The collapse of Polly Peck in 1990 remains perhaps the single greatest British corporate mystery of modern times.(1) How did a multi-billion pound international conglomerate, which had risen from East End obscurity to become the exemplar of eighties British Capitalism, collapse within a period of weeks? How did a favoured son of the London Stock Exchange, the chairman of a company whose shares increased in value some 133,000% within ten years (a punter who invested £1,000 in Polly Peck shares in 1980 would have seen their value increase to £1,300,000 by 1990) come to be arraigned before the British courts facing the longest list of criminal charges in British legal history? (2)
Answers suggested at the time ranged from the simply criminal to the political. Despite the fact that the case was sub judice, Nadir was held in parts of the press to be the biggest financial crook of modern times, a man who had built a business empire simply by means of smoke and mirrors. Alternatively, it was suggested that he was the victim of various plots. The alleged perpetrators ranged from the Serious Fraud Office, eager to justify themselves and make up for the near debacle of the Guinness trial by nailing a big fish, to the Greek government, in alliance with the Greek Cypriots. These were held to be politically motivated and had brought Nadir down because of the hostility existing between Greek and Turkish Cypriots. This was the explanation that Nadir himself seemed to publicly favour. It was also suggested that the United States had a hand in it.
This essay will attempt to examine the political context in which the company operated and in doing so also attempt to describe the often conflicting forces within the British state (and others) which added to the contemporary confusion and may have contributed to the debacle.
Asil Nadir was born in 1941 in Cyprus. The island was still under British colonial rule. His family were Turkish Cypriots. Like many of the island’s Turkish community, they were loyal to the British Crown throughout the period of increasing tension which culminated in Cyprus’s independence after the paramilitary campaign led by the Greek Cypriot movement, EOKA. Nadir’s father had at one time been a police officer in the colonial administration. This Anglophilia was further cemented through Nadir’s first girlfriend, the Anglo-Indian daughter of a British warrant officer. After independence, the family saw little future for themselves in Cyprus and moved to England where, like many previous generations of immigrants, they founded a small (textile) business in the East End. Asil Nadir followed them after completing his education at Istanbul University. He joined the family firm.
By 1990, within thirty years, Nadir was the chairman of an international conglomerate negotiating a deal estimated to be worth some three billion pounds. His own personal wealth was believed to be in the region of one billion pounds. However, the banks were also owed sums approaching nearly a billion pounds. The phenomenal rise of Polly Peck in the eighties had been financed largely through bank loans, using shares in the company as collateral. Much of the company’s banking was transactional; that is, different banks were used for different purposes. At the time of the collapse, some eighty banks were owed amounts ranging from the odd million to tens of millions. Few, if any of them, knew of the extent of the obligations to other banks.
Polly Peck shares began to slowly slide in value over the course of the year. This raised an immediate problem. With shares as the collateral for the loans, a decrease in their value resulted in the banks becoming increasingly worried. Nadir had usually dealt with such problems before with a new share issue. This time there was a cash-flow problem. The first bank to run for cover by calling in its loans or selling the shares would precipitate a stampede. A deal was agreed which consisted of the banks agreeing to roll-over the debts if some seventy million in cash could be put up by Nadir. But there was no cash available. After apparently scouring Europe, including Cyprus and Turkey, and the United States, Nadir could only come up with some five millions.
Share-ramping?
