Wednesday, 17 July 2013

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
  • 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.


  1. I did a post on South Wales Land Developments last year (scroll down). I pointed out that the only known name, Langley Davies, had links with the Principality Building Society and also seemed to have a few companies of his own, including Nemo Loans.

    A week last Friday I received, via my host, a request from Nemo Loans the first of its kind I've ever received. With what we know now it looked as if someone might be trying to tidy up their image.

    Then I recived a second e-mail saying: "I emailed you on Friday, to request that links from your site to be removed. Unfortunately, there was an administrative error and your site was included by mistake. We do not want you to remove these links. I apologise for any inconvenience caused."

    Very strange. And who's Terence Mace? Could it be this guy?

  2. Thanks, Jac.

    As you say, Langley Davies is the only name that's cropped up (publically) regarding SWLD, and I've mentioned him in previous posts too. I suspect Langley is "the face" of this. I'm not sure of the legal requirements regarding revealing director details etc., but SWLD's secrecy is damning in itself, even if they haven't done anything wrong here.

    You would expect anyone working for Nemo Loans to be based in Cardiff, so I doubt that's your Terence Mace. If the IT stuff has been outsourced then it's a possibility.

  3. So a huge prime land bank of indeterminate future value (many pieces of which appear to have been owned by the Welsh people for decades) was transferred to an organisation, set up by the Assembly, in lieu of EU required match funding. Said organisation was then charged with using said land to raise £20m to match EU funds and, advised by their agents, handily sold it for £20.6m (presumably £0.6m above 'book' value). Job done, handshakes all round, collect sales fees and on-going fund management fees, hand back £600k of 'super-profit' back to WAG. Who exactly was charged with representing the taxpayer here...? Can't blame the remarkably low profile buyers for grabbing one of the bargains of the century, unless of course they were in on some kind of stitch up from the start...? Seems to be incredibly little detail on the critical elements of the deal from all the investigations so far: ultimate owners of SWLD, valuation basis/valuers prior to sale, claw back provisions, RIFW decision makers, etc etc. Time for some open and transparent devolved government and I guess the SFO will have to 'follow the money'. As you say Owen, "potential to be one of the biggest scandals of the devolution era".

  4. 1. The so called "in excess of market value" persistently being peddled by WG officials is a load of bollocks. The 2009 valuation was undertaken to determine the "asset value ie book value" of ALL WG assets. This is supposed to be done annually for inclusion in WG's accounts - so why were 2009 figures relied on and not the 2012 ones?
    2.Asset Value/Book Value is always written down to very low values (a common property term is "forced sale value" which bears no relationship whatsoever to market value). The civil servants are either incompetent or are being just plain duplicitous.
    3. WG had originally forecast achieving £30M+ for the portfolio, in order to match fund £25+ European funds. When only £20M+ was achieved, WG was obliged to stump up an additional £12M of taxpayer's money to cover the shortfall - a matter of public record.
    4. Question for SFA to put - when were Lambert Smith Hampton appointed by South Wales Land Investments (OR under other guises, THE DIRECTORS of SWLA). If this was prior to the portfolio disposal, did LHS delare any "conflicts of interest"?

  5. Very interesting Anon 16:03 - it seems to be coming to the boil nicely!

    I thought readers might be interested in the Ministerial Statement made by Carl Sargeant on 17th (on last day of WG before summer recess - funny that?) No mention of Serious Fraud Office either.

  6. Thanks for the extra comments. I've updated the post to take the written statement into consideration, so thanks Anon 16:11 for the link, as knew it was issued but was waiting for it to appear on the Assembly website.

    Anon 09:54 - That pretty much sums it up, yes. All that information will likely (I presume) be dug up by the auditors or SFO. Carl Sargeant says in his statement that there'll be some sort of update in August, but they appear to be desperate to brush this aside, as they tried with AWEMA. They're not going to be able to this time.

    The Welsh Government have to remember that they are the one's who could've been diddled here. Pussyfooting around like this for the sake of their own pride of having dropped a bollock makes them look worse. They should be angry about this, and their lack of urgency begs more questions.

    Anon 16:03 - Excellent post, and I'm not questioning your good faith, but I don't have any "insider information", so you can understand why I'm going to be sceptical about anonymous information provided here. I ask everyone to be careful, especially if this starts to become a criminal investigation.

    Points 1 & 2 we already knew about. With regard point 2, this hints at being sold as if it were some sort of "fire sale", and they were rushing to make a deal as quickly as possible. That's been hinted in the EU presentation that was posted on here before. Of course, that fire sale was brain dead.

    Point 3 would be a disaster for WG if true, but I can't confirm it. I'm going to go ape shit if it's true. I'll want a head, I imagine the opposition will want a head too, as a cabinet minister - you would expect - would've have had to sign that off at some stage. If they couldn't put two and two together of the Cardiff land - something openly discussed for years - Duw!

