Royal Scandal: A prince haunted

Prince Charles' public denial that he had been involved in a compromising situation with a former member of the royal household is now seen as a monumental miscalculation that has resulted in humiliating publicity around the world. Kim Sengupta follows the trail back to Diana's notorious 'crown jewels'

Just four bouquets of flowers were left outside Kensington Palace this year on the anniversary of the death of Diana, Princess of Wales. The astonishing, emotive scenes in the aftermath of her fatal accident and the fierce criticism that lashed the Royal Family are fading memories now.

Today, however, the House of Windsor is facing its most serious crisis since those days, with growing adverse and humiliating publicity around the world. And the late Princess remains the link between these two stormy times.

The allegations being made about the Prince of Wales by his former valet, George Smith, were brought to the forefront by what now appears to be a monumental miscalculation by the Royal Family and its advisers in issuing a statement on Thursday evening. In the statement, the Prince denied that he had been involved in a compromising situation with a former royal servant. But the reason the allegations had simmered just below the public gaze for so long is because Diana had recorded Mr Smith making another, separate, allegation about a rape seven years ago. And this tape is somewhere out there, constantly threatening to bring further opprobrium to the House of Windsor.

Mr Smith was seconded to Prince Charles's staff from the Welsh Guards in 1986. Three years later, the Prince helped him "buy himself" out of the Army. He claimed he became a trusted member of staff, even being entrusted with the task of arranging his employer's clandestine meetings with Camilla Parker Bowles. Mr Smith says in 1989, when he was 29, he was raped by a fellow royal servant. He described what allegedly happened in an interview last November with The Mail on Sunday.

He claimed that the colleague, who was senior to him in the pecking order of the royal household, invited him for Sunday lunch at his London home. Following a meal accompanied by beer and Bollinger champagne, Mr Smith fell asleep on a settee, "insensible from drink", and woke up to discover he had been raped.

Mr Smith, who is married with two children, did not tell anyone, including his wife, about what had happened because, he said, he was afraid of losing his livelihood. He continued working for Prince Charles and, by his own account, even socialised on occasions with the man he says raped him.

In 1995, during a visit by Prince Charles to Egypt, the same man attempted to rape him again while he was asleep at the British embassy. The attack, Mr Smith said, left him deeply traumatised, and his health began to deteriorate.

That same year, Mr Smith's marriage collapsed and his wife left him for another man. The combination of all his problems, he said, left him unable to cope with work.

He mentioned what had happened, for the first time, to Elizabeth Burgess, an assistant personnel officer at St James's Palace. However, it is not clear how much detail he went into about the incidents.

Soon after, Mr Smith had a nervous breakdown and was treated at the Priory Clinic at Palace expense. Mr Smith said that he spoke to medical staff at the clinic about how disturbed he has been by his experiences in the Falklands war, but did not mention the alleged sexual assaults.

Then, Diana intervened in this story with consequences that are beginning to prove devastating for the Royal Family. The Princess had apparently heard the whispers going around Kensington Palace following Mr Smith's talk with Ms Burgess. She visited the valet at the Priory and asked him to call on her at Kensington Palace to discuss his troubles. According to Mr Smith, despite knowing about his problems with alcohol, the Princess was keen to ply him with champagne when he went to the Palace. He told Diana about the assaults, and he claims that her response was: "You will get over this ­ I have been through worse."

Months later, Mr Smith was back at the Priory receiving treatment for alcohol abuse. Diana reappeared, and this time taped his claims about the rape and, it is alleged, his allegations about Prince Charles. The Princess did this, according to those who knew her, because she wanted some kind of "insurance" as she faced a bitter estrangement from Charles. She was feeling battered by the Palace, with its propaganda machine suggesting she was unstable. Her fear was that this was being done to take her sons away. At the same time, the Palace began an internal investigation into Mr Smith's claims. It was carried out by Fiona Shackleton, then the Prince's principal lawyer, at his request.

In an interview in today's Mail on Sunday, Mr Smith claims that after Diana made it known she had recorded his allegations of rape he was threatened by a hooded gunman who told him: "Keep your mouth shut or that will be it." Mr Smith said that a campaign of intimidation began in autumn 1996 when he opened the front door of his home in Twickenham, Middlesex, to find a man pointing a 9mm Browning automatic pistol at his head. On another occasion Mr Smith claims he was beaten up in a street near his home by the same man. Within days, police set up a covert CCTV surveillance operation and installed panic buttons in his home, but no evidence of the gunman was ever found.