On top of this problem, there were rumours in the City that Polly Peck and Nadir were being investigated by the authorities, including the regulatory bodies and the Inland Revenue. Unknown to the City, the Serious Fraud Office (SFO) was also investigating the possibility of unnamed individuals being involved in a share-ramping scheme regarding Polly Peck. It seemed that the value of the shares might be being artificially (and illegally) sustained or inflated. On the morning of September 19, 1990, the SFO raided the Berkeley Square Offices of South Audley Management, the firm which handled the various private Nadir family trusts. This firm was legally separate from Polly Peck and was managed by Elizabeth Forsyth, formerly Nadir’s private banker at Citibank, also located in Berkeley Square. Citibank dealt almost exclusively with the affairs of extremely rich individuals. Complete confidentiality (extending even to the fact of whether or not an individual had an account there) was, and is to this day, assured. (3)
This raid by the SFO (whose head at the time was Barbara Mills, later to be the DPP at the time of Nadir’s proposed trial) on SAM was, at the time, the most controversial aspect of the affair. The raid precipitated a catastrophic fall in share value, from 243p to 108p, when trading in them was suspended the following day. The fall had automatically triggered the banks into jettisoning their own shares, and with them any serious possibility of rescuing Polly Peck. It seemed that a cash-flow problem in a jittery market had been transformed into a major corporate collapse by an ill-considered and well-publicised raid – the press had been tipped-off – on a company which had no legal or commercial relation with Polly Peck at all. Even Citibank, Nadir’s private bankers, had placed their shares on the market when the price had fallen to 210p. This was perhaps a little precipitate on their part, a fall of 30p wasn’t as yet disastrous. Perhaps they had reason to believe the fall was going to be much worse? Not only was the company nearly ruined but so was Nadir, who held some 25% of Polly Peck shares. Nadir’s advisors insist that it took three separate requests to the Stock Exchange before dealing in the shares was suspended. Adding to the air of panic, was the rumour that began to circulate that Nadir had been shot. It was this day’s events that led Nadir’s supporters to claim that he had been the victim of a plot. He compared himself to a wounded whale surrounded by circling sharks.
The Politicisation of Polly Peck
‘Certain values in life are higher than commerce, profits or personal benefits. The issue of northern Cyprus in my mind should be valued that high’ – Ail Nadir. (4)
From 1987 onwards, Polly Peck became increasingly a political entity, as well as a commercial one: in the end, perhaps its political identity became paramount, overwhelming purely commercial considerations. As early as 1985, when overcoming earlier suspicions voiced by some financial journalists about its credibility as a stock, Polly Peck appointed two heavyweight non-executive directors to its board: Neil Mills, a former director of Sedgwick, and Larry Tindale, deputy chairman of 3i, a venture capital outfit owned jointly by the Bank of England and the clearing banks. 3i’s chairman was Sir John Cuckney. After the deregulation of the City, the clearing banks had been allowed to become more adventurous in their investment policy. The Bank of England added weight to the position.
Cuckney was an ex-MI5 officer. (5) He had also worked at Farnham Castle, a government centre for intelligence briefing, from 1974-84. Before that, he was attached to the Crown Agency and also IMS, the MoD company. He later achieved a more public profile as the Chairman of Westland. 3i (a name difficult to find in indexes) was involved with many of the companies later embroiled in Arms-to-Iraq, particularly with Astra, where they were the main institutional shareholder. (6)
Larry Tindale, as a non-executive director, often chaired board meetings in Nadir’s absence, and became head of PP’s audit committee, where he must have worked closely with Dennis Robertson, the group’s auditor, a senior partner from Stoy Hayward, the accountants. Robertson also audited Astra. Another appointee to Polly Peck was a senior advisor to the Denktas regime in Turkish Cyprus.
During this period, Polly Peck prepared to enter into a major deal with the Comecon countries. This involved providing them with fruit in exchange for natural gas – a deal of some strategic interest to the West. At the time, the rouble was still unconvertible.
A final political plank was added when Nadir began to build a newspaper empire in both Turkey and Cyprus. He made it plain that his interests were political. This project was serious enough for Nadir to employ Bruce Matthews, Rupert Murdoch’s right-hand man and the ex-chief executive of News International. Matthews was introduced to Nadir by Peter Hetherington, a former chairman of Express Newspapers and senior partner at Rawlinson and Hunter, Nadir’s personal accountants. Dennis Robertson had also come from that stable. Hetherington was an expert in setting up overseas trusts.
