An official from the Export Credits Guarantee Department (ECGD) was concerned about an application for insurance cover from the Matrix Churchill company and sought guidance from two Whitehall departments.
David Bryars, a former official at the ECGD, told the inquiry that he contacted the Foreign Office and the Department of Trade and Industry to establish whether a licence had been given to the company to export its equipment and was not told of any reason why cover should not be granted. He said he also spoke to the department's investigation unit and asked it to check with its Customs contacts as to whether Matrix Churchill's goods had been questioned in the past and whether the company had a record of not complying with export regulations.
'They contacted Customs and Excise, the answer came back that Matrix Churchill were, 'clean', that they had not transgressed any export regulations.'
He said had the equipment been for military use the ECGD could not have provided insurance cover.
The ECGD first became suspicious about Matrix Churchill after reading a newspaper story linking the company to Cardoen Industries, a Chilean arms company with established links to Iraq, the inquiry was told.
Later when the ECGD considered how it had handled the case, Mr Bryars wrote that he was satisfied it had checked as far as it could to establish if insurance cover should be provided. Documents released by the ECGD to the inquiry revealed that even after the Iraqi invasion of Kuwait it still had no evidence other than newspaper cuttings which suggested the equipment supplied by Matrix Churchill was being put to military use.
It was later revealed in Parliament that British taxpayers faced a bill of pounds 54.3m for arms-related exports to Iraq - part of a wider debt of pounds 830m - after Iraq defaulted on payments for the exports which had been backed by the ECGD.
Lord Justice Scott's inquiry was set up following the collapse of the prosecution of three Matrix Churchill executives accused of evading export controls to Iraq. The trial collapsed after government documents were released indicating that Ministers had connived in the exports of arms-related equipment to Iraq.
The hearing continues on Monday.
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