Systemic Corruption, Systemic Solutions

Memo by Greg Palast:

My recommendations rest on the two key discoveries of the Observer's 'Cash for Access' investigation:

1. Members of the Government have passed sensitive, confidential information to key lobbyists and did so systematically.

2. Members of the Government have established a system of privileged access for industry clients of connected lobbyists.

The Casbah in Confidential Information

On 5 July, one witness, Mr. Derek Draper, informed this Committee that,

'In my 10 months in lobbying, I wasn't actually passed any confidential information about a government decision.'

After absolving himself, the witness then went on to pardon all other lobbyists and, more significantly, the central men in government: 'There is certainly no systematic corruption going on.'

Let me correct the record.

In May and June 1998, Mr. Draper passed to American investment bankers, his clients, word that the Chancellor's Budget speech would contain an unexpected increase in total capital spending of exactly 2.75%. This information was potentially worth millions to the arbitrageurs and traders who received this. Working under my cover, I suggested that the lobbyist was merely passing on a forecast. He responded, 'No, I'm afraid it's inside information.'

This was no mere 'boast' of some lad lobbyist. The Financial Times independently confirmed Salomon Brothers receipt of this advance information from Draper. Either from scepticism, a commitment to ethics or merely fear of insider trading laws, Salomon had the wisdom not to trade on the information, which seemed to disappoint Mr Draper. 'If they [Salomon] acted on it, they'd have made a fortune.'

In other words, the witness lied. But what is dangerous, some members of the Committee seem to love the lie. As a member of the Committee said to the witness,

'So there is a sort of bottom failsafe line here about the kind of situation that we are dealing with. We may have serious problems but they are not of the gravest nature.'

The Committee seems not to have challenged the line of this lobbyist and the Government which dismisses the trade in inside information as merely lobbyists' empty 'boasts'. We are led to chuckle at gullible clients who pay good money for public information or gossip.

That's nonsense and dangerous nonsense. This Government passed highly confidential and valuable information to lobbyists and privileged businessmen systematically. As in the case of the Chancellor's budget, it is confirmed fact. The clients of the lobbyists I investigated are the world's most sophisticated industrialists and financiers, many of whom this Government relies upon for key policy advice. These men do not pay gold for garbage. Let me leave poor Mr Draper aside for two other examples.

Ben Lucas of Lawson Lucas Mendelsohn (known as 'LLM') learned that on June 11, Gordon Brown would announce the creation of a new housing inspectorate. Lucas passed this on to his affected clients. He gave me other examples of what he called '... intelligence which in market terms would be worth a lot of money.'

The firm of GJW obtained advance word on the moratorium on gas-fired power stations which it duly passed on to American electricity company clients. Clients used the advance word to spike disliked proposals.

I could go on with this list, as did the lobbyists, ad nauseam. But the question for this Committee is not whether lobbyists got or did not get inside information. That they had the confidential material is beyond refutation. The key question is, who in government gave it to them? I am saddened that this committee has failed to ask this vital question.Without the answer, this committee will never understand exactly how the passing of insider information became routine.

With one exception, it was clear to me that Mr Draper and the LLM lobbyists did not steal facts from desks or files of their chums in Government: it was handed to them. Why? As a GJW lobbyist told me,

'We have many friends in government. They like to run things past us some days in advance, to get our view, to let them know if they have anything to be worried about, maybe suggest some changes.'

Several lobbyists (believing me a potential client) told me the same story again and again: this Government virtually pushes the information on a few select conduits (lobbyists or others) to hand to selected businesses. The Government's aim is to obtain back door feedback, buy assent or grant secretive veto authority over laws or proposals to special interests. (Did a Treasury official give Salomon Brothers' lobbyist advance word on spending to insure the big bond trader would not react negatively to the higher spending news? To avoid the headline, 'Brown's Budget Busts Bond Market'?)

This Government's sin is not the Tories' 'Cash for Questions', money-grubbing ministers pocketing boodle in return for special requests. Rather, this Government's system of secretive, selective information leakage is far more corrosive to the body politic, by making government policy systemically undemocratic and open to influence away from public scrutiny. As lobbyist Neil Lawson told me, those 'not in the loop' lose out.

This systematic parcelling out of confidential government information creates a treacherous web of obligations between the Government and selected businesses.

This Government likes to do Deals

The flea market in fixes begins with privileged access. Mr Draper told this committee, 'The issue of privileged access is a red herring.'

'Access - a good lobbyist knows he cannot deliver that', writes Mr Draper.

That is dangerous nonsense, and I doubt anyone on this committee is fooled.

Let us do the anatomy of a fix or two to understand just how secretive, privileged access works - and how, in the case of this Government, special back-door access has become a routine part of the decision-making apparatus.

Around November 1997, LLM tipped off its client, Tesco's supermarkets, that pressure from 'greenies' would force the new Government to include a car parks tax in its Transport White Paper. LLM advised their client to give £12 million to the Millennium Dome Project to 're-position' itself as a Labour-identified company. This was done in February 1998.

Tesco's was placed on the Transport White Paper Task Force. (Such Task Force placements are an LLM speciality.) The Task Force also included environment work by the beginning of June 1998 when the group reviewed the (supposedly) final contents the White Paper which included a tax on all car-parks and parking spaces. But in late June, Task Force members were told the paper's release date of June 23 had been delayed.

