The Deripaska affair, otherwise known as the Russian oligarch row, 'Yachtgate' or indeed 'Corfugate' was the political scandal that occuped much of the attention of the British press during the month of October 2008.

Oleg Deripaska was the individual often described as "Russia’s richest man" and worth some $28 billion or £16 billion according to Forbes Magazine, and also known as the "king of aluminium" since, through his investment company Basic Element, he controlled 57 percent of United Company Rusal which claimed to be the world’s largest aluminium and alumina producer. The scandal, real or imagined, involved the relationship that might or might not have existed between this Deripaska and Peter Mandelson, lately European Trade Commissioner and most recently the Secretary of State for Business, Enterprise and Regulatory Reform, and George Osborne, the Conservative Shadow Chancellor.

"Serious people are needed for serious times"

On the 3rd October 2008 Prime Minister Gordon Brown announced his first major reshuffle as Prime Minister when, to everyone's surprise, astonishment, and shock, he announced his decision to grant one Peter Mandelson a life peerage in order to enable him to rejoin the government as the Secretary of State for Business, Enterprise and Regulatory Reform. The simple explanation for the almost universal sense of wonderment at this announcement being that it had previously been a generally accepted truth that Brown despised and hated Mandelson with a passion.

Their mutual animosity dated back to the days of the Granita Pact, when Brown blamed Mandelson for 'cheating' him out of his birthright as Leader of the Labour Party. Thereafter Brown and his supporters had pursued what amounted to a vendetta against the so-called 'Prince of Darkness', and were assumed by many to have leaked the information that was behind the various scandals that forced Mandelson to resign from government not once, but twice.

But that was then, and this is now. Having succeeded Tony Blair as Prime Minister in June 2007, Mr Brown had of late experienced certain difficulties as the leader of the nation's government, as what had previously been regarded as the British Economic Miracle now appeared to be nothing more than a mirage built on a mountain of debt. Under increasing pressure from certain elements within the Party he therefore decided to put aside past animosities and bring Mandelson back into the government. An act that was variously hailed as either a masterstroke which had neutered the Blairite faction within the party, or an act of extreme stupidity as he recalled to government one of the more disaster prone ministers of recent years.

The latter might have appeared the most likely explanation as even before Mandelson had taken his seat in the House of Lords as the Baron Mandelson of Foy and Hartlepool on the 13th October, the Sunday Times of the 5th October was reporting how, only a few weeks previously, Mandelson had spoken to a "senior Tory source" and had been "dripping pure poison" about Gordon Brown. It was said that Mandelson had "laid out a long and detailed critique of the prime minister's failings" during the course of "a private conversation with a leading member of David Cameron's top team", in which he had accused Brown of presiding over a "culture of debt". Naturally, now that Mandelson was a member of Brown's government he insisted that the story was "a totally baseless piece of fiction made up in the Tory party propaganda unit", although as the Sunday Times pointed out, they had been aware of the 'poison' conversation well before his return to cabinet had been announced.

On the 12th October the Sunday Times returned to the fray, as it suggested that Mandelson had granted "trade concessions worth up to £50m a year" to a Russian billionaire by the name of Oleg Deripaska. Specifically the Times reported of how back in December 2005 Deripaska's company Rusal had been permitted to import aluminium foil duty free into the European Union at a time when all other Russian companies exporting the same product were being charged at rate of 14.9%, and also noted the European Union's more recent decision in 2007 to halve the duty on raw aluminium from 6% to 3%, had saved Rusal some £50 million.

The Sunday Times further implied that there was some connection between these decisions and the fact that Mandelson had spent some time during the summer aboard Deripaska's superyacht, the Queen K, whilst it was moored offshore from the Corfu villa owned by one Nathaniel Rothschild. Naturally, Lord Mandelson (as he had now become) denied any impropriety and during an appearance on BBC One's Andrew Marr Show on the 19th October he asserted that there was "not one jot of truth" in the allegations which he dismissed as "muck-raking stories that have appeared in some of the Conservative newspapers".

