The Loans affair, also called the Khemlani affair, was a political scandal involving the Whitlam government of Australia in 1975 in which it was accused of attempting to borrow money from the Middle East by the agency of the Pakistani banker Tirath Khemlani (17 September 1920 — 19 May 1991) and thus bypass the standard procedures of the Australian Treasury and violate the Australian Constitution.

Minerals and Energy Minister Rex Connor and Treasurer and Deputy Prime Minister Jim Cairns misled Parliament and were forced from the Whitlam Cabinet over the affair. This was a key precursor to the 1975 Australian constitutional crisis, which led to the dismissal of the government in 1975.

Background

Minerals and Energy Minister Rex Connor wanted funds for a series of national development projects. He proposed that to finance his plans, the government should borrow US$4 billion: equivalent to US$25 billion in 2024.

It was a requirement of the Australian Constitution for non-temporary government borrowings to be through the Loan Council. Although the development projects were long-term, Whitlam, Cairns, Murphy and Connor (who were part of the Federal Executive Council) authorised Connor to seek the loan on 13 December 1974 without involving the Loan Council. However, the Executive Council controversially described the loan as for "temporary purposes", which enabled it to bypass Loan Council approval, despite the fact that the proceeds were intended to be used for large projects and to secure Australian ownership and control of its mineral and energy resources.

Connor had already been investigating the loan. Through an Adelaide businessman named Gerry Karidis, he had been introduced to the Pakistani London-based commodities trader named Tirath Khemlani. According to Khemlani, Connor asked for a 20-year loan with interest at 7.7% and set a commission to Khemlani of 2.5%. Khemlani repeatedly refused to disclose the identities of the lenders.

Responding to pressure from the Reserve Bank of Australia and the US Federal Reserve, Khemlani claimed that the lenders were four separate emirates and the money was being held in nine prime European banks, with the Union Bank of Switzerland acting as the "post office" from which money was to be collected. The terms of the loan were revised, with interest at 8.35% instead of 7.7% and no commission to be paid. The repayment of the loan would be secured by promissory notes, payable 20 years from the date of receipt of funds.

Khemlani played a pivotal role and was employed by Dalamal and Sons, a London-based commodity-trading firm. Whitlam refused to call an election. The deadlock came to an end when Whitlam was dismissed by the Governor General, Sir John Kerr, on 11 November 1975 and Fraser was installed as caretaker prime minister pending an election. At the general election held in December 1975, Fraser led the Coalition to a landslide victory.

The Loans Affair was dramatised in the 1983 Ten Network mini-series The Dismissal.

See also

  • List of Australian political controversies
  • Māori loan affair in New Zealand; 1986–87
  • William Archer Gunn

References