Enter the Americans
This politicisation reached its apogee early in 1990 when Nadir had a meeting with Nelson Ledsky, the US State Department official responsible for following the Cyprus dispute. (7) Ledsky was preparing the ground for a possible international conference on Cyprus. At the meeting with Nadir it was suggested that he might like to break with Denktas and in effect replace him. This would have made Nadir the main political broker in northern Cyprus as well as the main economic one. The point of this suggestion was far from clear at the time. Why would the State Department wish to have Nadir as the political heavy-weight in Turkish Cyprus, as opposed to Rauf Denktas, when Nadir was a Denktas supporter? At the time it was suggested that the proposal was made as a preliminary to the reunification of the island: that as a businessman Nadir was in a position to more easily reach an understanding with the Greek Cypriot president George Vasiliou, another business-minded individual. This is unlikely for two reasons. Nadir would have stood to make a heavy financial loss from any arrangement involving reunification at that time. As part of any deal, the Greek Cypriots would have insisted on the return of land formerly owned by them. Much of Polly Peck’s holdings in the North were on land which had formerly been Greek-owned. Polly Peck derived considerable advantage from this fact. In Northern Cyprus there was a two-tier property market. Land which had no Greco-Turkish dispute re: its ownership operated subject to the usual market laws of supply and demand. Land which was subject to dispute didn’t, and was considerably cheaper because of the risk of its being reacquired by the Greeks after any form of reunification. This economic benefit to Polly Peck had been reinforced a few years earlier by a decision in the British courts, where it was held that Turkish Cypriots were not allowed even to have a case heard in a British court with reference to land ownership claims in Northern Cyprus. The decision left them wholly without legal redress; and this in spite of the fact that Britain was a guarantor of the island’s independence.
Can the United States really have believed that Nadir would co-operate with an arrangement which would result in the financial undermining of his business empire? Or was there behind the suggestion a double attempt to secure the real, but unacknowledged, Anglo-American interests in Cyprus, the preservation of their intelligence bases? Nadir’s political position on the Cyprus question was more or less identical to Denktas’s; but having both the dominant political and economic power in the North vested in one person, and one moreover who was a British resident and passport holder, open to British influence and pressure, no matter what changes occurred in the unstable political climate of the East Mediterranean, would be an additional strategic bonus for both Britain and the United States. This tends to rule out any question of American involvement in the collapse of Polly Peck. Anything which endangered the economic autonomy of the North also endangered their own interests. The economic autonomy of Turkish Northern Cyprus guaranteed its political autonomy. Without this ‘autonomy’, the future of the bases could not be secured.
What then of suggestions that the British government was behind Nadir’s fall? At first, this thesis would seem to collapse with the American one. There was no conflict within the Anglo-American alliance about Cyprus: their interests were almost identical. The British government had no apparent interest of its own in bringing down Nadir. In addition, why would a Conservative government wish to damage a figure, who it later emerged, had given some £400,000 in contributions to the Conservative Party? However, these objections leave out of account events on the contemporary domestic British political scene.
In the beginning
The origins of the contemporary political situation in Cyprus lie not in the island itself but in Egypt in the early fifties. Following the election there in 1950 of the Wafd movement on an anti-British ticket, the new prime minister, Nahas Pasha, opposed the Anglo-Egyptian Treaty which had previously secured Britain exclusive control of the Suez Canal. This threat to the main trade route to the Far East and the main passage through which oil reached Britain and Europe was com-pounded by the coming to power of Musaddiq in Iran. It became apparent to the British government that their regional interests could only be secured through Cyprus, their only remaining colony in the area.
Towards the end of 1952, the Cabinet agreed to switch the headquarters of Britain’s Middle East forces to Cyprus. Nasser, the real power behind the earlier CIA-backed coup (where the point was to preserve Western interests), seized power in 1954 and forced the British to agree to a total military withdrawal from Suez within less than two years. Not only did Cyprus become Britain’s main military base in the region, but also MI6’s main regional station, controlling stations in Beirut, Tel Aviv, Baghdad and Teheran. The island was also home to early-warning radar and electronic spying stations. These monitored the Soviet Union. Its importance was increased after the signing of the Baghdad Pact in 1955 which seemed to have secured a British-led strategic alliance in the Middle East. This strategic importance of the island never diminished throughout the Cold War. It increased during periods of regional tension. (8)
Two of these periods were the mid-seventies, when Turkey invaded northern Cyprus, and the end of the eighties, when the Soviet Union was on the verge of disintegration (with unpredictable consequences) and the Balkans and the East Mediterranean were also dangerously unpredictable.