The Storm over Corfu

It turned out that that "senior Tory" to whom Mandelson had dripped the poison regarding Brown's performance was none other than the Shadow Chancellor George Osborne, and that the conversation had taken place over drinks at a "small family-run taverna on Corfu's north-east coast" during a dinner hosted by Nathaniel Rothschild on the 23rd August 2008. This particular tale had indeed been doing the rounds throughout the course of September, but was simply nothing more than amusing gossip until Mandelson rejoined the government, and made it a story fit to print.

At this point it becomes necessary to explain why such a leading exponent of New Labour as Peter Mandelson was sitting down to dinner with the Conservative Shadow Chancellor, and why he was doing so in Corfu of all places. The dinner was in fact a party held to mark the 40th birthday of one Elisabeth Murdoch, being the daughter of Rupert Murdoch whose News International just happened to be the owner of both The Times and Sunday Times. It was not, as it turned out, the only event held to celebrate the occasion as a previous birthday dinner held at Burford Priory back in Britain had included such distinguished guests as Tony Blair, Bob Geldof, David Cameron and David Miliband. An event which meant nothing except that it demonstrated the kind of people that moved in the same social circle as the Murdochs.

The presence of both Mandelson and Osborne in Corfu was explained by the fact that they were mutual friends of one Nathaniel Rothschild. Nathaniel, or Nat to his friends, was in line to be the 5th Baron Rothschild in due course and heir to much of the British Rothschild fortune, whilst he had done his best to add to the family fortune as one of the managers of the Atticus Capital hedge fund, and had recently been listed by Alpha Magazine in April as one of the fifty best paid hedge fund managers with annual earnings of $250 million. Of course the Rothschilds knew the Murdochs (indeed Nathaniel's father had once served as deputy chairman of BSkyB at one time) and Corfu was one of those places where the rich liked to spend the summers, and where indeed the Rothschilds owned a villa.

George Osborne was however merely comfortably rich and had rented a villa for the family holiday on Corfu, after which he had decamped to the Rothschild villa, since he and Nat were old friends from the University of Oxford where they had both been members of the Bullingdon Club. Oleg Deripraska came into the situation because Nathaniel Rothschild was one of his advisers, (indeed the pair were both involved in a $200 million project to develop a former military dock in Montenegro as a luxury leisure resort), his super-yacht was moored offshore, and provided accommodation to some of the overflow guests. Mandelson was there because he was after all the European Trade Commissioner and thus someone of a consequence, whilst hob-nobbing with the super-rich had always been something of a hobby for him. Indeed both of the scandals that inspired his previous resignations had their roots in his contacts with the abundantly wealthy.

It transpired that Nathaniel Rothschild took offence at the stories that appeared in the British press regarding Mandelson's presence in Corfu, and what he might or might not have said in Osborne's presence. Whether this offence was generated because Osborne had in some way breached the confidentiality of what Rothschild regarded as purely a private party, or whether it was, as The Times suggested, because such stories might have compromised Deripraska's efforts to refinance his various business enterprises in a time of enormous financial challenge was uncertain. But whatever the reason, Rothschild was sufficiently motivated to pen a letter to the editor of The Times which was published on the 20th October. In this letter Rothschild complained that the paper's "obsession with Mr Mandelson" was "trivial in light of Mr Osborne's actions". Said actions related, it turned out, to a claim that George Osborne had "found the opportunity of meeting with Mr Deripaska so good that he invited the Conservatives' fundraiser Andrew Feldman, who was staying nearby, to accompany him on to Mr Deripaska's boat to solicit a donation". Rothschild further claimed that since Deripaska was not a British citizen, Feldman had suggested that the donation was "channelled" through one of Mr Deripaska's British companies.

This claim was potentially extremely damaging for George Osborne, since British political parties were not permitted to accept funding from foreign nationals, and whilst it was perfectly legal to accept a donation from a UK registered company controlled by a foreign national, it might well have been embarrassing to be seen to be exploiting this as some kind of 'loophole' in the regulations. Therefore Conservative Party Headquarters rapidly issued a statement which asserted that the "allegations made in Mr Rothschild's letter" were "completely untrue", that both Feldman and Osborne denied any attempt to solicit a donation from Oleg Deripaska, and that the Conservative Party itself had "neither sought nor received any donations from Mr Deripaska nor any of his companies". On the following day George Osborne produced his own detailed statement regarding his various contacts with Deripaska over the years, and repeated the denial that he had solicited funds from him.