A subsequent report by Sir Michael Peat, Prince Charles's private secretary, mentions that Ms Shackleton, a cousin of The Sunday Telegraph's editor, Dominic Lawson, described Mr Smith's claims as "very serious" and meriting a thorough inquiry. According to the report, the Prince told Ms Shackleton that Mr Smith should be dismissed for "spreading untruths", but that the valet should be "properly looked after". The Prince was aware of Diana's interest in the matter, although there is nothing to suggest that he knew about the tape. He told Ms Shackleton to ask the Princess not to "interfere".

According to the Peat report, Sir Stephen Lamport, Prince Charles's deputy private secretary, wrote to Ms Shackleton asking if an agreement could be reached with Mr Smith in order to "avoid an investigation". Ms Shackleton, says the Peat report, believed Mr Smith had St James's Palace "over a barrel". Mr Smith eventually agreed to take a £38,000 payoff ­ almost three times the sum he would have received if he had won a claim for unfair dismissal.

Ms Shackleton was so discomforted by her experience, the report said, that she told Lady Sarah McCorquodale, Princess Diana's sister: "I was asked to make it go away. It was one of the lowest points in my professional career." Mr Smith had also gone to the police over his rape allegations. But he decided not to continue with the complaint after the settlement with the Palace.

Diana had kept the tape in an inlaid mahogany box that she kept locked, with the key hidden in her bedroom. The box contained other sensitive possessions, including the signet ring of her lover, James Hewitt, letters to her from the Duke of Edinburgh and a resignation letter from her private secretary, Patrick Jephson.

She called the contents of the case her "crown jewels", and told few people of its existence. Among them were her sister and her butler, Paul Burrell. After Diana's death on 31 August 1997, the box was seen by Lady Sarah and Mr Burrell as they helped pack the Princess's possessions. But when they arrived at the Spencer family home, Althorp, Lady Sarah found the box empty. Three years later, a royal butler, Harold Brown, who had once worked for Diana, was arrested and accused of the theft of wedding gifts to the Prince and Princess of Wales. Like the subsequent trial of Mr Burrell, the prosecution of Mr Brown collapsed. But while the police were carrying out their inquiries into Mr Brown, they spoke to Lady Sarah and heard about the "crown jewels". It was in the search for these that they turned up at Mr Burrell's Cheshire home.

The "crown jewels" were not found. But their existence became publicly known during Mr Burrell's trial at the Old Bailey. Further damaging disclosures about these is believed to have been one of the factors in the case against Mr Burrell being dropped. The detectives in the case also interviewed Mr Smith. A report was forwarded to the Director of Public Prosecutions, who said there was insufficient evidence to bring charges.

In the aftermath of the Burrell case, the Palace carried out a second internal investigation, this time by Sir Michael Peat. The alleged rape took up 111 pages of the report.

The Crown Prosecution Service passed on a note of a meeting with Lady Sarah in which she said: "Found box in Diana's apartment. PB [Mr Burrell] asked to look after it because I was going on a train and it was too cumbersome. PB's got the box. In the box, letters, tape. Tape about a rape." Mr Burrell, who insists he does not know the whereabouts of the tape, has said: "I know what it contains. Diana and I shared the contents of that tape. It contains intimate details about other people's lives which are nobody's prerogative to talk about. I will never discuss the contents."

After the publication of Mr Burrell's book, one of the reasons that the Princes William and Harry wanted to see him, it is believed, was to prevent further disclosures about the "crown jewels".

In November last year, after Mr Smith's interview in The Mail on Sunday, the alleged rapist issued a point-by-point denial, claiming the account was markedly different from the one Mr Smith gave to Scotland Yard. Mr Smith was living with his father in Malpas, Wales. He was out of work. Contact was re-established with The Mail on Sunday.

Attempts by the newspaper to publish a story from Mr Smith last weekend were blocked by an injunction from another former royal servant, Michael Fawcett. An injunction was also put on The Guardian to prevent publication of Mr Fawcett's name in relation to The Mail on Sunday case. The Guardian injunction was lifted on Thursday. That evening, Clarence House made the dramatic and unprecedented announcement of Prince Charles's denial. It was meant to stop the drip of rumours and speculation. Instead, it turned the tap on, full blast.