Politics: feeding frenzy

By Richard North - January 27, 2023

I thought I’d give “tanks for Ukraine” a break for now, to let the media catch up with the details – if they ever do – and return to the Zahawi affair, which seems to be cooking nicely.

Completely unmissable for those who have been following the saga so far are the headlines from diverse sources which have Jim Harra, HMRC’s chief executive, “suggesting” that Zahawi did not make an “innocent error” with his tax return.

The details, as presented by the Telegraph, have Harra telling the Public Accounts Committee yesterday that “there are no penalties for innocent errors in your tax affairs”.

Thus, although Harra managed to avoid commenting directly on Zahawi’s personal tax affairs, he rather neatly put the boot in, to such an extent that the former chancellor has probably been holed below the waterline.

With Zahawi trying to pass of his dealing with the taxman as a minor technical dispute of no great importance, dismissing his default as mere “carelessness” rather than a deliberate attempt to defraud, Harra explains that carelessness is a concept in tax law.

“It can”, he says, be relevant to how many back years that we can assess and it can be relevant to whether someone is liable to a penalty and if so, what penalty they will be liable to for an error in their tax affairs”.

“If you take reasonable care, but nevertheless make a mistake”, he adds, “whilst you will be liable for the tax and for interest if it’s paid late, you would not be liable for a penalty”. On the other hand, “if your error was as a result of carelessness, then legislation says that a penalty could apply in those circumstances”, Harra tells us.

But what is really interesting is that, after nearly a full week of adverse, the coverage seems to show no signs of abating. Rather, Zahawi’s elevated profile and his obstinate refusal to do the decent thing and resign has motivated the hacks to look more deeply into his background, and dish the dirt.

There is an odd reflection of journalism here, in that when presented with a story about military hardware, the average hack’s brains seem to turn to mush, yet some of them are quite capable of handling formidable detail when it comes to the dissection of the character of a political figure.

This is certainly the case with The Times which has published today an “in depth” look at the man in the news, under the heading: “Nadhim Zahawi oiled the wheels and was handsomely paid”, recording that questions are now being asked about his powerful friends abroad.

This is a development of the themes rehearsed by the Sunday Times back in 2016 about his oil interests in Kurdistan, filling in much more of the background.

Zahawi, we are told, earned at least £1.3 million from his interests in Kurdistan, but one of his main sources of wealth seems to have stemmed from his cultivating close links with power brokers in the Barzani family, one of two tribes that dominate Kurdish politics.

While holding down his day job as Tory MP for the safe constituency of Stratford-upon-Avon, to which he was elected in 2010, be become known as the “go-to consultant for companies wishing to gain access to the Barzani clan”.

Coming from a wealthy family, where his grandfather had been governor of the Central Bank of Iraq, his personal road to riches had been solidly paved for him by his father Hareth who, after the fall of Saddam Hussain in 2003, had won rebuilding contracts in Iraqi Kurdistan, through Iraq Project & Business Development (IPBD).

To help him on his way, once in Westminster Zahawi became co-chair of the all-party parliamentary group on Kurdistan and used that position to fund multiple trips to the region. There, he built a close friendship with Barzani who had become president of the Kurdistan regional government (KRG) in 2005, and also built a relationship with the oil minister, Ashti Hawrami.

In 2011, while ostensibly representing the good people of Stratford-on-Avon in Westminster, Zahawi visited Kurdistan at least four times, attending meetings with Barzani, Barham Salih, who later became president of Iraq, and other senior figures.

On one visit he led 70 business people to Arbil in what was said to be “part of a wider government effort to spur trade with Britain”. A few weeks later he was back in a personal capacity, attending a Kurdish-Iraqi oil and gas conference seeking to attract foreign investors.

According to The Times, he used his relationships to foster closer relations between Britain and Kurdistan, leading trade delegations and meeting Kurdish officials in London.

His connections made him attractive to oil companies, making him a regular at an annual oil and gas conference billed as “the place to meet the key Iraqi and Kurd officials and decision makers”.

The conference’s first principal sponsor was Gulf Keystone, which was founded by Todd Kozel, an American who was jailed last year for failing to declare $66 million in assets. Keystone was funding Zahawi’s parliamentary group in 2014 when the MP told a newspaper that he did not “mix my personal interests with my work” as a member of the group.

A year later, however, he was appointed Keystone’s chief strategy officer. It was in crisis and its share price was falling because the KRG was withholding oil payments of $250 million.

Continuing the tale, The Times records industry sources saying that Zahawi was seen as being key to getting the payments restarted. One said that he was worth his weight in gold.

“When you saw him and the oil minister together, they were like two brothers,” the source said. “With a company like that, in a sector like that, political relationships with the government [or] the quasi-government are absolutely critical”.

As well as Zahawi earning his £1.3 million from Gulf Keystone between 2015 and 2018, and being granted share options worth about £300,000, in 2012 he was hired by Afren, an oil exploration company which was trying to find buyers for two Kurdish oil fields it had stakes in. He worked for Afren until its collapse in 2015 and also advised a Canadian oil company called Talisman Energy.

In what turns out to be a typical lack of transparency, the commercial terms of the agreements were masked because Zahawi declared in the register of MPs’ interests that they were clients of his consulting company, Zahawi & Zahawi, rather than disclosing contracts.

And, if this was not enough, about the same time he became a major shareholder in Genel Energy, which had an interest in an oilfield which he and MPs visited during a parliamentary group trip in 2013. At the time Zahawi said he had not “been privy to any insider information” and had chosen to invest “on the strength of their business”.

In its long piece, The Times goes on to set out how Zahawi used his position as a Westminster MP to further his political interests in Kurdistan, including hosted Barzani and other officials in the UK, meeting Johnson when he was foreign secretary in 2019 and on two visits to Downing Street after he became prime minister.

With that and much else, it is difficult not to come to the conclusion that this free-wheeling “fixer” was entirely focused on self-enrichment and furthering his Kurdish political interests, working closely with his father who also retained considerable business interests in Kurdistan, alongside substantial UK interests.

He hardly seems to be the ideal person to hold down the post as a constituency MP in the heart of Middle England, and would seem an unlikely candidate for the multiplicity of junior ministerial positions he was given under Teresa May and the senior positions he was given under the Johnson administration, culminating in his brief tenure as chancellor of the exchequer.

With his “colourful” background, Zahawi always was a political land mine waiting to explode, which reflects poorly on Sunak’s judgement, who never saw it coming.

Now, Sunak is said to be “livid” over Zahawi’s failure to disclose his tax affairs when he was appointed to his current positions, frustrated that the affair has become a “gift” for Labour, preventing his government from moving on.

And still controversy attends Zahawi’s business affairs. He is under further pressure to reveal the source of about £30m of unsecured loans made to his wife’s UK property company, the identity of the lenders remaining undisclosed as the money was paid to his Zahawi & Zahawi company.

Now that the media feeding-frenzy has begun, there is going to be no let-up until Zahawi has gone. The longer he delays his resignation, the greater will be the collateral damage.