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01/11/2006

UK - Blair intervenes in court case to reduce the penalties on Diageo over alleged unpaid tax

British Prime Minister, Tony Blair, was accused of abusing his position by writing a secret personal appeal to the Turkish Prime Minister to stop his country's courts imposing heavy fines on British drinks manufacturer, Diageo.

Diageo is the world largest liquor producer and has in its Board a long-term donor to the Labour party. Lord Hollick, a senior non-executive director of Diageo since 2001 and a former special adviser to the Blair government, is thought to have donated at least £500,000 to Labour.

In the leaked letter, Mr Blair appeared to warn Recep Tayyip Erdogan that if he did not intervene over the fines, Diageo and other companies would pull out, leading to loss of revenue for Turkish Customs and an increase in drinks smuggling.

Mr Blair's letter, written on June 27, says: “If the Council of State finds against the companies and the courts seek to impose the original penalties demanded by Customs. Diageo and other companies, such as Maxxium and Pernod Ricard, will have no choice but to close down their operations in Turkey.”

"In addition to the negative impact on the companies, this will lead to a loss of revenue for the Customs, and an increase in smuggled imports."

Mr Blair added that other British companies would see these fines as a negative sign and implied they would think twice before investing in Turkey.

His letter appeals to Mr Erdogan to act on two specific points: to ensure that the Council of State (one of Turkey's highest courts) waits for further information from the World Customs Organisation and to try to reduce the “excessive” financial penalty the companies faced.

The fines, put by Mr Blair at $500 million, are understood to have been imposed on to recover tax the Turkish Customs believe should have been paid on drinks intended for duty-free export, but which were sold within Turkey.

Turkish sources said they thought that Mr Blair had overstated the amount of fines, which the courts had put at €50 million.