Charges a step closer over City Hall grants scandal

Detectives have passed a file to the Crown Prosecution Service detailing evidence from an investigation lasting almost a year into allegations of fraud by cronies of Lee Jasper, a senior aide to former mayor Ken Livingstone.

Police launched an inquiry after the Standard revealed that six projects run by friends or business colleagues of Mr Jasper had received large sums from City Hall but delivered little or nothing in return. Several people have been arrested and 13 homes or businesses raided.

Today Scotland Yard confirmed it had passed a file to prosecutors. Acting Commander Nigel Mawer, head of Scotland Yard's Economic and Specialist Crime Unit, said: "Some [cases] are with the CPS."

The Standard can reveal that:

● Joe Dobson, the son of Labour MP and former mayoral candidate, Frank Dobson, has been arrested in connection with the allegations.

● Greg Nowell, the director of another suspect project, the Green Badge Taxi School, has refused to be interviewed, claiming he is "too ill". However, his is understood to be one of the cases that has been referred to the CPS. He is on police bail.

● An official liquidator is threatening to sue Joel O'Loughlin, the director of another project, Diversity International, unless he returns money which has not been accounted for.

● Errol Walters, the director of Brixton Base, the project at the centre of the allegations, and a close friend of Mr Jasper, withdrew more than £20,000 from a cash machine near his home in Chafford Hundred, Essex, over a short period. He has now rented out his house and moved to Sierra Leone.

● The district auditor, Mike Haworth-Maden, is investigating and has questioned Mr Jasper.

● The Financial Services Authority has closed one of the projects, Ethnic Mutual, which diverted £18,000 of its City Hall grant to a firm of which Mr Jasper was company secretary.

In a statement, Scotland Yard said that it had investigated six of the suspect projects and had arrested nine people.

It said that investigations into two of the suspect projects have been dropped but four remain ongoing and four people remain on police bail.

Kate Hoey, Labour MP for Vauxhall, in whose constituency most of the suspect projects were based and who first reported the Green Badge Taxi School to police, said: "I understand that at least two cases have gone to the CPS with a recommendation for prosecution and others for advice. I am sure that Londoners will want to see this sorry saga effectively dealt with."

The scandal began after the Standard discovered 15 projects run by friends or business colleagues of Mr Jasper, which had received a total of £3.5 million from City Hall, mostly through the mayor's London Development Agency, had little or nothing to show for it.

Many were based in the same small room at a business centre in Kennington and had not produced audited accounts, or any accounts. Others had produced them with little or no trace of the money they had received.

Mr Jasper was forced to resign almost a year ago after the Standard published leaked e-mails in which he proposed to "honey-glaze" and "cook slowly before a torrid and passionate embrace" Karen Chouhan, a married woman who was a director of two of the projects.

Mr Walters's project, Brixton Base, received £535,000 from the LDA, of which £287,000 was for "premises" — even though it was in an LDA-owned building and was charged no rent in the first year. Mr Jasper was Brixton Base's patron. Leaked e-mails show he applied heavy pressure on the LDA to fund the project, even though officials did not want to.

The rest of the LDA grant was supposedly for youth training courses, but Brixton Base ran only three brief courses. The leader of one of them, Shango B'Song, said that he had paid for most of it out of his own pocket.

Mr Nowell's project, Green Badge Taxi School, got £350,000 for training ethnic minority drivers. Mr Dobson was the GLA official responsible for administering the grant. Former students at the school claimed that it had never operated properly after the grant. Two ballet teachers whose school shared the same building obtained a High Court injunction banning Mr Nowell and his associates from the premises after he allegedly threatened them with violence.

Ethnic Mutual, a supposed community finance house, got more than £1 million from City Hall and the Government. Mr Jasper admitted that £18,000 of this was illegally diverted to bail out a private company of which he was company secretary, but insisted he knew nothing of the transfer. The FSA has cancelled Ethnic Mutual's licence, saying that it was "not operating for the benefit of the community".

Mr Jasper was never accused of criminal wrongdoing. He said: "There have been some contacts (with the district auditor) in relation to his GLA investigation. I am proscribed from talking about it."

He added: "You are talking about technicalities. This is all dead history — who's interested? I did nothing wrong." Mr Walters was unavailable for comment. His friend and former co-director of Brixton Base, Simon Woolley, confirmed that Mr Walters had withdrawn a large sum from a cash machine and had gone to Sierra Leone.

Mr Nowell refused to comment. Mr Dobson confirmed that he had been arrested on suspicion of misconduct in public office.