The Electoral Commission might have cleared Michael Ashcroft, the billionaire deputy chairman of the Conservative Party, of wrongdoing but serious questions remain about his baleful influence on politics in Britain. How can it be right that a man who does not pay tax in this country – who takes advantage of his non-dom status to avoid paying tax on his enormous foreign earnings – can try to exert, through his huge donations to one political party, such an influence on the government of the United Kingdom?
Lord Ashcroft was forced – finally – to confirm what many on the left had suspected for years: that, as a non-dom, he enjoys a tax status which enables him to avoid British taxes on his overseas income and gains. His non-dom status may well have saved him more than £100 million in British taxes– enough to pay for 50,000 hip replacements or 3,500 nurses or to build 20 new schools.
Over the past 15 years, Lord Ashcroft is understood to have handed over more than £10 million to the Conservative Party. That money is being used, mainly, to target Labour marginal constituencies to try to secure a Tory victory at the general election. Some £5,137,785 of this cash has been donated through Bearwood Corporate Services, a limited company registered in the UK and with some trade here – but, curiously, with insufficient profits to be in a position to make donations on such a huge scale. So let’s shed a little light on the dark corner of the donations made through Bearwood to the Conservative Party.
One of the key ideas of the Political Parties, Elections and Referendums Act 2000 (PPERA) was to ban foreign donations, which was also part of the Labour Party’s 1997 manifesto. In July 1997, the then Conservative leader also announced that no foreign donations would, in future, be accepted by his party. The PPERA requires all donations to be made by “permissible donors”. These include an individual registered to vote in this country – appearing on the electoral register – a trade union, a building society, a limited liability partnership, a friendly, industrial or provident society, and a company. To be a permissible donor, a company must be registered under the Companies Act, incorporated in Britain or another European Union state and be carrying on business in this country.
We know that Bearwood is registered in the UK and its annual accounts are filed at Companies House. Bearwood describes its main business as “merger broking” and, more recently, “supply of management services”. Its ultimate owner is Stargate Holdings, a company registered in secretive Belize and controlled by Michael Ashcroft. Local laws do not require companies to publish accounts, provide names of shareholders, beneficial owners or even directors.
Until 2000, Bearwood published a full set of accounts, including a directors’ report and a profit and loss account. These accounts required the company to provide details of significant political donations. The introduction of the PPERA coincided with a decision by the directors of Bearwood to claim “small company exemptions” available under the Companies Act. So, in subsequent years, the company published abbreviated rather than full accounts. These abbreviated accounts do not need to include the full balance sheet, the profit and loss account or the directors’ report. More importantly, political donations do not need to be disclosed. Political donations made by Bearwood were not voluntarily disclosed by the company. Rather, they were brought to public attention by the Electoral Commission’s decision to publish the names of all donors to political parties.
The donations to the Tories were routed through Bearwood using complex corporate structures. The diagram this page shows the route of some of the money paid out.
The donors chose share issue as the vehicle for transferring cash. The trail for the transaction begins with Stargate buying shares in Astraporta, which uses that money to buy shares in Bearwood Holdings, which then uses that money to buy shares in Bearwood Corporate Services. In turn, Bearwood hands it over to the Conservative Party and its associations. This helps to obscure the source of money.
The amounts paid for shares have no economic rationale. Stargate paid £2 million to Astraporta on October 28 2005, with each share priced at £1. On March 29 2006, this is followed by another payment of £4 million – this time 5,206,977 shares are bought at £0.7682 each. As the diagram shows, most of this £6 million then travels down to Bearwood Corporate Services. The calculation seems designed to secure the desired amounts for onward transmission rather than anything else.
Astraporta, Bearwood Holdings and Bearwood Corporate Services are all registered in the UK and each is designed to meet the small company threshold of the Companies Act to ensure they do not have to publish a full set of accounts. Astraporta and Bearwood Holdings did not trade with third parties. The periodic squelching of corporate structures obfuscates the trail of money and makes tracing cash difficult. Both companies went into liquidation in March 2009. Subsequently, different routes have been used to pour money into BCS.
The most recently available accounts of Bearwood Corporate Services, for the period to September 30 2008, show the company sitting on a cash pile of £6,708,647 – in effect, a war chest for the general election. This cash is unconnected with its trade. The company does not have sufficient profits to make the donations. Since the financial year ended on March 31 2005, Bearwood Corporate Services has been making losses. It also made losses during the financial years ended on March 31 2000, 2001 and 2002. On September 30 2008, its accumulated losses stood at £3,928,665.
The company may have some trade with external parties, but this is not evident from its accounts because it does not publish its profit and loss account.
Some of the Bearwood transactions are with other companies controlled by Lord Ashcroft and may have helped to boost profits and thus keep losses at a lower level. For instance, the 2008 annual accounts of BB Holdings, another company controlled by Lord Ashcroft, say that: “During the year, the group utilised the consultancy services of Bearwood Services, a UK company in which Lord Ashcroft has an interest. The aggregate fees paid to Bearwood by the company for the year ended March 31 2008 amounted to $0.9 million (2007 – $0.4 million).” The same company’s 2009 accounts show another $0.3 million paid to Bearwood for its services.
To reiterate: Bearwood does not have sufficient profits to cover the donations. The donations are the prime causes of its losses.
