Loans Affair
Encyclopedia
The Loans Affair, also called the Khemlani Affair, is the name given to the political scandal involving the Whitlam Government
of Australia
in 1975, in which it was accused of attempting to borrow money illegally from Middle East
ern countries by bypassing standard procedure as dictated by the Australian Treasury
.
The Minister for Minerals and Energy, Rex Connor
, Treasurer
Dr. Jim Cairns
, and others, were prime identities in the scandal.
pipeline, the electrification
of interstate railways and a uranium enrichment plant.
Tirath Khemlani (1920 - 1991) played a pivotal role. He was employed by Dalamal and Sons, a London-based commodity-trading firm
The raising of foreign loans for the Australian Government at the time required the authorisation by the Loans Council. It was common knowledge that funds were usually borrowed from European banks or financiers. Connor's attempt to secure the loan was unusual for several reasons:
Connor was duly authorised to raise loans through Khemlani in late 1974. Between December 1974 and May 1975, Khemlani sent regular telexes to Connor advising that he was close to securing the loan.
However, the loan never eventuated and, in May 1975, Whitlam sought to secure the loan through a major US investment bank (name undisclosed). As part of the loan procedure, this bank imposed an obligation on the Australian Government to cease all other loan raising activities pertaining to this loan and accordingly, on 20 May 1975, Connor's loan-raising authority was formally revoked.
was held on 9 July 1975, during which the then Prime Minister
, Gough Whitlam
tabled the documents containing evidence about the loan and sought to defend his government's position.
Beset by economic difficulties at the time and the negative political impact which the Loans Affair conjured, the Whitlam Government was very vulnerable to further assaults on its credibility. Gough Whitlam was prompted to sack Dr. Cairns from his cabinet.
Although Rex Connor's authority to seek an overseas loan was withdrawn following leaking of the scandal, he continued to liaise with Khemlani. The Herald Newspaper based in Melbourne
published documents confirming this and Connor was forced to resign from the cabinet. He was replaced by the future Prime Minister, Paul Keating
.
The Melbourne Herald newspaper journalist Peter Game tracked down Khemlani in mid-late 1975 and following an interview, he broke the story that ultimately opened up the Loans Affair. When Connor directly denied Khemlani's version of events, as reported in the Sydney Morning Herald, Khemlani flew to Australia in October 1975 and provided Peter Game with telexes sent to him from Connor that refuted Connor's denial.
On 13 October 1975, Khemlani provided a statutory declaration and a copy of the incriminating telexes sent from Connor's office, a copy of which was forwarded to Prime Minister Gough Whitlam. Upon receiving the documents, Whitlam dismissed Rex Connor from his government for misleading parliament. In his letter of dismissal, date 14 October 1975, Prime Minister Whitlam wrote: "Yesterday I received from solicitors a copy of a statutory declaration signed by Mr Khemlani and copies of a number of telex messages between office Mr Khemlani’s office in London and the office of the Minister for Energy. In my judgment these messages did constitute "communications of substance" between the Minister and Mr Khemlani."
The loans affair embarrassed the Whitlam government and exposed it to claims of impropriety. The Malcolm Fraser
-led Opposition used its numbers in the Senate
to block the government’s budget legislation in an attempt to force an early general election, citing the loans affair as an example of ‘extraordinary and reprehensible’ circumstances. Whitlam refused, and this led to the Australian constitutional crisis of 1975
.
The Loans Affair was dramatised in the 1983 ABC miniseries called "The Dismissal
".
Whitlam Government
The Whitlam Government refers to the federal Executive Government of Australia led by Prime Minister Gough Whitlam. It was made up of members of the Australian Labor Party in the Australian Parliament from 1972 to 1975.-Background:...
of Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
in 1975, in which it was accused of attempting to borrow money illegally from Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
ern countries by bypassing standard procedure as dictated by the Australian Treasury
Department of the Treasury (Australia)
The Department of the Treasury is an Australian Government department. Its role is to focus and develop economic policy.-History:The Commonwealth Treasury was established in Melbourne in January 1901....
.
The Minister for Minerals and Energy, Rex Connor
Rex Connor
Reginald Francis Xavier "Rex" Connor , Australian politician, was a minister in the Whitlam government and promoted government investment to support national development...
, Treasurer
Treasurer
A treasurer is the person responsible for running the treasury of an organization. The adjective for a treasurer is normally "tresorial". The adjective "treasurial" normally means pertaining to a treasury, rather than the treasurer.-Government:...
Dr. Jim Cairns
Jim Cairns
James Ford "J. F." Cairns , Australian politician, was prominent in the Labor movement through the 1960s and 1970s, and was briefly Deputy Prime Minister in the Whitlam government...
, and others, were prime identities in the scandal.
The Loan
During 1975, the Whitlam Government attempted to raise a loan of approximately US$4 billion. The money was intended to be used to fund a number of natural resource and energy projects, including construction of a natural gasNatural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
pipeline, the electrification
Railway electrification system
A railway electrification system supplies electrical energy to railway locomotives and multiple units as well as trams so that they can operate without having an on-board prime mover. There are several different electrification systems in use throughout the world...
of interstate railways and a uranium enrichment plant.
Tirath Khemlani (1920 - 1991) played a pivotal role. He was employed by Dalamal and Sons, a London-based commodity-trading firm
The raising of foreign loans for the Australian Government at the time required the authorisation by the Loans Council. It was common knowledge that funds were usually borrowed from European banks or financiers. Connor's attempt to secure the loan was unusual for several reasons:
- The size of the loan was extremely large for the time.
- When a project of this scale and cost is undertaken, governments often attract foreign investment and ultimately form a business partnership, whereby the foreign investor would retain partial ownership and/or rights over the resources once the project is complete. However, this option was rejected by Connor who was renowned for his desire to have Australian resources controlled and owned by Australians.