    On point 4, I think Lambert Smith Hampton are acting as planning agents for a single application in the Bridgend area. I'm not sure about elsewhere. That's not suspect in itself, but I mentioned it because of the obvious implication of "interests".

  7. As a former businessman (now retired), I was, some time ago, approached (as were others in the public and private sector), by Lambert Smith Hampton. This was prior to RIFW coming into being and before LSH were appointed by Welsh Government to act as property advisers to RIFW. The story then was that LSH were acting on behalf of three "high worth individuals" - one from Cardiff, one from Swansea and one from the Channel Islands (although not Guernsey). I was advised that these individuals had avilable up to £50M as a "vulture fund*" to acquire land and property at "advantageous prices". Since the RIFW scandal blew up, it has been widely discussed who these businessmen were/are - but we must leave the SFO to delve further. It will also be interesting if SFO can turn up evidence of "back to back**" deals being set up by SWLI/LSH prior to the original purchases.

    * Vulture Fund - A fund that purchases companies or properties that are performing poorly and/or who's assets may therefore be undervalued.

    ** Back to Back - completion of the first purchase contract takes place at the same time as, and in connection with, completion of the second contract(s) which sees the property onward sold to a third party or parties - thus removing risk from the initial purchaser, and in the case of SWLI, turning huge profits which could have accrued to the taxpayers of Wales..

  8. The cover up always tends to be more damaging than the original misdeed(s)- and Carl Sargeant seems to be beating a hasty retreat - look out Huw Lewis!

  9. Did this happen under the Labour-Plaid coalition, or since then?

  10. Thanks, all.

    Anon 20:12 - If I were to come up with a background to this, what you describe would've been my guess. Obviously we're going to have to wait and see what the SFO come up with.

    Anons 20:15 & 20:22 - RIFW was set up by Ieuan Wyn Jones initially, but it didn't do anything in his tenure as Economy Minister. The deals happened since 2011, so Labour have been in complete control. Huw Lewis will have been the minister in charge over that period and when these deals were done.

  11. Reason why Ieuan WJ didn't do anything was that he allowed Leighton Andrew to hive of the Regeneration part of his Economic Development and Transport portfolio. Leighton was busily "empire building" at the time in his role as Deputy Minister, Regeneration. Nothing much was done after that other than changing the name from JESSICA (Joint European Support for Sustainable Investment in City Areas) to RIFW.

    RIFW appointed Fund Managers and Property Managers in August 2010, but again nothing much happened, primarily due to RIFW not agreeing it's own Business Plan until April 2011.

    Following the WG Elections in May 2011, Edwina Hart assumed that RIFW would fall under her Business, Enterprise, Technology and Science - although by February 2012, the WG beancounters/penpushers woke up to the fact that RIFW was a Regeneration Initiative. So poor Huw Lewis was suddenly confronted with being advised that RIFW was his baby, just weeks before said "dirty deeds" land deals were done.

  12. Had Edwina smelt a rat?

  13. Does anyone know the names of current or past RIFW directors?

  14. Anon 20:48 - I'd forgotten that Leighton Andrews was a deputy minister during "One Wales", but I always got the impression deputy ministers merely assist "senior" ministers in the larger departments rather than do things autonomously.

    Huw Lewis' first portfolio was strange -trying to balance things like culture alongside community safety and regeneration. You would've expected it to have gone to Edwina Hart, along with transport, with her being given a deputy minister to help her. That's common sense, isn't it? It's unclear if that means Edwina was aware of what was happening at RIFW as Anon 20:57 says.

    Anon 22:19 - It was managed by Amber Green and Lambert Smith Hampton on behalf of the Welsh Government. There was also a board of directors that included Welsh Ministers and other appointed representatives.

    The current Deputy PCC for South Wales and former Labour SpAd, Sophie Howe, has been cited as being responsible for overseeing regeneration projects during the period. Former Lib Dem leader of Swansea Council, Chris Holley, has been named as a board member too. I can't seem to find any other info regarding the management board, which is strange in itself. I suspect it would've been made up of mostly council bigwigs.

  15. It will be interesting to see if anything comes of this, it certainly need looking in to.

    As usual the welsh press is able to break stories but not keep the pressure on the Welsh Government to get answers and its doubtful any opposition politician still be interested come September/October when they return from summer recess unless the Serious Fraud Office uncovers a smoking gun?

  16. Thanks, ACOP.

    In fairness, there's not much the press can do until there are concrete details. All we can do is make guesses. Byron Davies will almost certainly remain interested in this, as if this goes to its maximum extent it would be extremely embarrassing to the Welsh Government.

    I'd say at the very least - even minus a full SFO investigation - this is on the scale of ELWA - permanently damaging and memorable, but manageable. If this is heading where it's pointing though, it'll be on a scale we haven't seen yet in devolved Wales.