The ownership of Bearwood Corporate Services is wrapped up in complex corporate structures. If someone asks who owns Bearwood Corporate Services, the legally correct answer is Bearwood Holdings. Who owns that? The answer is Astraporta. And who owns that? Stargate. Through these procedures, the identity of Lord Ashcroft is concealed and his name does not appear on any publicly available legal document. To get to the people behind the legal façade, we need to lift the “veil of incorporation” and that is not easy because Belize law guarantees secrecy. Fortunately, Lord Ashcroft has left clues.
In his autobiography, Dirty Politics, Dirty Times: My Fight with Wapping and New Labour, he refers to long-time employee Lyn Austen: “Sadly, Lyn had the temerity to retire, even though he is six months younger than I am. But right up until his retirement, he was running a business for me called Bearwood Corporate Services which, at that time, specialised in merger broking.” This is a tacit acknowledgement that Lord Ashcroft controlled or exercised significant influence on Bearwood.
The accounts of BB Holdings refer to Bearwood as a company in which “Lord Ashcroft has an interest”. On March 14 2008, a filing with the London Stock Exchange by Impellam Group plc, another company in the Ashcroft empire, stated that Manco Investment Limited and Velvet Heights are companies controlled by Lord Ashcroft. These are wholly-owned subsidiaries of Bearwood Corporate Services. If Lord Ashcroft controls the subsidiaries, then he must also control the parent company.
Southtown Limited is one of Bearwood Corporate Services’ directors. Northtown acts as its secretary. Both companies are registered in the British Virgin Islands. Company secretaries are responsible for administration and compliance with the legal requirements. Company directors direct the company, make policies and are responsible for the day-to-day operations. However, companies are just a nexus of contracts. The actual decisions are made by the people dominating them. Could these companies be connected to Lord Ashcroft? The British Virgin Islands do not hold any information about the owners and directors of Northtown and Southtown. But, once again, some clues are provided by Ashcroft himself.
In 2005, Carlisle Holdings Limited, based in the United States and part of the Ashcroft empire, filed statutory information with the Securities Exchange Commission. This stated that Northtown and Southtown are 100 per cent-owned subsidiaries of Carlisle Holdings. Who controls Carlisle? The same filing states that Lord Ashcroft was the majority shareholder and adds that Ashcroft has been “executive chairman of CHL since 1987 and chief executive officer since 2001” and “retains the power to elect all of its directors and to determine the outcome of any action requiring shareholder approval”. Ashcroft was in a position to control Northtown and Southtown, which held key positions at Bearwood.
In late 2005, the corporate structure of Carlisle Holdings was changed. Northtown and Southtown became subsidiaries of Belize Corporate Services, which in turn is controlled by the Belize Bank, which is controlled by Lord Ashcroft. All trails lead to Ashcroft, but the Electoral Commission does not seem to have done its homework and has fudged the issues about the control and direction of donations through Bearwood.
This paper chase could have been avoided if Ashcroft had listed Bearwood as one of his companies in the House of Lords members’ register of interests. Ashcroft amended the register on March 1, just before the publication of the Electoral Commission’s report, to disclose that he owns a controlling stake in Bearwood Corporate Services. Did the Conservative Party really not notice this omission?
Last week, the Electoral Commission gave a green light to the donations passed via Bearwood to the Conservative Party. Yet the report raises many other questions.
The Commission has no powers to subpoena witnesses and documents and relies on goodwill, which is apparently in short supply. It invited Conservative Party staff to attend interviews on a voluntary basis, but they did not agree to these requests. Its powers do not extend to companies and individuals making the donations. The Commission requested sight of relevant documents relating to the control, ownership and provision of funding for Bearwood, but was told that Ashcroft did not have any such documents in his possession and that many had been destroyed.
In the absence of co-operation and information, the Commission could have said it could not reach a decision, but instead it cleared the donations. Some will wonder if this is satisfactory.
The Commission could have sought information from the accountancy firm BDO Stoy Hayward, whose address in Southampton continues to be central to Lord Ashcroft’s affairs. Interestingly, the firm’s London office audits the accounts published by Conservative Party Central Office. Records at Companies House show the same Southampton address is also the address for Astraporta, Bearwood Holdings and Bearwood Corporate Services. Northtown and Southtown are registered in the British Virgin Islands, but the Southampton address is provided as their UK address. Any properly planned and executed audit would inquire into the control, ownership and financial flows of Bearwood and audit files should contain copies of important documents. There is no evidence that the Electoral Commission requested any information from BDO Stoy Hayward.
The fact that Bearwood is registered in this country and carries on some trade here seems to be sufficient to enable the company to pay millions of pounds in political donations even though these monies do not originate in the UK. The Commission says there is no requirement in the PPERA that the funds a company donates to a political party must be generated from its own trading. Does that mean any rich non-dom can now emulate Bearwood and move their millions from abroad to influence a British election? Isn’t that representation without taxation?
The Electoral Commission could have been guided by the report in 1998 by the Standards in Public Life Committee, chaired by Lord Neill of Bladen, which paved the way for the PPERA. This said: “We have brought within the definition of permissible source all companies incorporated in the United Kingdom. This, as we have said, would include a UK subsidiary of a foreign company. It is possible to imagine that a foreign corporation wishing to evade the underlying purpose of the provisions which we advocate might cause to be brought into being a UK subsidiary, the sole function of which would be to receive money from the foreign corporation and then channel it to the political party of its choice. This would clearly be an abuse of the system and could be met by provisions designed to ensure that, in the case of a donation from a UK subsidiary of a foreign company, that subsidiary was carrying on a genuine business within the United Kingdom and was generating income here sufficient to fund any donation made to a UK political party.”
