Now Labour accused of hiding £12million in loans from auditors


Last updated at 22:00 12 November 2006

Labour party officials tried to hide details of millions of pounds in loans from auditors examining the party's finances, it emerged.

Police believe the party went to extraordinary steps to conceal the fact that it had received £12million loans from businessmen nominated for peerages by Tony Blair.

Senior figures face the prospect of a 10-year jail sentence if they are found guilty of false accounting.

The widening of the police investigation into accounting irregularities puts huge pressure on Mr Blair, who is due to be questioned by police shortly over the cash for honours probe.

Detectives are examining claims that Labour was guilty of 'systematic concealment of liabilities' in its financial accounts.

Senior sources say that the party did not inform its own auditors that it had received the secret loans until the spring of 2006 - a year after the money arrived in Labour's coffers.

Auditors Horwath Clark Whitehill signed off the party's 2004 accounts in June 2005, not knowing that Labour had accumulated £12m in loans the month before.

Well-placed sources confirmed that there appeared to be 'some irregularities' in Labours finances.

Detectives are also understood to be closely examining Mr Blair's role in the honours process and what he told Labour's National Executive Committee about the loans.

The Prime Minister was reported to have told the ruling body that he took the secret loans because 'potential donors' wanted to remain anonymous.

Mr Blair is said to have defended the secrecy by claiming that anyone giving money to Labour in the run-up to the last election would have been 'trashed' by the media.

But the PM's defence is at odds with statements given to the police by two of the donors. Both Dr Chai Patel and Sir Gulam Noon said they were happy to give public donations, but say they were told to make secret loans instead.

Sources yesterday stressed that in addition to the allegations of false accounting - which carry a maximum ten year jail term - detectives were still concentrating on the cash for honours claims.

One said: "On the face of it, false accounting is a more serious offence which carries a longer sentence. But the focus of the Scotland Yard inquiry remains the claims that cash was traded for honours.

"That is what the public are most interested in, that is what will cause most political damage to the Labour Party.

"The police are making significant progress and there is a very real chance that corruption charges will be brought.

"The evidence gathered so far more than justifies the decision to launch the inquiry. Downing Street officials have good reason to be very worried."

Liberal Democrat peer Lord Oakeshott said: "Tony Blair as registered party leader, and Matt Carter, as registered party treasurer were responsible for the materially misleading Labour Party accounts signed off in June 2005.

"They built a wall of silence to hide £12million of loans which were not disclosed to the Lords' appointments commission, the Electoral Commission, or the Labour Party's auditors and members."

Labour Party Treasurer Jack Dromey has revealed that he did not know about the loans.

Meanwhile, senior Downing Street figures are reported to have accused the police of deliberately setting out to prove that Tony Blair and other Number 10 officials are corrupt.

They are said to be furious at the way the investigation is being handled by Scotland Yard and are considering challenging the inquiry following a spate of leaks.

One senior official told the Mail on Sunday: "We are extremely angry at the way the police are behaving. We thought the inquiry would be over quickly.

"They can't find a body, so they seem intent on carrying on until they do find one - even though we keep telling them it doesn't exist. It has gone on for so long people will say 'there's no smoke without fire."

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