Dirty deeds done dirt cheap - Round III

Did the "local property boys and girls" simply run rings around the agents?
Or is something fishy going on?
(Pic : BBC Wales)

I'm loath to end the Assembly year on a bad news story, but this constitutes a bubbling scandal that's worth following closely due to its potential impact.

It's escalated further, with BBC Wales reporting on Monday that the EU-backed Regeneration Investment Fund for Wales (RIFW) handling of a deal with South Wales Land Developments (SWLD) has been referred to the Serious Fraud Office (SFO) by the Wales Audit Office (WAO). That's a lot of acronyms. It hasn't been confirmed yet, but hasn't been denied either.

It's worth pointing out that, at this stage, it doesn't mean anything's wrong, just that the auditors must've had information significant enough to be sent to the highest fraud authority in EnglandandWales. Not looking good, is it?

A recap of the story so far

• Dirty deeds done dirt cheap? (18.9.12)
• Digging deep into deals done dirt cheap (11.2.13)

• A parcel of WDA-owned land was sold by RIFW to Guernsey-based South Wales Land Developments for £20.6million in March 2012.
• The value of some of that land – especially around Cardiff – will have sky-rocketed due to (at the time undisclosed) housing development plans. It's estimated from under £2million to £120million in Cardiff alone.
• This was an obvious business opportunity. The parcel should've have loads of interested parties, but it seemed RIFW, or their agents, approached developers directly rather than selling the land on the open market, which is odd in itself.
• Byron Davies AM (Con, South Wales West) referred the deal to the Wales Audit Office in September 2012 after the deal raised his suspicions.
• The Wales Audit Office widened the scope of their inquiry after a preliminary investigation in late 2012.
• In February 2013, the then Deputy Minister for Social Justice and Regeneration, Huw Lewis (Lab, Merthyr Tydfil & Rhymney), suspended RIFW projects (except Neath town centre) and launched a double internal Welsh Government investigation into both RIFW itself, and the deal.
• On Monday, after the best part of a year, the WAO (apparently) referred the deal to the Serious Fraud Office. The Welsh Government are yet to comment, and Carl Sargeant (Lab, Alyn & Deeside) became the minister in charge in March.

Update 19/07/2013 : Carl Sargeant released a written statement on the 17th July, which was linked to by an anonymous contributor further down. You can read it here.

The statement is pretty much what you would've expected. He confirms that the double Welsh Government investigation into RIFW ordered by Huw Lewis is still ongoing, but says that no further details will be released until after he's discussed it with the agents (Amber) and the RIFW board. There's no mention of Lambert Smith Hampton.

He also confirms that RIFW will remain suspended (but he doesn't mention the Neath town project, which is still going ahead AFAIK), and hints that it's likely that RIFW will be wound up, subject to alternative arrangements being found. Understandable, but a bit "deckchairs and Titanic". He says all this will be completed "by the end of August", and of course I'll come back to it.

Needless to say, the fact that this was a written statement, released on the last day of the Assembly term, denying AMs the opportunity to question the minister on this until September, hasn't gone down well. Byron Davies AM raised a point of order during the last Assembly debate on the 17th, and Deputy Llywydd David Melding (Con, South Wales Central) gave Carl Sargeant, and other ministers, a sedate ticking off for constantly pulling stunts like this.

They're getting twitchy about it, and so they should be.
The key issues

The land valuation process – It's been hinted that the land was sold at a 2009 value, rather than its value at the point of sale in 2012. That could be because the agents thought it would be hard to shift – which would make them pretty silly in the case of the Cardiff land. Was it under-valued deliberately?

Cardiff's LDP – The BBC report says the Cardiff land alone was sold to SWLD at an "agricultural rate" of ~£15,000 per acre. This is land that anyone with even a casual interest in planning/development would've known was being eyed up for housing, despite no formal plans being put forward. So it had huge potential value, yet was sold for practically peanuts. A few months after the sale, Cardiff Council revealed that it was going to be used for housing, and SWLD – who were directly courted by the agents - were sitting on a goldmine. That hints at either inside knowledge (fraud?), a stitch up, or incompetence by RIFW.

The claw back agreements – The Welsh Government had, sensibly, included clauses where they would benefit from land value rises after sale. However, as Nick Servini says, it appears some plots didn't have these agreements, whilst the claw back agreements might've been set too low. In the case of the Cardiff land alone, it could cost the Welsh Government tens of millions of pounds.

South Wales Land Developments Ltd – Who are they? What are they up to? Why Guernsey? All valid questions with no answers at the moment. On the surface, it looks like they're a legitimate property company and are currently seeking outline planning permission for housing developments on the land they bought – including Pyle and Brackla in Bridgend county. Getting planning permission raises the value of the land when selling to potential developers – a "land bank". The Brackla application agent is RIFW's Investment Manager – Lambert Smith Hampton – the other applications have been dealt by other agencies.

What the Welsh Government knew – Technically, RIFW is "arms length" of the Welsh Government, but ultimately under its control. The fund was managed on the ground by various managers/boards etc. But how much of a leash did the Welsh Government have? Were they monitoring it properly? What are the backgrounds of the people on the management board? Did they have any interests themselves?

Why might've this been referred to the SFO?

How about "Economically Responsible?"

The overriding issue as I understand it is that if RIFW had kept hold of the land until  Cardiff Council revealed their draft LDP, they could've sold the Cardiff land - alone - for something approaching £120million, and doing so directly to the flock of housing developers who would've come knocking on their door.

They sold it instead, along with loads of other bits of land, for £20.6million to a mysterious offshore company. To add insult to injury, the Welsh Government might've had embarrassingly-low claw back clauses, and might've lost out on significant sums of money.

And it all might've been done deliberately and with prior knowledge.

We (or rather, the Welsh Government on our behalf) are the ones who could've been defrauded – by potentially tens of millions - sums literally 500,000 (perhaps upwards of a million) times greater than the average night in a Cardiff hotel.

That money could've been match-funded for significant regeneration projects in our Objective One towns and cities during sluggish economic conditions. Instead, at the moment it looks like it's heading for an offshore bank account.

That's why this is serious, and why heads should roll. This is not only potentially corrupt, but possibly an example of gross incompetence by the Welsh Government, or more likely people working on their behalf.
It's unclear at the moment precisely why this has been referred to the SFO. But I suspect - as I said in my second post on this - that it's because of a "failure to disclose information".

That information being something like prior knowledge of Cardiff's (or others) Local Development Plan – and subsequently, the fact that this "cheap" RIFW land was going to be worth a fortune. Or, it could be a business relationship/interest between parties that wasn't disclosed when it should've been. Both might count as fraud, and there are other possibilities too.

I said this had the potential to be one of the biggest scandals of the devolution era, and I doubt I'll be far off. If the SFO are getting involved, this could be heading towards a criminal investigation. It's unclear how far up this is going to go, or where.