Revealed: the Costa criminal who aided and abetted Scotland Yard's £25m bungle

IoS Investigation: Joe Wilkins is an escaped felon with a dodgy past and dodgier connections. Paul Lashmar reports
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It was one of Scotland Yard's blackest days. A judge branded the disastrous sting operation - the biggest in the Yard's history - "a state-created crime", leaving the Metropolitan police with a £25m bill after a court case against a suspected money-laundering gang collapsed last week.

But questions are now being asked about the pivotal role played in the sting operation by Joe Wilkins, an escaped convict, sometime fraudster, Soho vice king and friend to many of London's most violent gangsters.

Scotland Yard detectives set up a money-laundering operation back in 1993 to entrap drugs and tobacco smugglers based in Spain and Gibraltar - using Wilkins to introduce them to the alleged major players.

But what has now emerged is Wilkins's extraordinarily shady past, prompting questions about his suitability as a reliable police informer.

The remarkable tale begins in 1992 when Wilkins escaped from a low-security prison in East Anglia where he was serving 10 years for drugs smuggling. He emerged a few months later in southern Spain on the "Costa del Crime", where he was approached by one of the Yard's top undercover detectives to help set up the sting.

The idea was that Wilkins, well-connected in the murky British expatriate underworld, would introduce cops posing as dodgy businessmen to major crime figures operating in Spain and Gibraltar. They would be lured into trusting their ill-gotten gains to a money-laundering scheme that was really a police "front".

It was the beginning of a five-year operation that snared dozens of people accused of laundering money from drugs and tobacco smuggling rackets. But it has resulted in years of legal wrangling and appeals over the use of entrapment.

Last Monday the key case against 10 men was thrown out at Southwark Crown Court after 414 days in court, with the judge denouncing the sting as "massively illegal".

But the failed sting is only the most recent controversy surrounding Wilkins, whose Houdini-like ability to evade jail has caused the underworld to suspect him of being an MI6 and police informant. This ubiquitous south Londoner is said to have "grassed up" the M25 road-rage killer, Kenneth Noye, and to have had an underhand role in the 1989 Death on the Rock affair in which three IRA members were gunned down by the SAS in cold blood while travelling through Gibraltar.

It is now even suggested that the authorities "helped" Wilkins abscond from prison and that he has been given some kind of immunity to stay in Spain in return for acting as an informant.

At 6ft 3in tall, Joe Wilkins is a larger-than-life character. A good-looking man, affecting Michael Caine style glasses, he was married for a time to the glamorous dancer Pearl Read who later modelled in her bra, at the age of 56, as part of Age Concern's 1998 advertising poster campaign.

In 1972 Wilkins, at the centre of Soho turf wars, was shot at his office by a rival gangster. He took two bullets, but survived. By the mid 1980s, Wilkins was spending a lot of his time on the Costa del Sol and neighbouring Gibraltar, organising frauds.

In August 1987 Customs intercepted the fishing boat Danny Boy off the Sussex coast. On board were 30 sacks of Moroccan hashish worth £1.5m, Joe Wilkins and several other men. He was jailed for 10 years for being the "heart and centre" of the plot in 1988.

Now the story becomes stranger. Despite Wilkins's criminal past, he was transferred to Ford open prison. In 1991 he walked out of Ford. Re-arrested, he was taken to Highpoint low-security prison. In January 1992 he was allowed out on an unaccompanied visit to his dentist in London. He fled to Spain.

Living openly in a villa in Estepona, he was soon back at the centre of the "Costa del Crime" world of drug-smuggling and money-laundering. Wilkins exploited his close links with Gibraltar. Even while in prison, he had become involved in controversy over the 1989 Thames Television programme Death on the Rock on the SAS shootings in Gibraltar. A local woman, Carmen Proetta, who saw the shooting from her window, was one of those who challenged the official account.

Wilkins claimed to The Sunday Times that he could discredit Mrs Proetta. The newspaper's lawyer took a statement from him in prison. In return, Wilkins wanted money. The Sunday Times paid Wilkins's sister £2,000. Wilkins's claims about Mrs Proetta were later shown to be false.

It is alleged that Wilkins became an agent provocateur in a joint MI6/police operation in Gibraltar. In the early 1990s the Foreign Office had become concerned over allegations that senior politicians in Gibraltar were involved with lucrative drug and tobacco smuggling operations. Wilkins is said to have helped with the top-secret operation, making introductions and identifying leading smugglers. But no arrests were ever made.

About the same time an experienced Scotland Yard undercover officer suggested using the American technique of a "reverse sting", in which the police set up a money-laundering front to lure in well-known criminals. The British version was codenamed Operation Cotton, and the first task of the undercover officer was to go to Spain and meet Joe Wilkins.

What we now know is that Wilkins introduced the undercover officer to Christopher Finch, a leading lawyer in Gibraltar. Finch had been the Thames TV lawyer on Gibraltar during the making of the Death on the Rock programme.

In turn, Finch introduced the undercover cop to Plinio Bossino, who ran bureau de change outlets in Gibraltar. What was said at those early meetings is now disputed, as the tapes of the conversation have been lost by Scotland Yard.

Finch and Bossino solicited their criminal contacts to launder money through what appeared to be a Mayfair-based financial services company, but which in reality was the front for the police sting. Dozens of people were eventually arrested. Some were jailed, although their convictions are now in doubt.

At Southwark Crown Court last Monday, Judge George Bathurst Norman described the operation as "massively illegal" because British law does not allow entrapment. He ruled that Finch, 55, had been entrapped but Bossino, 66, had not. But charges against all the defendants were dropped.

Wilkins was also suspected of informing on Kenneth Noye, who went on the run after the 1996 M25 "road-rage" murder of Stephen Cameron. Noye stayed at Wilkins's villa. He was arrested shortly after he bought a villa near Cadiz and moved out.

In recent years Wilkins became persona non grata with the now suspicious British criminal fraternity in Spain.

A well-informed British underworld source in Spain told me: "If Joe is helping the spooks [MI6], that may explain why it was so easy for him to go on his toes [escape from prison] and why he lives so openly. The view is taken here that he's a grass."

Wilkins, now 68, remains in Spain. Since questions were first asked in Parliament in 2000 about why Joe Wilkins had not been extradited or deported from Spain, the Home Office has consistently refused to comment.