Osborne at bay over charge he sought cash from Russian

Guardian 22st October 2008

Link to this video

George Osborne's candour and judgment were called into question last night after it was alleged he was personally involved in discussions to channel a £50,000 donation from Russia's richest oligarch to the Conservative party.

Facing a barrage of questions yesterday, the Tory shadow chancellor was made to offer a detailed account of what happened when he met the tycoon Oleg Deripaska four times in a single weekend during his summer holiday in Corfu.

Osborne, who was backed last night by his leader, David Cameron, was forced to admit he had been involved in a conversation at the villa of financier Nat Rothschild about the way a donation could be secured from Deripaska.

On a day of extreme political danger for Osborne, Rothschild, a regular fundraiser for the Conservatives, revealed he was willing to go to court to prove his claim that Osborne had not only wanted to secure a donation from the Russian, but had been party to discussions as to how this could be made legal.

Rothschild claimed Osborne had been present when the party's chief executive and fundraiser, Andrew Feldman, had suggested the money could be channelled through LDV, a British firm owned by Deripaska. It is not illegal to accept a donation from a registered UK company, but could be in breach of section 61 of the 2000 political parties law to enter into or "act in furtherance of" an arrangement which disguised an overseas donation.

In his detailed statement last night, Osborne insisted that at no point did he or Feldman "suggest ways of channelling a donation".

Rothschild, an old and close friend of Osborne, has gone public after he became enraged at the way in which the shadow chancellor had abused his hospitality. He was furious that Osborne breached confidences about his conversations with Lord Mandelson, the business secretary, while the politicians were private guests at Rothschild's luxury Corfu villa in August.

Osborne has been seen as the source of malicious newspaper stories that Mandelson had poured poison about Gordon Brown in private conversations, and also that Mandelson held potentially controversial meetings with Deripaska on his £18m yacht, moored near the villa of Rothschild, a friend and business partner of Deripaska.

On a day when some of the biggest political reputations at Westminster were at stake, it became clear that Rothschild, the son of the merchant banker, was so infuriated by Osborne's discourtesy that he was prepared to wreck their friendship. This prompted Tory claims that Mandelson, bent on revenge, must have manipulated Rothschild into causing Osborne such a political embarrassment. At lunchtime yesterday, Osborne issued a limited denial of Rothschild's claims by saying he had not solicited money from Deripaska, and no money had been taken. "We did not ask for any money, we did not receive any," he said.

Sources close to Rothschild immediately insisted this limited denial obscured the fact Osborne and Feldman had enthusiastically discussed the possibility of securing the donation from Deripaska. Rothschild accepts there was no direct conversation with the Russian, but says the Conservatives had discussed the issue with him.

By mid-afternoon, Osborne issued a fuller statement admitting he had met Deripaska four times in one weekend in Corfu, and that in the presence of Rothschild, Feldman and two other witnesses had indeed discussed a donation from Deripaska. But he portrayed Rothschild as the initiator of the discussion.

Osborne said that in the discussion on the terrace of the villa: "Rothschild suggested to Feldman that his friend Mr Deripaska could be interested in making a donation." Osborne in his account said: "Feldman at this point made clear there are very strict rules on donations to political parties in the UK. Feldman explained a political donation is only lawful if you appear as an individual on the UK electoral roll, or if the donation comes from a legitimate UK trading company."

At this point, according to Osborne's account, "Rothschild said that Mr Deripaska owned UK trading companies including Leyland Daf", a Midlands-based vehicle firm. He insisted "there was no discussion about how a donation could be concealed or channelled".

If a donation had come from the Leyland Daf board, ordered by Deripaska, it would have been highly arguable whether it was lawful since the company might have been acting as an agent for a foreign donor.

After the discussion at the villa, Rothschild arranged for Osborne and Feldman to go aboard Deripaska's yacht in his company, but Osborne insists no discussion of a donation occurred at this one-hour meeting, even though Feldman, the party's chief fundraiser and an old school friend of Cameron, was present.

Allies of Rothschild appeared last night to corroborate this account. Osborne insists he had no further conversations on a donation, but he says Rothschild suggested in a phone call on September 18 with Feldman that Leyland Daf was interested in making a donation.

According to the Tory account, Feldman at this point considered whether such a donation would be appropriate and after discussion with party officials decided it would not be, so ending the possibilty.

Allies of Deripaska weighed in against Osborne's implication that he initiated talks, saying the billionaire "has never donated to any political party in Britain and he has no intention of doing so".

Last night Rothschild further challenged details of Osborne's version of events, saying he had discussed the possibility of a donation from the oligarch via Daf with Osborne before they met Deripaska. In further conflict with Osborne's story, he said the issue of a donation was again raised in talk on Deripaska's yacht.

After the meeting on the yacht, Rothschild claims the subject was raised again over dinner and "Osborne was interested in whether and how such a donation could be secured". He also claims the Tories were still interested when he raised the issue with Feldman in September. Rothschild said: "I was left with the impression the Conservative party remained interested." He added that another guest at his villa, James Goodwin, a consultant, was willing to corroborate his account.

Friends of Rothschild last night defended his behaviour, and his decision to stand by Mandelson, a friend for 10 years, rather than Osborne, his older friend and closer political ally.

One said: "There is a long history in British politics in which people from other political parties meet and discuss the state of their parties and remain discreet about it. He [Rothschild] is doubly angry in that his mother had been funding Osborne's office for years."

Cameron fully backed Osborne, who may yet face questioning for failing to declare he and his family had stayed at Rothschild's villa. He said: "At no point did he ask for any money and the Conservative party didn't receive any money. That is the absolutely vital point."