The stolen Turners, the Serbian underworld, and a £24m insurance job

The Tate's extraordinary coup in securing both a massive payout and the return of the masterpieces can be told at last. Matthew Bell investigates

The tale has all the ingredients of a Dan Brown thriller: a theft of two Turner masterpieces, a £24m insurance fund and dealings with the Serbian underworld. Now the story of the Tate's cloak-and-dagger operation to recover Shade and Darkness and Light and Colour – stolen to order by a Serbian gang while on loan in Frankfurt in 1994 – has been told by Sandy Nairne, then director of programmes at the Tate. He is now director of the National Portrait Gallery.

His book, Art Theft and the Case of the Stolen Turners, is not published until next month, but has already raised eyebrows in the art world, thanks to its "remarkably frank" account of the lengths the Tate was prepared to go to for the safe return of the paintings. Mr Nairne reveals that one of the pictures was recovered in July 2000, but the Tate resolved not to tell the public until the second had been returned. When, four months later, a journalist from The Mail on Sunday got wind of this, the Tate's director Sir Nicholas Serota drafted a press release that said: "I remain hopeful that one day the paintings may return to the Tate", even though one picture was already back in a secure unit. Shade and Darkness had been secretly repatriated by Mr Nairne, who managed not to alert Customs, importing the precious work as just a "19th-century landscape".

The book also relates how Sir Nicholas and the then Paymaster General, Geoffrey Robinson, persuaded insurers to accept a deal in which the Tate received a £24m payout but then kept most of the money when the second painting was returned in December 2002. Insurer Robert Hiscox told The Independent on Sunday that it had been a "good deal for the country, but a terrible deal for us".

The unusual agreement was struck in June 1998, at an angry and noisy meeting between the Tate and insurers, arranged by Mr Robinson at the Treasury. When the paintings were stolen, the £24m insurance was put into a high-interest bank account that could not be touched. But in 1998, the Tate needed £20m to help to fund the creation of Tate Modern, and Mr Robinson suggested using the stolen Turners fund, which by now had grown to £26m with interest.

The idea was that the Tate would buy back title to the paintings from the insurers, so that if they were found, the gallery could keep them and not have to repay all the money. It would make three payments of £4m to the insurers, the last one to be made if the paintings had not reappeared by 28 July 1999. According to Mr Robinson in his memoirs, the final payment was never made, meaning that only £8m was repaid to the insurers. In what turned out to be a very fortunate turn of events for the Tate, the first painting was then recovered the following year, and the second two years later. After eight years, the Tate had both paintings back, plus £22m, which had been invested into Tate Modern.

Robert Hiscox, managing director of Hiscox Insurance, says the insurers were just unlucky. "I had a conflict in that I love art and I love the Tate and wanted to do a deal to help the Tate," he said. "We knew who had the paintings, but we thought they would be in rotten condition by now, four years after they were stolen. So I thought it would be better to get some money back and help the Tate out at the same time. My difficulty was persuading my fellow underwriters to do the deal. But by the time the pictures turned up, the deal had been done, and of course we couldn't go back on it."

There is no suggestion the Tate knew it would get the pictures back so soon after arranging the deal with the insurers. By then it had spent £3.5m on expenses and information leading to their recovery.

Michael Daly, the director of Art Watch UK, calls the book an "electrifying glimpse into the workings of the Tate's controversial management culture". He claims the misleading statement was drafted to put journalists off the scent, and that Sir Nicholas wanted to wait for the second painting to be recovered so that he could release a "genuinely good news story".

Questions have also been raised over Mr Nairne's motive for writing the book. He was not appointed head of Tate Modern in 2002, despite his apparently close working relationship with Sir Nicholas. He left that year to become head of the National Portrait Gallery, where he remains. A spokesman for Mr Nairne says: "After eight years of not being able to talk about the operation to recover the Turners, Sandy just really wanted to get it off his chest."

Sir Nicholas's office denied that he lied to journalists, adding that the draft statement was never issued to the press. But Mr Nairne writes in his book that The Mail on Sunday did not run its story after the statement was drafted, saying, "My fears about further investigative pieces... receded."

A spokesman for Sir Nicholas said: "Tate worked closely with the Metropolitan Police on every stage of the recovery of the Turner paintings and we were advised that we should not confirm anything that might put the investigation in jeopardy. At the time this statement was drafted the recovery was at a critical stage, which is why the wording in this draft was deliberately obscure. As with all press statements it would have been reviewed and revised in response to specific questions received from a journalist."