How businessman helped MI6 and ended up in court: Peter Koenig and Tim Kelsey investigate how a patriotic entrepreneur's meeting with illegal weapons dealers led to fraud charges

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JOHN TAYLOR is exactly the sort of man that MI6, the arm of the British secret services which gathers foreign intelligence, favours. He is a businessman with a low profile, a trader in the Far East dealing in everything from hi-tech body scanners to coal- mining equipment.

For 10 years Mr Taylor, then living in Camberley, Surrey, helped MI6 to gather information during his forays aboard. He did so without payment. He believed that he should, as a patriot. Just as Paul Henderson, the managing director of Matrix Churchill, did when reporting back to Whitehall on Iraq.

In early 1985, he was introduced to three men: William Harper, an insurance broker at Lloyd's; Lieutenant-Colonel Eric Matson, a businessman based in the Middle East; and Michael Aspin, an arms dealer already convicted of breaching embargoes to South Africa.

They were planning to supply missiles to Iran. It was illegal - this was nearly six years after both the UK and United States had imposed their arms embargoes in the wake of Ayatollah Khomeini's revolution.

Mr Taylor turned to his MI6 handlers at one of their regular meetings to find out if he should proceed. He spoke to one man (whose identity is known to the Independent) during a meeting in Sunningdale, Berkshire.

The agent, who was on a Far Eastern desk at MI6, said that he would have to consult with colleagues. 'Twenty-four hours later, they came back and said that I should go ahead and keep them informed,' said Mr Taylor.

At his regular meetings, he would update them. At one of these, he asked his handler to tell him if he could check some information.

Mr Taylor had been told that the missiles were coming from Oman. His handler at their next meeting gave him a book.

'He said: 'Treat this with care. It came from the Prime Minister's office,' Mr Taylor said. It showed that Oman did have the right kind of missiles in its armoury. Mr Taylor still has the book. And his solicitor, Adrian Neale, had it checked for fingerprints; there are several unidentified pairs.

Mr Taylor has been silent about his long association with the security services but in the wake of the Matrix Churchill scandal, he believes that it is time for the Government to admit that it knew of this arms deal all along. In this case, unlike Matrix Churchill, all those involved - except Mr Taylor, who was acquitted - went to jail.

He and the three others were charged in 1985 with trying to defraud Iran. They were accused of trying to sell missiles to the Iranians that they did not have to sell.

The prosecution at their trial in 1988 said it was a simple fraud. But the four have always maintained that the British and United States governments were aware of the deal and had a hand in initiating it. They insisted that it was a real, genuine deal and that they could supply the missiles that were for sale.

'I have no doubt that there has been a miscarriage of justice,' said Mr Neale. 'It must be looked at again.'

Mr Taylor's association with the security services was never disclosed to the jury. Mr Neale said that before the trial started he wrote to the Home Secretary for confirmation of this relationship. He was then visited by a lawyer acting as adviser to MI6 who confirmed that Mr Taylor had reported to agents.

During the trial itself, no mention was made of this relationship following a private chambers conference between defence and prosecution. Mr Taylor said that after the discussion, he was told by counsel not to raise the issue.

Much of what really happened during the course of the deal - the alleged involvement of the Americans, for instance, in initiating discussions with the Iranians - remains a mystery.

Next month, William Harper - the former Lloyd's broker said to have falsified insurance documents to fool the Iranians - is to seek leave to appeal against his conviction. His legal team has declined to discuss the grounds, but if there is an appeal it is likely to open the floodgates on a case that the British authorities may wish to remain forgotten.

The project started in the autumn of 1984 to sell US-made TOW anti-tank missiles to Iran using false end-user certificates and involving a complex web of middlemen.

The four, however, had a problem. Having been stung by Western arms dealers before, the Iranians sought assurance that the missiles would be delivered as promised. To solve this problem the four say that they insured the shipment of missiles at Lloyd's of London.

They say this was done through Mr Harper and his employer, Lyon Traill Attenborough (LTA), the firm partly owned by Sir Alan Traill, who was then Lord Mayor of London.

Mr Harper says he made arrangements with Lloyd's underwriters willing to assume the risk for the arms shipment. On 27 March 1985 a Lloyd's Certificate of Insurance was issued for dollars 63m (about pounds 42.4m). LCF, a Swiss- based, Iranian-connected intermediary in the deal, paid pounds 500,000 to LTA for the premium on this insurance as well as other costs.

But LCF later decided that it was being conned and went to Scotland Yard. An investigation followed, and then the arrests.

It was said that Mr Harper had falsified the certificate, on his own initiative. Mr Harper claims that the certificate is genuine.

During the trial, the prospective underwriters told the court that they had not put the contract on risk. But a former director of LTA has told the Independent that he has personal knowledge that the underwriters signed off the contract. He also witnessed a conversation in Mansion House in the City when Sir Alan Traill was told of the arms deal. He was prepared to testify at Mr Harper's trial, but was not called.

On Thursday, Sir Alan did not deny that the conversation had taken place but said he could not remember it. He said that if, as is claimed by the director, he had been asked for his opinion of such a deal: 'My answer would have been - if underwriters, who are the conscience of the (Lloyd's insurance) market, are prepared to accept the risk, it is not for me to question it.'

Yesterday, a Lloyd's spokesman said: 'There was mischief. We co-operated fully with a police inquiry. This inquiry resulted in a prosecution.'

Additional reporting: Peggy Adler Robohm.

(Photographs omitted)