Ashcroft bank in dispute over $10m Belize fund for poor people

Tory donor had bank control when four-year case began over refusal to return Hugo Chávez's gift to house poor

Lord Ashcroft has close links with the Belize Bank, which is now in dispute over a $10m fund earmarked for the poor and homeless.

A bank with close links to Lord Ashcroft will be accused in a British courtroom of keeping $10m destined for social housing in a poor central American country, in a legal battle that could embarrass David Cameron's government.

The Conservative party donor and newly appointed government defence adviser has been described as the guiding hand behind Belize Bank, which has fought a four-year legal battle with the Belize government to claim money allegedly earmarked for homeless people.

The bank will on 29 June ask the Privy Council to overturn previous rulings in a dispute over a loan guarantee signed by a previous premier. Ashcroft owned or controlled the bank's holding company in 2007 when the dispute began. The case raises fresh questions over his influence in the central American democracy, weeks after Cameron's decision to give him a job as an adviser to the Ministry of Defence.

Ashcroft last year eventually bowed to anger over his tax position and agreed to relinquish his non-domiciled status after allegations that the House of Lords and the British public had been misled.

Lois Barrow-Young, the barrister representing a pressure group of Belize organisations, is due to appear before the council's judges to argue the money belongs to the state. She accused Ashcroft of being the guiding hand behind the bank's dispute with the government.

"There is no doubt that he is a controlling hand behind the bank. We will continue to argue the money belongs to the Belizean people," she told the Guardian.

Chris Bryant, the former Labour foreign office minister, said it was a disgrace that Cameron has appointed Ashcroft as an adviser. "The prime minister should not run scared of Ashcroft but should force him either to suspend this legal action or to step down."

Two appeals by Belize Bank are scheduled to be heard by the Judicial Committee of the Privy Council on 29 June and a week later on 6 July. The committee sits in Westminster, and is the final court of appeal for Belize, a Commomwealth member and former British colony. Belize courts ruled the bank failed in its attempt to validate a $17m loan supposedly guaranteed in 2007 by the previous government for financing a hospital. The judges found the money was not correctly authorised because payments of more than $5m require ratification by the national assembly; no vote was taken in relation to the Belize Bank loan.

Around $10m at the centre of the dispute was a gift from Hugo Chávez's Venezuela in 2008 to Belize, where the Tory donor's multimillion-pound business empire is based. It was routed, via London, to the Belize Bank. The bank has previously argued it is entitled to keep the Venezuelan money as repayment towards the $17m debt guaranteed by former prime minister Said Musa. In 1998, Musa appointed Ashcroft as Belize's UN ambassador.

Lawyers for the current Belize government have argued in court that Musa acted without authorisation from his national assembly. They said the Venezuelan money was meant to pay for housing for low-income families, and successfully argued before the Belize courts that the money belonged to the government.

As part of their case, they are expected to claim that Chávez's administration issued a statement saying that the $10m was for "the construction of homes with the purpose of improving the quality of life of the Belizean people".

Lawyers for Belize Bank are expected to argue that the appointment of lay members to an appeal board in Belize created a possiblity of bias, and that the guarantee signed by Musa should stand.

Ashcroft, 65, spent part of his childhood in Belize. According to his autobiography, his business interests began in 1987 when he bought the Belize operation of the Royal Bank of Canada for $1 and renamed it Belize Bank.

On 5 May this year, Ashcroft resigned from the board of BCB Holdings, the controlling company of Belize Bank, after holding a position on the board for 13 years. His post was taken over by his son Andrew. His website has a page dedicated to BCB Holdings where a photo of Belize Bank is displayed. In 2007, Ashcroft controlled or owned around 78% of the holding company. This figure had dropped to 74.7% two years later, according to its website.

On 24 May, it was announced by Cameron that Ashcroft had been appointed to a key government advisory post despite objections from Nick Clegg. The former Tory deputy chairman will lead a review of the UK's military bases in Cyprus.

Ashcroft has been the Conservative party's most generous donor over the last 20 years with gifts of more than £12m.

A spokesman for Ashcroft declined to comment on allegations that he was influencing the bank, on his ownership of the bank or on the upcoming case. Solicitors for Belize Bank, Allen & Overy, also decined to comment.

• This article was amended on 15 June 2011. Owing to an editing error, the original cited a $17bn loan relating to Belize Bank. This has been corrected.