Divide and conquer
Until recently, the standard interpretation of the Turkish invasion and the events surrounding it has been that it was simply caused by between Greece and Turkey and their respective internal political situations at the time; and that in the immediate aftermath of Watergate, the United States took its eye off the ball, ‘allowing’ the invasion almost inadvertently. There have been dissenting views, mostly from the Greek Cypriots. In their important new study Brendan O’Malley and Ian Craig (9) provide evidence to support the dissenting view.
With the help of recently released documentary evidence, they argue convincingly that the partition of Cyprus was not only allowed by the United States but was a result of deliberate and long term American policy. Henry Kissinger is not held to be the architect of this plan but the man who completed the building, as it were. The overthrowing of the Colonel’s regime in Greece led to, and provided the opportunity for, the realisation of this long-held policy objective. The reason behind it was the necessity of securing the intelligence facilities. Only with Cyprus more or less permanently divided was it possible to ensure the ‘sovereignty’ of the British bases and the concomitant intelligence benefit. From an Anglo-American view-point, partition spiked Makarios, the anchor of Cypriot independence, and blunted the possible consequences of any future Enosis, union with Greece, while Greece was politically unstable. Divide and conquer was not an original colonial policy, but it was effective. It also had the added benefit of securing American interests if Britain should lose its military foothold at any time in the future. A Turkish Cypriot regime in the North of the island would be more amenable to pressure than a unitary, if quarrelsome, island.
As Craig and O’Malley note, on the seven previous occasions when Turkey had threatened to mobilise over Cyprus the Americans had always restrained them. This time they pointedly refused to support Callaghan, the then British Prime Minister, in his admittedly rather ineffective attempts to deter the invasion. After all, Britain had thousands of troops on the island at the time of the invasion. In an unguarded moment, Callaghan recently told Craig and O’Malley that Britain had nearly gone to war with Turkey over the issue, ‘but the Americans stopped us’. After being given written questions on the subject by them, Callaghan refused any further co-operation. (10)
Partition left behind it a permanent problem. Turkish Cyprus might have gained at least a political form of semi-autonomy under the regime of Rauf Denktas (even though it was only recognised by Turkey) but economically it was completely dependent on the mainland. Economic autonomy seemed beyond its reach. This dependence on Turkish financial subsidies left it subject both to any political turbulence within Turkey and also to any regional instability. This was the position at the end of the eighties.
Now controlling some 40% of the North’s economic activity, Asil Nadir and Polly Peck offered a possible solution to this problem. The phenomenal growth of Polly Peck during the eighties provided for the first time a realistic prospect of economic autonomy for the North of the island and with it the further prospect of permanent security for the intelligence facilities. Any threat to Polly Peck (or Nadir) was also a threat to this security/intelligence interest. The financial problems of the group would have been a matter of some concern to sections of the British government, and particularly to MI6, the department charged with protecting Britain’s foreign interests.
Target Heseltine?
Throughout 1990, the then British Prime Minister, Margaret Thatcher, was fighting for her political life. Dissatisfaction with the Poll Tax, which she had pushed through against the advice of many in her own Cabinet, had lead to riots in London. As the storm clouds gathered around Polly Peck, they also gathered around the Thatcher premiership. The emerging front-runner to replace her as leader of the Conservative Party was Michael Heseltine, the minister who had resigned from the Cabinet four years earlier over the Westland affair, at the time an apparently trivial dispute about the ownership of Westland, a small helicopter manufacturer in Yeovil. Asil Nadir and Elizabeth Forsyth, have always believed that the orders to investigate Polly Peck came from Downing Street. The possible motive for this has never been clear. It served no possible British national interest.
