Guinness report likely to slate top City figures

Saunders ruling to pave way for publication next week of damning DTI findings on share support operation

Several leading City figures are expected to be strongly criticised in a Department of Trade and Industry report on the Guinness affair to be published next week, 10 years after government inspectors were sent in to investigate the company.

The long-delayed report is to be published "within days" of a ruling by the European Court of Human Rights on whether accepted civil liberties were infringed in prosecuting Ernest Saunders, the former Guinness chairman, and others.

Government sources say the report will be published regardless of whether the European Court comes down in favour of Mr Saunders. Judgment is expected to be handed down on Tuesday.

The DTI report has already been redrafted to take account of the acquittal on theft charges of Thomas Ward, the American lawyer caught up in the Guinness affair, and the Serious Fraud Office's decision to drop proceedings against David Mayhew, a senior partner of the stockbrokers Cazenove.

However, the DTI's inspectors, David Donaldson QC and Ian Watt, remain scathing in their analysis of events surrounding Guinness's bid for Distillers in the mid-1980s and highly critical of a number of those involved.

One source said: "This is going to be a big embarrassment to those hoping the Guinness affair had gone away for good. It's coming back to haunt them."

The report steers clear of criticising the professionals caught up in the affair - lawyers and accountants - but there is severe castigation of eight of the main protagonists. Also singled out for strong criticism is Morgan Grenfell, which advised Guinness on the Distillers takeover. Several others are cited in language that alleges negligence and varying degrees of involvement.

The report also touches on some smaller "share support" frauds which took place in the City at about the same time.

No view is expressed on whether part of a secret pounds 5.2m payment by Guinness which mysteriously passed through Mr Saunders' Swiss bank account was intended for him. Mr Saunders has consistently denied it. The episode was never the subject of charges against Mr Saunders, but the payment was examined at length during his trial.

The Guinness affair resulted in the conviction for fraud of four men - Mr Saunders, Tony Parnes, the stockbroker, Gerald Ronson, the property tycoon, and Sir Jack Lyons, patron of the arts. All except the last of these were jailed.

Criminal proceedings against a further three, David Mayhew, Lord Spens and Roger Seelig, were abandoned while Mr Ward was acquitted after a lengthy fight against extradition from the US.

The DTI report deals with Guinness's attempt artificially to inflate its own share price during the contested pounds 2.7bn bid for Distillers, thereby enhancing its chances of winning.

Guinness secretly indemnified a series of "supporters" against any loss they might sustain in buying the company's shares. Some pounds 25m was later paid in "success fees" and commissions, much of it through obscurely named nominee companies in off-shore tax havens.

One former Guinness defendant said last night that it did not surprise him that the report was being rushed out. "They [the authorities] want to defuse any ruling against them in the European Court and this is one way of doing it," he said.

Mr Saunders maintains his prosecution was unfair since it was partly based on evidence collected by DTI inspectors, who had deprived him of his right of silence. Under the Financial Services Act witnesses are obliged to answer the questions of inspectors on pain of imprisonment. There is as a consequence no protection against self-incrimination.

Lawyers familiar with the case expect the European Court to come down strongly against the Government in its use of DTI inspectors to collect evidence. However, the judges are not expected to overturn the conviction and may go further by publicly stating the prosecution would have succeeded even in the absence of the DTI transcripts. Publication of the report will bring to a close one of the most protracted episodes in British corporate history.