23 Nov 2013

Former UK bank chairman arrested in drugs probe

10:37 am on 23 November 2013

The former chairman of a British bank has been arrrested as part of an investigation into the supply of illegal drugs.

Paul Flowers headed the 141-year-old Co-operative Bank but left the post in June this year.

Prime Minister David Cameron has questioned why Mr Flowers, a one-time local Labour politician and Methodist preacher with no banking qualifications, was judged suitable for the chairmanship during a period when the bank nearly collapsed.

Finance minister George Osborne ordered an inquiry into the bank, just as its parent Co-operative Group seeks approval from bondholders and preference shareholders for a rescue plan that gives a group of hedge funds control of a bank which once promoted its ethical credentials.

An investigation was launched when the Mail on Sunday newspaper released footage which allegedly showed Mr Flowers arranging to buy crack cocaine and crystal methamphetamine.

Police said a 63-year-old man was arrested in the Merseyside area of northern England late on Thursday and taken to a police station to assist detectives with their enquiries, Reuters reports.

Mr Flowers quit his post as deputy chairman of Co-op Group in June - at the same time as he quit the bank - and the BBC has reported this was because of concerns about his expenses and competence.

The Co-op scandal has stoked a political row between Mr Cameron's ruling Conservatives and the opposition Labour Party, which has suspended Mr Flowers.

Mr Flowers, who worked in local politics for Labour, approved a donation of £50,000 to the office of its finance spokesman Ed Balls and sat on a business advisory group reporting to its leader, Ed Miliband.

Mr Miliband said there were no close links between him and Mr Flowers and he was confident his party had always acted correctly on the issue.

Britain's finance ministry ordered an independent inquiry into the Co-op bank and Parliament's Treasury Select Committee is already looking into the collapse of the bank's bid for 632 Lloyds Banking Group branches.

Separately, Britain's accounting watchdog said it was scrutinising financial reports from the bank, though it has not yet launched a formal investigation.