Lunch in a Mayfair restaurant, a blacklisted company, and the Conservatives' link to Serbia

'Independent' investigation reveals how cash from Serb businessman was paid into Tory coffers

The Conservative Party accepted a donation from a Serb businessman whose companies were on a sanctions black list drawn up by the US Treasury Department.

Jeremy Hanley, the former party chairman, accepted the gift from Zoran Tancic, even though one of Mr Tancic's fellow directors had been Jovan Zebic, a Serb finance minister credited with raiding Yugoslav bank reserves to fund the war in Bosnia.

The revelations, coinciding with John Major's visit yesterday to British troops in Bosnia, are sure to add weight to calls for the Tories to be more open about their foreign donors. Earlier this week, the party admitted receiving money from the businessman, who at the time was unnamed, but they denied claims that it was tainted by connections with the Bosnian Serbs or Radovan Karadzic.

Inquiries by the Independent have established that Mr Tancic has no links with Mr Karadzic or the Bosnian Serbs. However, through one of his companies, he had a direct link to the upper echelons of Slobodan Milosevic's Serbian government. Metta Trading Ltd, of which Mr Tancic is managing director, was on the American black list in 1994, when the donation - described by one senior party source as "less than pounds 50,000" - was made. Its directors had included Jovan Zebic, now deputy prime minister of the joint Serbian- Montenegrin state, and Alexander Larin, the Russian deputy minister for transport.

US officials said this week that if any American companies had had any dealings with Metta, a London-based metal trading company, they would have faced criminal proceedings. Another company of which Mr Tancic used to be chairman, Metalchem International Ltd, was also on the US Treasury black list.

A source within the US Treasury Department's Office of Foreign Assets Control said: "These companies were on the list because they were perceived as being owned by, or controlled by, or acting on behalf of Serbia."

Through his solicitors, Peter Carter-Ruck and Partners, Mr Tancic said last night that both his companies had complied with Department of Trade and Industry rules and did not trade with Yugoslavia. Further, he said that Mr Zebic was "properly removed from the board" in July 1993, in order to comply with sanctions.

However, the involvement of such a high-profile Serb politician and the fact that Mr Tancic's companies were blacklisted will inevitably embarrass the Tory leadership.

Mr Tancic was introduced to Mr Hanley in December 1994 by John Kennedy, a Yugoslav-born Conservative prospective candidate for Barking. Mr Hanley, then party chairman, met Mr Tancic for lunch soon afterwards at Mark's Club, in Mayfair.

He told the Independent this week: "At John Kennedy's invitation I met a person who had come from the former Yugoslavia. There was no discussion about the details of his background. I said I'd been to Bosnia. Most of the time we talked about his business in Russia, and his plans to build a factory in the UK.

"I had no reason to think anything about him. I trusted the contact, John Kennedy, who said this was a gentleman who was interested in Conservative views. So we had a pleasant lunch discussing Conservative philosophy."

Asked if the man was called Tancic, Mr Hanley said: "I never confirm or deny the identity of donors."

Mr Tancic, a 49-year-old father of two, lived in Britain for for at least 12 years before emigrating recently to France. According to his office, he obtained British citizenship "two or three years ago".

He is a former chairman of, and still a consultant to, Metalchem International Ltd, a metals trading company with a turnover of pounds 171m in 1991, before war in the former Yugoslavia brought it virtually to its knees. Its parent company is the state-controlled Jugometal of Belgrade, which is also blacklisted by the Americans.

In January 1991, Mr Tancic was instrumental in the incorporation of Metta Trading Ltd, a company originally set up by Metalchem International to "develop the export possibilities of the Soviet metallurgical industry".

Nine months later, Jovan Zebic was made a director. Mr Zebic, 57, gave his occupation on company documents as "Minister of Finance for Serbia, Yugoslavia" but he has since risen to the rank of Deputy Prime Minister.

A former vice-governor of the National Bank of Serbia, Mr Zebic is widely credited in the former Yugoslavia as the architect of a scheme in 1990 in which money was covertly printed without the knowledge of the federal government.

The excess money created was used by the Serbian government to buy off federal reserves of hard currency which, in practice, entailed withholding it from other members of the federation, such as Croatia, Bosnia and Slovenia.

The proceeds helped fund Serbian operations in Bosnia.

John Pyman, a fellow director with Mr Tancic of P.J. Forbes, a spare- parts trading company, spoke to Mr Tancic on Thursday night and said the Serb felt the issue "had been blown out of all proportion". Further, he backed Mr Tancic's insistence that he had no links with the Bosnian Serbs or Mr Karadzic.

"I don't see how he can be an associate of Karadzic in that he has been resident in England for 12 years as MD of Metalchem International," Mr Pyman said. He believed Mr Tancic had not been to Bosnia since 1989, although he had visited Belgrade.

Asked about the donation to the Conservative Party, Mr Pyman said: "The Metalchem company accounts are in the company office and if you want to take a look you can see there wasn't any big money paid to political parties."

Mr Pyman said he believed Mr Tancic met Mr Hanley but said less than pounds 10,000 was given to the Tories. Mr Pyman said Mr Tancic also asked to meet his political friends, but he would not say who those friends were.

A spokeswoman for the Conservative Party last night refused to confirm or deny it had received a donation from Mr Tancic. She said inquiries were continuing into earlier allegations about the receipt of funds from Serb sources.