In response to the Conservative rebuttal Rothschild provided further detail of the solicitation that had taken place, and claimed that the idea of making a donation through Mr Deripaska's UK firm, LDV Ltd had been discussed no less than three times. The first discussion had taken place in his Corfu home on the 24th August, and had been witnessed by a New York fund manager, James Goodwin. The subject then "arose briefly" when he and Osborne were subsequently guests aboard Mr Deripaska's yacht, and on a third occasion it was discussed during a telephone conversation with Andrew Feldman.

Interestingly enough, Conservative Party Headquarters had also made reference to this telephone call which took place on the 14th September in which they claimed that Andrew Feldman had made it clear that they would not be "pursuing the matter", although Rothschild claimed that as a result of the same phone call he had been "left with the impression that the Conservative Party remained interested in pursuing it". Not that this perhaps mattered, as Oleg Deripaska made it known through certain unidentified "friends" that he had "never donated to any political party in Britain" and had "no intention of doing so".

Naturally as soon as Rothschild's allegations became public there were those who sought to make political capital from George Osborne's apparent misbehaviour. Chris Huhne, the Liberal Democrat Shadow Home Secretary, immediately called on the Electoral Commission to investigate. On the 22nd October the Commission declined to do on the grounds that "soliciting a donation is not an offence". However all this did was prompt Huhne to write a letter to Sam Younger of the Electoral Commission, calling on him to "either open an inquiry into the events on Mr Deripaska's yacht" or to clearly set out his "interpretation of the law". All of which simply begged the question as to what precisely it was about the statement "soliciting a donation is not an offence", that was not understood by Mr Huhne.

It was at this point that Gordon Brown decided to make his carefully prepared intervention into the matter as he took the opportunity during Prime Minister's Questions on the 22nd October to describe the matter as "very serious indeed" and added that he hoped it would be "investigated by the authorities". For a brief moment it appeared that matters were indeed about to get "very serious" for George Osborne as it appeared that an official investigation would soon be underway.

Brown's balloon was soon punctured by Tony Wright, the Labour member for Cannock Chase, and chairman of the Public Administration Select Committee, who was notably dismissive of his leader's opinion on the matter. As Wright explained it, "we are not talking about corruption here, there was no corruption. We're not talking about law-breaking, there is no law-breaking. What there is, is a massive misjudgement." He also added that he wasn't sure "which authorities Gordon thought he was talking about". Indeed quite a few people were rather perplexed by Brown's intervention and pressed Downing Street for further information. Sadly the Prime Minister's official spokesman was rather unforthcoming about precisely what "authorities" Brown was talking about other than they would be "whichever authorities are appropriate", and was similarly unclear about precisely what allegations they should be investigating other than that they were those that had been made "over the past 24 hours". Thus Mr Brown's call for an investigation therefore fell flat almost as soon as the words had left his mouth, and had quite the opposite effect to that which he had no doubt intended.

It turned out that everything hinged on Rothschild's rather imprecise use of the word 'solicit'. The reference in his original letter to The Times to his account of Andrew Feldman joining George Osborne aboard the Queen K in order to "solicit a donation" from Mr Deripraska, had given everyone the impression that the pair had been sweet-talking the Russian billionaire into handing over a fat cheque to the Conservative Party. However as those individuals who took the trouble to inquire into the detail of Rothschild's account of events soon realised, whatever solicitation took place never actually involved Deripraska at all, and consisted of nothing more than presumably hypothetical conversations that had taken place between Rothschild himself on the one hand, and Osborne and Feldman on the other. Whether there were any witnesses to some of these conversations seemed rather academic in the circumstances, since neither party were denying that they had occurred, and the only point of contention appeared to be over whether it was Rothschild or Osborne that had initiated the discussion in the first place.

Once these facts had finally sunk through into the collective consciousness of the press, they soon realised that there was not much of a story to be had in the alleged link between Osborne and Deriprska. Or as The Sun put it in its own typical fashion "there is not a yacht to it". It did however lead Osborne to the rather rueful conclusion that he would no longer be playing any part in party finances, having perhaps taken note of Norman Tebbit's observation that "if you sleep with dogs, you will get fleas".