- The Minister for Minerals and Energy was raising the loan independent of Treasury.
- Rather than attempting to raise the loan from US financiers, Connor attempted to raise the loan from Arab financiers, with Khemlani acting as the intermediary. There are unconfirmed reports that Arab financiers offered lower interest rates on governmental loans than US Banks/financiers. The Middle East at the time was awash with "petro-dollars", as the price of oil quadrupled between 1973 and 1974
Connor was duly authorised to raise loans through Khemlani in late 1974. Between December 1974 and May 1975, Khemlani sent regular telexes to Connor advising that he was close to securing the loan.
However, the loan never eventuated and, in May 1975, Whitlam sought to secure the loan through a major US investment bank (name undisclosed). As part of the loan procedure, this bank imposed an obligation on the Australian Government to cease all other loan raising activities pertaining to this loan and accordingly, on 20 May 1975, Connor's loan-raising authority was formally revoked.
Progression after its leak
A special one-day sitting of the House of RepresentativesAustralian House of Representatives
The House of Representatives is one of the two houses of the Parliament of Australia; it is the lower house; the upper house is the Senate. Members of Parliament serve for terms of approximately three years....
was held on 9 July 1975, during which the then Prime Minister
Prime Minister of Australia
The Prime Minister of the Commonwealth of Australia is the highest minister of the Crown, leader of the Cabinet and Head of Her Majesty's Australian Government, holding office on commission from the Governor-General of Australia. The office of Prime Minister is, in practice, the most powerful...
, Gough Whitlam
Gough Whitlam
Edward Gough Whitlam, AC, QC , known as Gough Whitlam , served as the 21st Prime Minister of Australia. Whitlam led the Australian Labor Party to power at the 1972 election and retained government at the 1974 election, before being dismissed by Governor-General Sir John Kerr at the climax of the...
tabled the documents containing evidence about the loan and sought to defend his government's position.
Beset by economic difficulties at the time and the negative political impact which the Loans Affair conjured, the Whitlam Government was very vulnerable to further assaults on its credibility. Gough Whitlam was prompted to sack Dr. Cairns from his cabinet.
Although Rex Connor's authority to seek an overseas loan was withdrawn following leaking of the scandal, he continued to liaise with Khemlani. The Herald Newspaper based in Melbourne
Melbourne
Melbourne is the capital and most populous city in the state of Victoria, and the second most populous city in Australia. The Melbourne City Centre is the hub of the greater metropolitan area and the Census statistical division—of which "Melbourne" is the common name. As of June 2009, the greater...
published documents confirming this and Connor was forced to resign from the cabinet. He was replaced by the future Prime Minister, Paul Keating
Paul Keating
Paul John Keating was the 24th Prime Minister of Australia, serving from 1991 to 1996. Keating was elected as the federal Labor member for Blaxland in 1969 and came to prominence as the reformist treasurer of the Hawke Labor government, which came to power at the 1983 election...
.
The Melbourne Herald newspaper journalist Peter Game tracked down Khemlani in mid-late 1975 and following an interview, he broke the story that ultimately opened up the Loans Affair. When Connor directly denied Khemlani's version of events, as reported in the Sydney Morning Herald, Khemlani flew to Australia in October 1975 and provided Peter Game with telexes sent to him from Connor that refuted Connor's denial.
On 13 October 1975, Khemlani provided a statutory declaration and a copy of the incriminating telexes sent from Connor's office, a copy of which was forwarded to Prime Minister Gough Whitlam. Upon receiving the documents, Whitlam dismissed Rex Connor from his government for misleading parliament. In his letter of dismissal, date 14 October 1975, Prime Minister Whitlam wrote: "Yesterday I received from solicitors a copy of a statutory declaration signed by Mr Khemlani and copies of a number of telex messages between office Mr Khemlani’s office in London and the office of the Minister for Energy. In my judgment these messages did constitute "communications of substance" between the Minister and Mr Khemlani."
The loans affair embarrassed the Whitlam government and exposed it to claims of impropriety. The Malcolm Fraser
Malcolm Fraser
John Malcolm Fraser AC, CH, GCL, PC is a former Australian Liberal Party politician who was the 22nd Prime Minister of Australia. He came to power in the 1975 election following the dismissal of the Whitlam Labor government, in which he played a key role...
-led Opposition used its numbers in the Senate
Australian Senate
The Senate is the upper house of the bicameral Parliament of Australia, the lower house being the House of Representatives. Senators are popularly elected under a system of proportional representation. Senators are elected for a term that is usually six years; after a double dissolution, however,...
to block the government’s budget legislation in an attempt to force an early general election, citing the loans affair as an example of ‘extraordinary and reprehensible’ circumstances. Whitlam refused, and this led to the Australian constitutional crisis of 1975
Australian constitutional crisis of 1975
The 1975 Australian constitutional crisis has been described as the greatest political crisis and constitutional crisis in Australia's history. It culminated on 11 November 1975 with the removal of the Prime Minister, Gough Whitlam of the Australian Labor Party , by Governor-General Sir John Kerr...
.
The Loans Affair was dramatised in the 1983 ABC miniseries called "The Dismissal
The Dismissal (TV miniseries)
The Dismissal is an Australian television miniseries, first screened in 1983, that dramatised the events of the 1975 Australian constitutional crisis....
".
External links
- Editorial on the "Loans Affair" (Extracts from The AustralianThe AustralianThe Australian is a broadsheet newspaper published in Australia from Monday to Saturday each week since 14 July 1964. The editor in chief is Chris Mitchell, the editor is Clive Mathieson and the 'editor-at-large' is Paul Kelly....
)
- Topical Discussion on the Loans Affair and the Dismissal (Includes Chronological Timeline of Key Events)