Duchess of York 'devastated' after newspaper sting

The Duchess of York was said to be "devastated" and "deeply regretted causing any embarrassment" yesterday after being caught on film accepting a $40,000 down-payment as part of an apparent cash-for-access deal to her former husband, the British trade envoy, Prince Andrew.

In what is the biggest royal scalp to be taken by The News of the World's veteran investigations editor, Mazher Mahmood, Sarah Ferguson is shown shaking hands last Tuesday on an alleged £500,000 agreement after claiming she could "open doors" by fixing meetings with the Prince, facilitate "friendship talk" and ultimately help win lucrative international deals.

"That opens up everything you would ever wish for," she told the reporter, who was posing as a wealthy businessman. "And I can open any door you want. And I will." The newspaper also alleged it had details of "two tycoons" who she claimed to have already introduced to the Duke of York, appointed unpaid UK Special Representative for Trade and Investment in 2001 after he retired from the Royal Navy. It was also claimed she demanded a cut of any future profits accruing from her high-level introduction.

A Palace spokesman said Andrew "categorically denies any knowledge of any meeting" between the duchess and a reporter from The News of the World. He was said to have spoken briefly on the phone to his ex-wife, who is in California. And in a statement, the Duchess apologised for a "serious lapse of judgement" and admitted her financial situation is "under stress".

After divorcing Prince Andrew in 1996 after a six-year marriage, the Duchess spent four years paying off debts reported to have amounted to several million pounds, and building a successful career in the US.

But last month there were fresh claims that she was back in the red after the collapse of her public-speaking and media business last year. She said she had been left with no money after accepting a £15,000-a-year divorce settlement so she could remain on good terms with the Queen.

Throughout the film of the conversations with Mahmood, in a in New York, a Belgravia restaurant and a nearby London flat, Sarah Ferguson stresses that her former husband is "whiter than white". There is no suggestion of wrongdoing on behalf of the Duke of York or that he knew of her activities.

Video: Duchess in cash for access row

She falsely claims she had spoken to the Prince about the plan, telling the reporter: "He knows that he had to underwrite me up to now because I've got no money. So if you want to meet him in your business, look after me and he'll look after you ... you'll get it back tenfold."

She is shown explaining how the Duke cannot work because he is the "Prince of England" but that he meets the "most amazing people" and "throws them my way" before insisting that not a word of the deal must be leaked. She said: "Then ... you open up all the channels whatever you need, whatever you want, and then that's what and then you meet Andrew and that's fine. And that's, that's when you really open up whatever you want."

The Duchess appears animated and at times tearful as she makes a series of unfounded claims including that the Prince had suggested the £500,000 introduction fee which she said should be wire-transferred to a British bank account. But the most damaging image will be of her making a silent "gimme" motion before accompanying the undercover reporter to a room where he produces wads of bank notes.

At the dinner in London, the Duchess raises her concerns that she was indeed being investigated by the News of the World. It is alleged she had earlier sent two aides to try to persuade the reporter to agree a seven-page confidentiality agreement but went ahead even though it was not signed. As her guard fell after the pair had drunk a £95 bottle of Burgundy she was chauffeured to the Mayfair flat where she said: "I'm a complete aristocrat. Love that don't you? I love it. It's tremendously fabulous. But I've never admitted that to anyone by the way."

The Duchess is the third senior female royal to fall foul of Mahmood. In 2005, the man known as the Fake Sheikh for the way he befriends his subjects posing as a wealthy Arab, persuaded Princess Michael of Kent to describe Diana, Princess of Wales as a "bitter" and "nasty" woman. Four years earlier, he exposed the Duchess of Wessex criticising Tony and Cherie Blair.

A spokesman for the News of the World said it had no comment.

The rise and fall of a duchess

When Sarah Ferguson married Prince Andrew in 1986 she was considered a welcome addition to the conservative ranks of Britain's out-of-touch royals. The line Buckingham Palace insiders took was that even the notoriously hard-to-please Prince Philip liked the cut of her jib.

That she had lived her privileged life to the full was in little doubt. She had enjoyed a long relationship with the racing-driver Paddy McNally and was a regular fixture at the most glamorous Alpine ski stations. With a lineage traced back to the bastard offspring of King Charles II and experience in the "real world" of publishing and public relations, she was hailed as everything a modern princess should be. Most importantly, in light of the unhappy marriage of the Prince of Wales, she and Andrew actually seemed to love each other.

But storm clouds were building. The cosy early relationship with the newspapers did not last, especially after the Duchess's enthusiastic appearance in Prince Edward's ill-judged charity gameshow It's a Royal Knockout. She was criticised when she put on weight and there were damaging stories of high jinks and expensive freebies in the long absences of her seafaring husband, culminating in the infamous holiday pictures of a topless Fergie having her toes sucked by her financial adviser, John Bryan.

The royal separation was announced in 1992, the Queen's annus horribilis, when the entire royal fairytale was blown apart with the publication of Andrew Morton's biography of Princess Diana, and Windsor Castle was ravaged by fire. Just six years after her engagement to the Queen's second son, the woman once welcomed as a breath of fresh air was out in the cold, denigrated as a vulgar interloper by the Palace old guard.

Andrew and Sarah waited four years before ending their marriage in 1996 and their later closeness gives credence to her claims that they remain the "world's happiest divorced couple". They live on the same estate, holiday together and shared the upbringing of their two daughters.

But her meagre £15,000-a-year settlement, based on half the Prince's salary as a Royal Navy officer, caused problems. Diana was given £20m from the Queen to walk away in comfort, but the Duchess of York was left, in her own words, "without a pot to piss in".

The Duchess had even run up a seven-figure overdraft with Coutts Bank. So she set about re-inventing herself by sorting out her troubled finances and focusing attention on her charity work. In the 1990s, she created Budgie the Helicopter and continued a prolific and varied output of books, combining this with her £2m-a-year duties as figurehead of Weight Watchers in the US where she increasingly based her activities.

The Duchess was a sought-after public speaker, a regular on the chat-show circuit, featured in TV shows from The Vicar of Dibley to documentaries and was an ambassador for several leading brands, although critics insisted the one which she promoted most was herself.

Rumours of money troubles began to circulate again last year. She had ended her association with Weight Watchers in 2007 and as she prepared to celebrate her 50th birthday in 2009, the New York-based company Hartmoor LLC, set up to manage her portfolio of interests in the US, collapsed with debts of £600,000.

Only last month – by which time she was already being investigated by the News of the World – she faced fresh legal action from a law firm over £100,000 in unpaid bills for work to turn her children's books into an animated TV series.

Jonathan Brown