It may, however, have served the Prime Minister’s interest. The target may have been not Asil Nadir but Michael Heseltine. Heseltine was one of the people being investigated regarding Nadir. This was on two fronts. Jonathan Bekhor, a City stock-broker who later fled Britain owing millions of pounds, and who specialised in share transactions for offshore companies, had alleged to Michael Allcock, an investigative tax officer, that Heseltine was one of the people behind the offshore companies ramping Polly Peck. No evidence ever emerged to support this claim. However, Rawlinson & Hunter, Nadir’s private accountants and auditors of South Audley Management, were found to have managed an offshore trust owning just under a 1% stake in the Haymarket group, Heseltine’s publishing empire. Any purchase or sale of more than 1% has to be declared under British law. It was also difficult to establish who exactly owned Haymarket shares. The various blocks were shifted around between various family members every few years. This is perfectly legal. A similar situation obtained at Polly Peck. The only illicit share transactions that ever came to light were those thought to have been operated by an anonymous Turkish Cypriot multi-millionaire. Despite these being thin on the ground, his identity never came to light. The SFO raid was held to have taken place on information illegally forwarded to them by Allcock. Allcock was later jailed for corruption but insisted at his trial that he had been fitted-up because of Heseltine’s involvement with Nadir. Unusually, the judge issued a contempt order forbidding the press to report the details of Allcock’s statements in court. That order still stands.
Like others, I know the specific allegations made but am unable to detail them here. I am allowed to say that they concerned, among other matters, tax affairs and off-shore accounts. I am also prevented from speculating on the motives of the court in imposing the order. However, I am allowed to mention that the order is almost unique in British legal history. Statements in open court are privileged and may be repeated in the press. The exceptions almost wholly concern the welfare of children. This was not a factor in this case. Oddly, Dennis Robertson never informed Nadir and Forsyth that there existed some seventy pages of interviews between himself and Allcock concerning these matters. This fact only surfaced some years later at Elizabeth Forsyth’s successful appeal after she had served a jail term. (11) There is no doubt that she was transporting by suitcase some hundreds of thousands of pounds in cash between banks; but there was no evidence that it was stolen from Polly Peck.
Nadir’s wife later alleged that she was visiting Alastair McAlpine in Venice when Heseltine had his heart attack, and also that she had overheard a ferocious row between them concerning Nadir. McAlpine is alleged to have called Nadir ‘a sleazy, little crook’. Both Heseltine and McAlpine deny that the row ever took place and that Nadir’s wife was present that weekend. Nadir had contributed some £400,000 to Conservative Party funds. Alistair McAlpine was Conservative Party Treasurer at the time. Heseltine was due to answer questions in the House of Commons the following Tuesday with reference to the Nadir donation. Both Heseltine and McAlpine insist that their meeting in Venice was simply accidental. Nadir’s wife insists that the Nadir ‘contribution’ was the reason for the meeting and that the row between Heseltine and McAlpine regarding this was the cause of Heseltine’s heart attack. This heart attack effectively finished any hope that Heseltine could be a future Prime Minister. He did, however, later become Deputy Prime Minister under John Major. He held this office at the time of Allcock’s trial – and Elizabeth Forsyth’s.
Curiously, one of the first things John Major did on becoming Prime Minister in 1990 was to alter the legal relationship between the leader of the Conservative Party and party funding. Previously, both the assets and debts of the party had been the personal responsibility of the leader. This entailed the usual legal obligations. Quite ridiculously – in theory at least – a Conservative PM could be charged or subpoenaed as a witness in any case regarding party financing. This would have included cases of possible fraud. British Prime Ministers are normally exempt from court appearances, whatever the circumstances. (12)
It emerged after the collapse of Polly Peck that Stoy Hayward’s Dennis Robertson had supervised the transfer of enormous sums – up to four hundred million pounds – from Polly Peck to Cyprus subsidiaries a year before the crash. (13) This may be why Nadir had been unable to raise cash to roll-over the bank loans: it was in Cyprus. Price Waterhouse initiated a £400,000,000 lawsuit against Stoy Hayward, but nothing came of it. Robertson had died of natural causes in 1993. If the case had ever come to trial, Robertson would have been a main witness because of his role as group auditor.
Nadir fled the country saying that he could never expect a fair trial. He had a point. The pre-publicity alone would have made it difficult to find a jury who hadn’t read about the case. It emerged only last year that Nadir had not after all broken his bail conditions in fleeing He wasn’t on bail at the time. The stipendary magistrate and the Crown prosecutor had forgotten to renew the bail when the case was transferred to the Crown Court. How this simple omission of a standard legal procedure came about is a mystery. The magistrate now has a knighthood and the prosecutor, Calvert-Smith, went on to became Director of Public Prosecutions.