Corfu in August

Therefore what had started as a story about a Russian billionaire and a Government minister, became a story about the self-same Russian billionaire and a leading member of the opposition. One of the reasons as to why the focus of the story changed was the editorial decision made by the BBC to concentrate on the Osborne-Deripraska relationship on the basis that there was "a specific, credible complainant" against Osborne. The BBC took a certain amount of flak for this decision, as many saw it as an example of pro-government bias, although eventually even the BBC was soon forced to admit that there really wasn't really a "credible compliant" against Osborne, and by the end of the week the focus appeared to switch back to Mandelson once more.

It was soon noted that when the questions about Mandelson's connection to Deripraska had first arisen Michael Jennings, the press officer at the European Commission, had issued a reply on Mandelson's behalf which claimed that he had simply "met Mr Deripaska at a few social gatherings in 2006 and 2007". However as The Times revealed on the 21st October they had "two reliable sources" who confirmed that Mandelson and Deripaska had sat down to dinner together at the Cantinetta Antinori in Moscow in late January 2005. Although The Times initally reported that Mandelson had "declined to clarify the discrepency in his statements about knowing Mr Deripaska", he subsequently changed his mind, and on the 25th October it was Mandelson's turn to write to The Times. He now admitted that he had first met Deripaska in 2004 and had "met him several times subsequently", but that he had "met a great number of business people round the world" as the European Union's Trade Commissioner, and had in any case "never had a conversation with Mr Deripaska about aluminium". (Although he did later admit that they'd disussed EU timber tarrifs.)

The Daily Telegraph also reported on how Mandelson's name was "repeatedly" mentioned in the secure database known as Scope which pooled intelligence material from the Security Service and Secret Intelligence Service together with information gleaned by GCHQ. It appeared that Deripaska was a "person of interest" to the British authorities because of his alleged of links to organised crime in Russia, and indeed was persona non grata in the United States of America for much the same reason. These links to 'organised crime' related to the fact that one Anton Malevsky, allegedly the head of an organised crime gang, had once held a stake in Deripaska's company. Until that is he was killed in a "freak parachute accident" in 2001.

Sunday the 24th October therefore saw a raft of newspaper headlines such as 'Pressure mounts on Mandelson over oligarch' (Sunday Telegraph), 'Peter Mandelson oligarch Oleg Deripaska linked to mafia boss' (Sunday Times) and 'A final favour? How Mandelson's last act in Brussels boosted Russian oligarch' (Independent on Sunday), whilst Guido Fawkes posted a single line entry in his blog stating "Deripaska/Mandelson tapes rumour" that excited some interest. Although whether this meant that Fawkes actually had heard a rumour or simply made up the rumour himself wasn't at all clear.

By this time Mandelson had disappeared on a trade mission to Moscow, a development that enabled the Daily Mail to report that, whilst the rest of the delegation where content with rooms at the Golden Ring Hotel costing less than £300, Mandelson was being accommodated at "one of Moscow's most sumptuous hotels" the Baltschug Kempinski Hotel, in the £5,500-a-night luxury Linley Suite which featured "two bedrooms, a beautiful living room and an opulent chandelier-lit bathroom, replete with Italian marble". Whilst any criticism of such conspicous consumption might have been slighly muted by the news that a spokesman for the Baltschug Kempinski stated that the hotel was 'only' charging him £860 a night and that the upgrade to the Linley Suite came at no extra charge, there were those that noted that when Margaret Thatcher visited Moscow she was happy enough to stay for free with the British Ambassador.

However as far as his relationship with the Russian billionaire were concerned Mandelson simply refused to disclose full details of his contacts with Deripaska on the grounds that they were purely a private matter. And that was really the end of the matter. In the absence of any hard information from either Mandelson or Deripaska as to the nature of their relationship, apart from the miasma of suspicion there was no real substantive allegation of any wrongdoing, and as much as some of the press wanted there to be a story about Mandelson's conflict of interest between his personal contacts with Oleg Deripaska and his role as European Trade Commissioner, there wasn't much they could do to keep the story rolling.

The publication of Mandelson's entry in the House of Lords register of interests on the 4th November was described by the Liberal Democrat Norman Baker as "threadbare and totally inadequate", and excited some passing interest, but only briefly, as the scandal rapidly faded away in the absence of any hard facts to support the contention that there ever had been a scandal in the first place.


