Liam Fox's close friend Adam Werritty attended a meeting in Sri Lanka during which arms supplies from Israel and China were discussed, according to political sources in Colombo.
Sri Lankan government officials complained about restrictions placed by the UK on the supply of weapons and spoke of acquiring them from Israel and, if certain items were not forthcoming, from China.
Mr Werritty was a regular visitor to Sri Lanka and Israel and had received payments from the Good Governance Group, which offers advice on international security, and the company Tamares Real Estate, which belongs to Poju Zabludowicz, the chairman of Bicom, an Israeli lobbying group.
There is no evidence that Mr Werritty offered to facilitate the arms purchase during the meeting in December last year or that he lobbied Mr Fox to enable supplies to be sent to Sri Lanka. But officials said he appeared to be familiar with the weapons industry and what was needed for counter-insurgency operations.
The subject of arms purchases arose during a conversation about growing Chinese influence in Sri Lanka. The government officials reportedly pointed out that the Chinese, unlike Britain, had not put restrictions on sales and had not applied pressure over charges of war crimes during the long and bitter civil war with Tamil separatists.
Israel and China have provided supplies and training for the Sri Lankan forces. Jerusalem provided Kfir fighter-bombers, Dvora naval crafts and surveillance equipment. This week a military delegation from Beijing, headed by Major-General Qian Lihua, travelled to Colombo with an aid package that included the training of Sri Lankan soldiers in China.
A Sri Lankan official with knowledge of the meeting said: "People in government are unhappy that restrictions had been placed on sales to Sri Lanka, a Commonwealth country, based on propaganda. "This is a point which had been made to Mr Fox and his chief adviser, Mr Werritty. It was pointed out that it was inevitable that we would turn more towards China because that country has supported us through bad times as well as good. We have also good relations with Israel as well although there have been some difficulties over technology transfers. Mr Werritty has many contacts in the political and defence field in Israel and people here could talk about mutual acquaintances."
Mr Werritty had gone to Sri Lanka last December to organise a visit for Mr Fox which was subsequently cancelled after protests from the Foreign Office and pressure from Downing Street. The Defence Secretary and his close friend went on a rescheduled visit last July.
Tamares Real Estate and the Good Governance Group stressed they had paid Mr Werritty to promote peace and reconciliation between adversaries in Sri Lanka. Yesterday, Mr Werritty was being questioned in Whitehall for the second day over his links with Mr Fox.
The smoking gun: What finally pushed fox over the edge?
After Liam Fox resigned, a highly damaging claim emerged that even while he was Defence Secretary, he solicited funds for the company financing the lavish lifestyle of his friend Adam Werritty.
Jon Moulton, a venture capitalist who made several donations to Mr Fox before last year's election, said that Mr Fox asked him to fund a non-profit group called Pargav, set up by Mr Werritty. He said: "I have not received an account of Pargav's activities, nor have I been involved at all with Pargav, since funding. I will not be doing this again."
Some Whitehall sources linked Mr Fox's resignation to his connection to G3, a company with close links to the intelligence community and which specialises in international security and risk management, indicating that this alleged link was the "smoking gun" that finally forced Mr Fox's resignation. The G3 Good Governance Group, a strategic advisory company that investigates for companies operating in potential trouble spots, is reported to be among a network of donors funding the flights and luxury hotels used by Adam Werritty.
Those funds, of up to £15,000, are reported to have been channelled through Pargav.