TWO corporations, whose dodgy dealing led to the biggest bankruptcy in history, have deep links to New Labour. US energy giant Enron was the world's seventh biggest company until it collapsed a month ago with billions of dollars of debt. The scandal surrounding its collapse threatens to engulf US politicians close to Enron, including George W Bush.
Tony Blair should also be worried. Enron has given money to New Labour. It has also received a string of favourable decisions from the government. Enron's accountants, Arthur Andersen, admit that one of their top auditors shredded thousands of Enron-related documents in the weeks before the collapse.
Andersen's influence goes right to the heart of New Labour. Trade and industry secretary Patricia Hewitt was head of research at Andersen Consulting (the accountants' sister company) for two years before the 1997 election.
The scandal over Enron exposes the madness of the free market. Enron was hailed in the business papers as a soaring success right up to the eve of its fall. All the while it was hiding mounting debt behind complicated financial deals. Its 'off-balance-sheet' trading inflated profits by $600 million between 1997 and 2000.
Enron executives knew last year that the company was in trouble. So they unloaded their shares, making tens of millions of pounds profit. Yet the executives banned their employees from dumping the shares they had been given in lieu of wages. Arthur Andersen now says it knew of Enron's losses 11 months ago, but it still gave the firm a clean bill of health.
Thousands of documents relating to Enron were shredded at Andersen's Houston office in October and November of last year. Cooked books, shredded documents, tens of thousands of workers' lives ruined-yet Enron and Arthur Andersen are two of New Labour's favourite companies. Enron sponsored successive Labour Party conferences after the 1997 general election.
It spent £15,000 on a 'gala dinner' at Labour's 1998 conference. Three weeks later Peter Mandelson, then a government minister, allowed Enron to buy Wessex Water for £1.4 billion without referring the deal to the Monopolies Commission. The firms directors made a fortune when it was floated.
The Patricia Hewitt link
ARTHUR Andersen has also done well out of New Labour. Its accountancy firm was banned from government business under the Tories in 1982. The firm was in a dispute with the government over the fate of an estimated £200 million of taxpayers' money that disappeared with the bankruptcy of the De Lorean car company.
The car firm's accountants were Arthur Andersen. But Andersen Consulting escaped the ban. It continued to get lucrative government contracts. Then in 1994 Andersen Consulting appointed a new director of research-Patricia Hewitt, former Labour Party press officer.
In mid-1996, with the general election looming, Andersen Consulting hosted a seminar with 100 Labour MPs. The theme was 'how to be an efficient minister'. Six months after the 1997 election the New Labour government lifted the ban on accountancy contracts with Arthur Andersen.
One of the company's biggest fans was new minister Patricia Hewitt. Andersen Consulting was responsible for one of the most disastrous Private Finance Initiative schemes. The Tories gave it the computer contract for the National Insurance system. Cost overruns and delays had cost upwards of £50 million by 2000.
Enron's Brown man
ENRON HIRED a former aide to Chancellor Gordon Brown to lobby the government to fix its energy policy in the company's favour. Karl Milner was the lobbyist.
Enron wanted New Labour to overturn its 1997 pledge to save the coal industry by stopping the Tories' 'dash for gas' fired power stations. The government gave in, allowing Enron Europe Ltd to build a gas-fired station on Teesside. Karl Milner boasted to an undercover Observer reporter in 1998 about his role, saying, 'It's intimate knowledge of what's going on that produces results.' Stephen Byers, then Secretary of State for Trade and Industry, dumped the ban completely two years ago.
He gave the go-ahead for another Enron gas plant in Kent. Enron Europe Ltd gave money to New Labour. Tony Blair gave Ralph Hodge, the company's chairman, a CBE last year 'for services to the power generation and gas industries'.
Making money from kids
ANDERSEN Consulting was part of New Labour's failed Education Action Zone experiment. It ran the zone in Newham, east London. As in the other zones, much of its 'help' came in kind (consultancy advice) and brought it acres of free publicity. Children turning up to a music event, for example, found the hall festooned with Andersen logos.
Senior Arthur Andersen partner Graham Walker was appointed to the New Labour taskforce on teacher workload.
NEARLY A quarter of all those people seconded by private companies in December 1998 for a stint at the Treasury, where Patricia Hewitt was a minister, came from Arthur Andersen. One was there to 'provide policy support for PPPs [Public-Private Partnerships] for NATS (air traffic control) and London Underground.'
Arthur Andersen is a 'principal company' advising London Underground on how to break itself up in preparation for privatisation.