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.
[1] Minerals and Energy Minister Rex Connor wanted funds for a series of national development projects.
On 4 June 1975, Treasurer and Deputy Prime Minister Jim Cairns, misled Parliament by claiming that he had not given a letter to an intermediary offering a 2.5% commission on a loan.
[3] A special one-day sitting of the House of Representatives was held on 9 July 1975 during which Prime Minister Gough Whitlam tabled the documents containing evidence about the loan and attempted to defend his government's actions.
Beset by economic difficulties at the time and by the negative political impact conjured up by the affair, the Whitlam government was vulnerable to further assaults on its credibility.
Although Connor's authority to seek an overseas loan was withdrawn after the leaking of the scandal, he continued to liaise with Khemlani.
In his letter of dismissal, dated 14 October 1975, 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 Mr Khemlani’s office in London and the office of the Minister for Energy.
Malcolm Fraser led the opposition, which used its majority in the Senate to block the government's budget legislation, thereby attempting to force an early general election by citing the loans affair as an example of ‘extraordinary and reprehensible’ circumstances.
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.