There is no proof, either way, but is it possible that MI6 got the missing money out to Cyprus, and that this ran counter to a Prime Ministerial prosecution? No doubt, the truth will emerge one day. Last year Nadir attempted through his English solicitor, Peter Kravinskis, to have the charges against him dismissed under the ECHR. The Court refused to hear his plea on the grounds that he had refused the jurisdiction of the British courts. One would have thought that the courts and Parliament determined jurisdiction and not the defendant. In this case, apparently not. (14)
Securing the economic well-being of the UK is now part of MI6’s charter. Perhaps it is worth suggesting, if only as a speculative afterthought, that with the ending of the Cold War, and the absence of a monolithic political enemy, the USSR, the consolidation of the West’s economic hegemony will become a major concern of the various Anglo-American intelligence agencies. Within the first month of G. W. Bush’s presidency, Condoleezza Rice announced that ‘globalisation’ was now ‘the national security’ priority.
Just as the Cold War was a politico-military process, globalisation is set to become a politico-financial one. And just as intelligence agencies such as the CIA and MI6 became not merely political observers but also political players in the Cold War, so might we expect them to remain not simply observers of globalisation but players within it. Multinationals with political identities such as Polly Peck may become more common; and, in retrospect, Polly Peck and Asil Nadir may come to be seen as early casualties of globalisation.
Notes
- Tim Hindle, Asil Nadir: Fugitive from Injustice?, (London: Pan Books, 1991). I am indebted to Hindle’s book for much of the financial and biographical background in the following. And also to David Barchard, Asil Nadir & the Rise and Fall of Polly Peck, (London: Gollancz, 1992.) Both these books, written at the time of the Polly Peck affair, remain essential reading. They are the only serious studies in English. The political interpretation in the following, however, is mine alone.
- This fact gave Nadir entry to The Guinness Book of Records.
- Citibank recently received some unfortunate publicity in the US with reference to laundering by the Russian mafia. They had innocently allowed millions of dollars to go through accounts held by various anonymous individuals. They had completely inadvertently forgotten to apply their own code of practice whereby the identity of clients is checked
- Hindle, p. 213
- Peter Wright mentions him in Spycatcher. He was Wright’s training officer and, according to Wright, had a cavalier attitude towards the relationship between the law and the intelligence services.
- Anyone who consults 3i’s website will notice that it has commercially odd relationships with it’s legal staff. They employ in-house an exceptionally high proportion of lawyers. Most legal work is contracted out these days. 3i does contract some legal work out. But on unusual terms. Most firms review contracts with outside lawyers on a yearly basis. 3i’s are subject to instant review. One of the major legal firms they use is Slaughter & May, a large city firm. Slaughter & May have on their roll of ex-employees some distinguished names. Sir Martin Furnival Jones, for example, a deceased Director-General of MI5. Some senior members of SOE also came from Slaughter & May. Cf Lobster Who’s Who.
- Barchard, p. 177
- Brendon O’Malley and Ian Craig, The Cyprus Conspiracy, (London: IB Tauris, 1999)
- Ibid. This book was reviewed in Lobster 38
- The sensitivity of the issue may be judged by the events surrounding the publication of one of the few books on the subject which suggested American complicity in the events. Soon after the invasion, Laurence Stern published in America The Wrong Horse, putting forward (with less evidence, no papers were available at the time) the Craig/O’Malley thesis. The book was immediately pulped, apparently at the insistence of an ’eminent’ American statesman – Henry Kissinger. Outside of copyright libraries, only one copy seems to exist in the UK. Via Lobster, I’m happy to provide the address to any interested reader.
- Elizabeth Forsyth was convicted of transporting/laundering monies knowing them to have been stolen from Polly Peck. She was later acquitted on appeal.
- Michael Crick: Michael Heseltine: A Biography, (London: Hamish Hamilton, 1997).
- This was confirmed to me in a conversation with Elizabeth Forsyth and her and Nadir’s solicitor, Peter Kravinskis, in Manchester in September, 1998.
- Charles I refused his Court’s jurisdiction but it didn’t save his head. Apparently, this isn’t a strong enough precedent. Different times, different mores no doubt.