A statement made by a self- confessed Armenian KGB agent before he committed suicide, was read to the jury.
Mkritch Martirossian, 24, who spoke to police while he was in custody awaiting trial for the murders, said 'Arthur' had been sent to Britain from the United States by the KGB.
The organisation had decided to kill one of the brothers, Ruslan Outsiev, after failing to persuade him not to go ahead with the arms deal.
Ruslan's brother, Nazerbek, was shot dead two days later: 'It was very clear that we could not kill one and leave the other,' Mr Martirossian's statement said.
Ruslan was deputy chairman of the president's council of Chechenya, the jury was told. He and his brother were shot dead at their flat in Marylebone, central London.
Mr Martirossian's statement was read out at the trial of Armenian-born Gagic Ter-Ogannisyan, 33, of Chiswick, west London, who denies two charges of murder.
Mr Martirossian told police: 'I wish to talk to take the burden off myself and so you can finish this investigation. I will tell you about this organisation and about the murder of Ruslan . . . The case was planned by the Armenian KGB.'
A war between Chechenya and Armenia lay behind the decision to kill Ruslan, the court was told. Mr Martirossian told detectives that the KGB planned to make the murders look like the work of the Russian mafia.
Mr Martirossian was to help co-ordinate the operation, the court was told. He said he arrived at Ruslan's flat last February to find he had just been shot dead by 'Arthur'.
Ruslan's brother was killed two days later, according to the statement, because of the risk he might pursue a vendetta.
Mr Martirossian claimed that Mr Ter-Ogannisyan was present when the second murder was committed but did not take part. Both men were arrested when trying to dispose of the bodies, the jury was told.
The trial continues today.Reuse content