As the dust finally settled over the affair it was possible to conclude that the one individual that came off worst was probably he of the clunking fist, whose intervention into the affair only served to remind everyone of how politically inept he was capable of being, whilst a slightly chastened George Osborne might well have learnt to be more careful in future

.

As for Pater Mandelson, the fact that a national newspaper, even if it was The Sun, could refer to him, as "a proven liar" without fear of the courts, simply emphasised to what extent Mandelson was damaged goods, and underlined his potential to embarrass the government at some future date. A salutary reminder of this possibility soon appeared with the publication of the Hugo Young Papers on the 18th November 2008. Hugo Young being the former Guardian journalist, known as the 'Pope of the liberal left' who died on the 22nd September 2003, but had, whilst he was alive, recorded details of a number of private conversations with a number of politicians, including one Peter Mandelson. The publishers were however persuaded to leave out certain remarks made by the Lord Mandelson, in order that no one would ever find out that it was he who once described Gordon Brown as "niggardly, brooding, credit-grasping, impossible to work with and fatally flawed".


SOURCES

  • Party people, The Guardian, Monday 13 October 2008
    http://www.guardian.co.uk/media/2008/oct/13/matthewfreud-media
  • Martin Ivens, Jonathan Oliver and Isabel Oakeshott, Mandelson damned PM to top Tory,
    The Sunday Times, October 5, 2008
    http://www.timesonline.co.uk/tol/news/politics/article4882571.ece
  • Martin Ivens, Mischievous Mandy drops another brick, The Sunday Times, October 5, 2008
    http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article4882503.ece
  • Jon Ungoed-Thomas and Nicola Smith, Peter Mandelson joins richest Russian on his superyacht,
    The Sunday Times October 12, 2008
    http://www.timesonline.co.uk/tol/news/politics/article4926572.ece
  • Mandelson attacks 'muck raking', BBC News, 19 October 2008
    http://news.bbc.co.uk/1/hi/uk_politics/7678596.stm
  • Nathaniel Rothschild: Letter to the Editor, The Times October 21, 2008
    http://www.timesonline.co.uk/tol/news/politics/article4982254.ece
  • Statement on Oleg Deripaska by George Osborne October 21 2008
    http://www.guardian.co.uk/politics/2008/oct/21/georgeosborne-oleg-deripaska
  • Deborah Summers, Patrick Wintour and Nicholas Watt, Gordon Brown calls for inquiry into Osborne-Deripaska talks. The Guardian, 22 October 2008
    http://www.guardian.co.uk/politics/2008/oct/22/georgeosborne-gordonbrown
  • Brown urges Osborne investigation, BBC News, 22 October 2008
    http://news.bbc.co.uk/1/hi/uk_politics/7683365.stm
  • Catherine Mayer, Corfugate Scandal Cheers Gloomy Britons, Time, Oct. 24, 2008
    http://www.time.com/time/world/article/0,8599,1853565,00.html
  • George Osborne in trouble for forcing Oleg Deripaska into the limelight, The Times October 24, 2008
    http://www.timesonline.co.uk/tol/news/politics/article5004082.ece
  • Conflicts of interest Lord Mandelson answers his critics, The Times, October 25, 2008
    http://www.timesonline.co.uk/tol/comment/letters/article5009993.ece
  • Trevor Kavanagh, What did Mandy really Dr Know?, The Sun, 27 Oct 2008
    http://www.thesun.co.uk/sol/homepage/news/columnists/kavanagh/article1858222.ece
  • Matthew Moore, Lord Mandelson: 'I will not reveal details of meetings with Oleg Deripaska', Daily Telegraph, 29 Oct 2008
    http://www.telegraph.co.uk/news/newstopics/politics/conservative/georgeosborne/3271046/
    Lord-Mandelson-I-will-not-reveal-details-of-meetings-with-Oleg-Deripaska.html
  • Simon Walters and Glen Owen, Revealed: The attacks on Gordon Brown that Mandelson did not want the world to know
    Daily Mail, 29th November 2008
    http://www.dailymail.co.uk/news/article-1090509/Revealed-The-attacks-Gordon-Brown-Mandelson-did-want-world-know.html

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