.

Walmsley drafted the reply. Although Mandelson had been in direct contact with O'Brien over SP Hinduja's application, Walmsley wrote in his first draft: 'No representations have been received concerning the application from the Right Honourable Member for Hartlepool'.

This answer, given the contact between Mandelson and O'Brien and between the two men's offices, needed a Whitehall-esque view of the word 'representation'. Mandelson had made inquiries, but not representations, which suppose he was promoting one outcome over another. Straw said the answer could not stand, as it was not accurate. Although Mandelson tried to keep his name off the answer, he eventually agreed.

Hammond ended up clearing everybody but, almost without knowing, revealed the way government works; the favours, personal notes and telephone calls that oil the wheels of power. How do those outside get access to those with the ability to guide events? By having money and through that, influence.

'It is an irritant,' a Downing Street source admitted of the report. 'We just have to wait and see now if it goes away.'

Call by call, how a career spiralled into crisis

28 June
Disputed phone call between Peter Mandelson and Immigration Minister Mike O'Brien. O'Brien says Mandelson wanted to know how Srichand Hinduja's passport application would be viewed. O'Brien scribbles notes on a yellow Post-It. Mandelson claims he cannot remember the call.

16 January
Jack Straw phones Mandelson to discuss Norman Baker's parliamentary question. Straw insists the answer to the question has to be as accurate and complete as possible.

22 January
As a result Campbell gives an inaccurate briefing to journalists.

21 January:
Hours after The Observer breaks the story of Mandelson's involvement in the Hinduja passport affair, Campbell phones Mandelson. No mention is made by Mandelson of earlier calls to Straw...

24 January
The fateful meeting in Downing Street with Blair, Campbell and Cabinet Secretary Sir Richard Wilson. Blair insists Mandelson must go.

The Hammond Inquiry: full text