What the Task Force did not know was that in the week of June 20, LLM was conducting 'highly sensitive'and secret negotiations with the Government to effectively exempt out-of-town car parks from most of the tax, a deal worth £20 million or more to Tesco's. That week, I learned, Tesco's lobbyists LLM literally redrafted language of the White Paper allowing a list of LLM-dictated deductions from the tax.

The final report, with the exemption, was sprung on surprised Task Force members the morning of its public release in late July.

This is nasty business, far more threatening to democracy than Mr Hamilton's Paris follies.

Industry and environmental groups on the official Transport Task Force had reached a consensus in joint talks with ministers. There is no way Tesco's tax exemption would have received the endorsement of the official group had it been placed before them. In other words, the official review, meant to bring public and business interests together, was a complete sham.

Selective leaking of inside information - lobbyists LLM were told of environmentalists plans, but the environmentalists were kept in the dark about the Tesco scheme - permitted the lobbyists to '...warn (our client) about it over a year ago [so] we can plot ....'

Did the £12 million donation to the Dome buy the tax exemption? We can't know (though prevarications on chronology to investigative reporters suggests a guilty state of mind). Certainly, the donation made turning down requests for meetings and secret negotiations difficult.

Secret meetings are held for the purpose of keeping others out. In the car parks tax plot, the Government operatives and lobbyists had to keep the organisation Transport 2000 in the dark or their Task Force representatives would have sunk the back door deal.

At issue here is not Tesco's right to make a case against a tax. The issue is whether laws, taxes and regulations should be negotiated in secret for the benefit of clients of connected lobbyists.

Let me define what I mean by a 'connected' lobbyist. This isn't just a matter of old cronies who know each others' phone numbers. The three principals of LLM each worked as senior advisors to PM Blair during the campaign and individually for Messrs. Straw, Brown and Blair in opposition. They, as other 'connected' lobbyists such as Mr Draper, gave me details of several favours they had done for the Chancellor, for Peter Mandelson and others, favours which they told me they could trade, at selected times, for meetings for their clients. (I'd be pleased to tell the Committee more in oral testimony.) Special Advisors and members of the Number 10 Policy unit were identified as the central merchants in the flea market for favours - and ministers themselves.

Let us look at a second fix, another case of special access. Mr Draper assured this Committee no lobbyist could obtain special access. He told me otherwise - and gave me proof. Among his several examples:

On the suggestion of Treasury Advisor Ed Balls, Draper arranged for Ed Wallis, CEO of PowerGen, to meet secretly with Geoffrey Robinson to seek sotto voce approval of two merger agreements. The deal was a difficult one: PowerGen wanted to take over of East Midlands, a vertical combination already rejected by the Conservative Government. In return, according to their lobbyist, PowerGen offered to commit to coal contracts to save coal-mining jobs.

On June 25, 1998 when DTI Minister Margaret Beckett presented her White Paper on energy, she vehemently denied that a deal had been struck, despite rumors. In this, she was honest, but only to the limit of her knowledge. In fact, the Minister was kept 'out of the loop' and not informed of the deal. Mrs Beckett was soon removed and replaced by Mr. Mandelson, Mr Draper's former boss, who approved the other half of the proposed fix, the PowerGen-East Midlands combine.

So what? What is wrong with government swapping merger approval in return for saving mining jobs? It's not the deal, it's the closed-door deal-making that's frightening.

I have never before reported this: there are many honest, ethical lobbyists. They would not want me to use their names for fear their careers would be destroyed - everyone wants a fixer. But one top-tier lobbyist told me that the Wallis meetings, if confirmed, were unethical because the DTI review of the merger was 'quasi-judicial'. Indeed, he opined that it, '...was getting a bit illegal, it's a judicial process. It's like approaching a judge.'

Another lobbyist told me the deal (and others like it) was, 'appalling' and refused a similar request.

Look at how you are governed. The Minister herself was kept in the dark about secret deals made by higher, invisible powers. The Department of Trade experts were treated like pet gerbils, allowed to spin meaninglessly on toy treadmills, led to believe they were performing a complete and objective analysis of the merger. The British public never got to comment on the cozy merger-for-jobs combination, because it was never put out for open debate.

The furtive rendezvous of ministers, advisors, lobbyists and executives running in and out of the back doors of 10 and 11 Downing Street turned government decision-making into a bad bedroom farce. It would be humorous were it not so horribly undemocratic.

And it's systematic, all this secretive horse-trading. As lobbyist Jonny Mendelsohn told me, 'This Government likes to do deals. Our [Labour's] super-majority in Parliament means the only countervailing force is media and the business community. So when the economy turns soft - as it must - we will make certain they stay with us.'

In other words, public policy is bent, favours and information handed out, to purchase the loyalty of industry and media.

Privileged access is not a victimless crime. The PowerGen deal probably raised electricity bills. When Government gives special access to business interests, the rest of the public is left outside the door: in this power industry story, I can list the advocates for poor people, such as Will Baker of the National Local Government Forum Against Poverty, who were turned down flat on requests for meetings on utility charges. They had no lobbyist, no cash, and as a result, no access.

Is this what you want for your democracy?