It was also revealed that the prosecution proceeded without interviewing an official who worked at the heart of the Whitehall system vetting defence exports to Iraq.
The inquiry was told that officials from the Department of Trade and Industry made 'overtures' in 1990 to prevent the case coming to court. The case against the three collapsed last November after it was learnt ministers knew of their activities. The court fiasco prompted the Scott inquiry.
Alan Barrett, a former official in the Ministry of Defence's export services secretariat, told the inquiry that he had been aware that attempts were made to try to stop the Customs prosecution.
'I was aware of people around who thought the prosecution should not be brought, and were making overtures to try to ensure it did not take place,' he said.
After initially saying he could not recall who told him, Mr Barrett named DTI officials as likely sources.
He named Michael Coolican, chairman of the department's restricted enforcement unit, a secretive Whitehall committee that included MI6, MI5 and Customs officials. It met regularly to swap intelligence about export breaches, but only in rooms that had been swept for bugging devices.
An earlier Scott inquiry document revealed Mr Coolican had warned that any prosecution would lead to a lot of 'dirty washing' coming to light. Mr Barrett said he believed the DTI wanted the case stopped to cover up the role of MI6, which had been receiving information from Paul Henderson, one of the executives.
'Here was a situation where ministers had approved export licence applications for intelligence reasons. To have prosecuted may have brought that information into the open. I think that was the concern people had - the whole business might be exposed to the detriment of the UK's interests,' he said.
When Presiley Baxendale, QC, inquiry counsel, suggested this meant saving the Government from political embarrassment, Mr Barrett said he did not recall the term 'embarrassment' being used.
The inquiry heard that ministers had approved the export of Matrix Churchill lathes in November 1989 against military experts' advice.
Mr Barrett admitted that his report to Alan Clark, the former Minister for Defence Procurement, before the decision was made had failed to make clear that approval breached government restrictions on exports to Iraq.
The inquiry resumes on Monday.Reuse content