Don't call me madam: Briton denies allegations she ran huge European vice network

French investigators say woman earned millions from international trade in sex, with 538 women and 56 men employed in six countries

Margaret MacDonald could pass in an airport departure lounge for a modern businesswoman - 40-something, dressed in a white suit, intelligent, confident in French and capable of conversing in several other languages.

According to the French authorities, she was avery modern businesswoman: an international trader in sex who ran a high-class call girl (and call boy) business with a turnover of millions of euros a year.

Ms MacDonald, 43, born into a middle-class family in Bedford, appeared in court in Paris yesterday, accused of building one of the largest and most elaborate vice rings seen in Europe. Her operation employed 538 women and 56 men in at least six countries.

Prosecutors say that her agency, the European Escort Service, arranged sexual encounters at a rate of €1,000 (£700) an hour for the rich and famous of Europe, including celebrities and executives of large companies.

Ms MacDonald told the court yesterday (in perfect French) that she was a legitimate businesswoman, running an escort agency. She said she was the victim of the "hatred" of a former German employee, who had alerted the police about her business and was now on the run.

She said: "Her aim was to steal all my girls and all my clients and take my place." She added, referring to the thriller Fatal Attraction: "She hated me. She made me feel like Michael Douglas with Glenn Close behind me."

Ms MacDonald's lawyer insisted that her business was less sordid, less glamorous and less extensive than the French authorities claim. Maître Emmanuel Marsigny said that his client, before her arrest in Paris 16 months ago, ran an escort business with only 20 employees in France and a few dozen elsewhere.

The young men and women she employed, ranging from models to schoolteachers, were not obliged to have paid sex with their clients - but were free to do so if they wished.

Axelle G., one of her former employees, told the court yesterday: "Margaret has always been upright, firm and adorable. She has never forced me to do anything."

Initial contact with potential clients was made through small advertisements in the "Escorts and Guides" column of the International Herald Tribune, the sober-sided American newspaper based in Paris, which circulates all over the world and carries a block of such ads several days a week. Ms MacDonald was such a good customer that she had a permanent account at the paper. Its credit balance was regularly topped up by her employees, from their "escort" earnings.

The case, which continues today, could shed light on the shadowy world of the international escort agency. Such agencies are banned in France and, according to written evidence presented to the court, often amount to high-class prostitution services.

A brief search on the internet, or a glance at the small ads in the International Herald Tribune reveals dozens of such businesses, offering "special" and "fun" services for the "mind, body and soul" of "VIP gentlemen". Far from being a big and "exceptional" player as the prosecution insists, Ms MacDonald says that she was just one small operator in a huge international industry.

Even the rates allegedly charged by Ms MacDonald - of which she kept 30 per cent, according to the prosecution - were not at the top of the market, apparently.

One elaborate website offers "escorts" at £1,200 an hour. It also claims to be able to offer "one-off" experiences, including a meeting with "one of Hollywood's most universally recognisable ladies" at up to "$1.3m [£800,000] plus travel costs".

Ms MacDonald is charged with "aggravated pimping" and, if convicted, faces up to 10 years in jail.

Before the court adjourns to consider its verdict today, Ms MacDonald and her lawyer will try to prove that, although the morals of her business may be dubious to some, she has been unfairly singled out by the authorities.

"She was running an escort agency," Maître Marsigny said. "If some of the women gave themselves up for prostitution, that was their business." To be a pimp under French law, he said, implied a degree of "constraint or violence", which was totally absent in this case.

Just how high-flying Ms MacDonald was is also open to question. When she was arrested in May last year, French police said that she operated from an apartment in Milan and jetted between luxury hotels in six countries. It turned out that she was arrested in a rather ordinary three-star hotel near the Arc de Triomphe called the Tivoli where she was a regular customer, seen in jogging clothes as often as in an elegant suit.

She was reported to be fluent in six languages, including Japanese, Arabic and Greek. It was also reported that she had been educated in top British and French universities.

Sources close to the inquiry suggested that she is bilingual in English and French and passable in the others. Ms MacDonald graduated in business studies from a London polytechnic and spent four years at a relatively obscure business school at Reims in northern France.

When she graduated 20 years ago, she drifted through a number of business jobs and appears to have turned to prostitution to make money. She set up her escort agency six years ago.

As a child she lived with her Scottish parents, brother and sister in Bedford. Her father was an RAF sergeant who became a businessman. The family moved from Bedford first to Aylesbury in Buckinghamshire and then to a wealthy estate in Windsor. Her family has refused to talk to the press but family friends say that her parents always spoke of Ms MacDonald as a "businesswoman" who had "Arab boyfriends".

The prosecution alleges that Ms MacDonald was earning €240,000 a year from her agency.

When arrested, she had four mobile phones, seven Sim cards, giving her 12 different lines, and a lap-top computer. She also had a camera, to photograph new employees.

She had, the prosecution alleges, travelled to Paris to interview potential new girls for her agency, who ranged from unsuccessful models to flight attendants to housewives.

Prosecutors say that her computer's memory contained the complex and orderly accounts of her dealings with more than 500 employees.

The French press have called Ms MacDonald the "Madame Claude britannique", after the legendary Paris madam of the 1970s, who became a celebrity after fleeing to tax exile in the United States and publishing a bestselling memoir.

Mme Claude regarded sex as an amusing game. According to a psychologist's report given to the Paris court, Ms MacDonald had a detached and business-like approach and had few relationships of her own. She is "cold and ascetic where sex is concerned", the report said.

The hearing is expected to end today but judgment will probably be delayed.