Six-year booze case ends with no charge ... but £5m in costs

Proceedings halted after police inquiry into alcohol smuggling 'sting' set up by HM Customs and Excise

The Crown Prosecution Service (CPS) has said it is not in the public interest to take further action. Scotland Yard confirmed on Friday it has closed Operation Gestalt, a £5m investigation into 20 serving and retired HM Customs and Excise officials. A spokeswoman said detectives believe they had found evidence to bring two suspects to court, but they had now dropped all matters, on CPS advice.

The inquiry probed a secret Customs investigation into a series of prosecutions brought between 1994 and 2001, in which it was claimed duty-free alcohol had been smuggled from London City Bond, a bonded warehouse in east London. The alcohol was meant to be shipped abroad – making it exempt from excise tax. But investigators found evidence of a black market, the booze being sent to certain cash-and-carry outlets for sale throughout the UK, without its leaving the country. The cases fell apart when Liverpool Crown Court heard that customs officers had actively encouraged offences in a sting operation.

Excise officers said they allowed the scam to develop, hoping that by covertly monitoring the operation and using inside information, they could snare a gang of master smugglers.

Hundreds of suspects have walked away from prosecutions that were thrown out, once it emerged that the cases were based on the use of informants and that this was not disclosed to defence lawyers. They successfully argued at appeal hearings that their clients were not being given fair trials.

The scandal led to an official inquiry headed by Lord Butterfield. He concluded that the original Customs investigation went "badly wrong", due to a lack of strategy and a failure to comply with basic legal obligations.

The Attorney General then ordered Operation Gestalt, in 2003, to see if any of the trials had been deliberately prejudiced. Detectives examined 54 failed Customs prosecutions for evidence. "It involved huge amounts of paperwork and interviews," a Met Police spokeswoman said. "Officers have had to look at each trial and all of its evidence in its entirety, in a meticulous and thorough manner. They involved about 330 defendants and losses to the revenue of about £1.25bn. Six were examined in detail."

Detective Chief Superintendent Nigel Mawer, the head of economic and specialist crime command at the Metropolitan Police, said: "This was an incredibly complex investigation and we have worked closely with the CPS throughout. The CPS concluded that although evidence supported prosecutions against two people, it was not in the public interest to do so." A number of officials were moved to other duties. No evidence of wrongdoing was found against civil servants, apart from the two unnamed suspects.