The warnings, given more than a year before the trial started, went unheeded because Sir Brian Unwin, the former Customs chairman, believed it only amounted to 'background noise' and did not justify halting the prosecution.
Three businessmen from the Matrix Churchill company were acquitted of illegally selling machine tools to Iraqi weapons factories when the trial collapsed in November 1992 after Mr Clark's evidence.
The first warnings came at an emergency meeting called by Sir Robin Butler, Secretary to the Cabinet, following newspaper allegations that Mr Clark gave exporters 'a nod and a wink' to breach UK export restrictions on trade with Baghdad. Senior Whitehall officials warned Sir Brian, now president of the European Investment Bank, that an official record of a meeting between Mr Clark and members of the Machine Tools Technologies Association was 'ambiguous' and encouraged the nod and wink interpretation.
Sir Brian was told that Mr Clark was an 'idiosyncratic' minister who held 'peculiar views', including publicly advocating exports to Iraq before the invasion of Kuwait.
Despite this, Sir Brian said he did not think any 'devastating evidence' had emerged. 'I don't recollect coming away feeling anything was said there that cast new light on the investigation we were conducting. I didn't take away any specific concerns - just this general background unease.'
After the meeting he wrote an internal memo stressing the need to avoid the mistakes of the supergun case when Customs were forced to drop charges against two businessmen after discovering Whitehall had prior warning about it.
He said he was concerned Mr Clark's meeting with the MTTA could cast a 'shadow' over the Matrix Churchill case as well as other prosecutions. Investigators were reminded of the need for 'thoroughness and meticulous preparation' of the Matrix case to avoid similar mistakes, he said.
Sir Brian added that if there had been real misgivings within Whitehall about the prosecution, the officials concerned should have come to Customs to tell them. 'It was not sufficient to make general noises. One had to have specific information.'
One of his staff described the prosecution as a 'flagship case', while another spoke of the chairman's concern for the need for a 'tangible success' to demonstrate that export controls worked.
Sir Brian said the case was important but that did not mean a prosecution would have proceeded 'willy-nilly' without sufficient evidence. He denied that it was seen as a way of redeeming Customs' reputation after the failure of the supergun case.
Sir Brian said he was 'extremely frustrated' by that decision to drop the supergun case: 'It had been a very long and hard road and until towards the end of it we believed the case was a proper one to bring to prosecution . . .' The inquiry continues today.
The inquiry has cost more than pounds 1m to date, Stephen Byers, MP for Wallsend, was told in a Commons written reply yesterday. The costs are: Foreign Office, pounds 160,759; Attorney General's office pounds 10,083; MoD, pounds 128,000; DTI, which sponsored the inquiry, pounds 1,028,000.
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