English lawyer David Mills told a court today he was "deeply ashamed" to have written a letter falsely claiming that former Italian prime minister Silvio Berlusconi had given him $600,000.
Mr Mills, who acted as Mr Berlusconi's tax lawyer, was giving evidence in relation to corruption charges being brought in Italy against the former leader.
Appearing by videolink from Westminster Magistrates' Court in central London to the hearing in Milan, Mr Mills described what he had written as "a scenario that I invented in order to be presented to the Inland Revenue".
"It's pure imagination. It's fiction. It's a novel," he added during questioning about the document.
Mr Mills, who gave the letter to his accountant Bob Drennan in early 2004, told the court the money had actually come from his friend and associate Diego Attanasio.
"I had two major worries," he told the court. "The first was that I had to be able to justify to the Inland Revenue why I had registered it as a gift and therefore not taxable.
"My second concern was in relation to Diego Attanasio. I had two reasons to be worried about him as I didn't want to cause him trouble in Italy and, secondly, because I was investing in his affairs and I didn't wish that to be a subject of any interest either."
Pressed further by Italian prosecutors on the letter, Mr Mills went on: "I was in a panic, unable to sleep and was not in a normal state of mind.
"I needed to provide to the Inland Revenue a story which explained why I had treated the money as a gift and not as income.
"In other words, to show to the Inland Revenue that I had made a mistake in good faith and not because I was merely trying to evade my taxes.
"It's something of which I am deeply ashamed and which I can only attribute to the very strange state of mind which I was in at the time."
Mr Mills, who is separated from his wife, former Labour cabinet minister Tessa Jowell, was charged along with Mr Berlusconi with corruption in Milan and was convicted in his absence in February 2009.
But he was acquitted by the Italian Supreme Court under Italy's statute of limitations a year later.
Mr Berlusconi, who stepped down as prime minister on November 12, is now facing a trial, previously suspended under a temporary immunity law, on bribery allegations involving Mr Mills.
He denies wrongdoing and has complained that the charges are politically motivated.
As the prosecution finished questioning Mr Mills, he told the Italian court: "I just wish to say one thing."
He went on: "I wish to state with the greatest emphasis at my command that Dr Berlusconi is entirely innocent in this case and had absolutely nothing to do with the $600,000 which is the subject of the case.
"I wish to apologise to him for all the trouble that I've caused.
"And I look forward to showing how the prosecution brought forward in this case has been completely misconceived."
Mr Mills lost his patience several times during this afternoon's proceedings as he was grilled about his involvement in Mr Berlusconi's offshore trusts and asked what he said was the same question again and again.
After being asked to describe the difference between a general account and a client account a number of times, he told them: "I can't make it any clearer."
Proceedings were also repeatedly delayed due to the video-link connection often being lost.
Mr Mills is now due to be questioned by Mr Berlusconi's defence lawyer, who, the court was told, has in excess of 100 questions to ask him.
This will take place on January 16, with January 20 also set aside for the case if necessary.