John Reid has been accused of “serving the interests of the Iranian military” after authorising a British court action against a millionaire businessman and his family at Tehran’s request.

The home secretary sanctioned a request by the Iranian Ministry of Defence for the “draconian” crown court case against Fouad Al-Zayat, one of the world’s most prolific gamblers.

It is believed to be the first time that Britain has agreed to a prosecution on behalf of Iran or any foreign military authority.

However, the case against Al-Zayat was thrown out by the crown court because the judge had not been told during earlier proceedings who had instigated the case.

Judge Christopher Elwen said that he would never have allowed British investigators to raid Al-Zayat’s London office and freeze his worldwide assets if he had known that the Iranian military was behind it. “The jurisdiction I was being asked to exercise [on behalf of the Iranian military] is exorbitant and its effects draconian,” he said.

The legal action, which has not previously been reported, followed a £60m commercial dispute involving the supply of an Airbus jet from a company controlled by Al-Zayat to the office of the Iranian president.

The judge’s decision lays the way open for the businessman to sue Reid and the Home Office for millions of pounds in compensation.

Al-Zayat said that British prosecutors sent more than 20 police officers to raid his Mayfair office last year. The Serious Fraud Office, acting on Iran’s request to the Home Office, also froze the assets of his daughter Sara, 33, and those of his lawyer, David Quastel, and his wife Michelle, both British citizens.

Al-Zayat said of Reid: “He’s serving the interests of the Iranian Ministry of Defence in a case that has nothing to do with the UK. He’s been acting on behalf of the Iranian military. This is a big mistake and I think he’s been very stupid. For me, they have turned my life and my family’s life to hell.”

His legal team expressed disbelief that the British government helped the Iranian military authorities to bring a court case against a man whose main connection with the UK was his enjoyment of London casinos.

Jason McCue, Al-Zayat’s solicitor, said: “It’s staggering. Why are we helping people who have kidnapped our troops? Their president has described the UK as the ‘devil’ and ‘the enemy of the state’. Yet he is allowed to utilise the UK courts at UK taxpayers’ expense for what is essentially a commercial dispute that has no connection whatsoever with this country.” Syrian-born Al-Zayat, 65, who is known as the Fat Man for his high-rolling gambling, routinely avoids publicity and rarely gives interviews. But he decided to speak out after the judge ruled that the case brought by government prosecutors, acting on a request from Tehran, had led to a wrongful freezing of his worldwide assets, which include a £158,000 Rolls-Royce car and a Boeing 747 aircraft.

The case centres on a deal that Al-Zayat negotiated in 2002 with intermediaries acting for Hashemi Rafsanjani, the former Iranian president. Al-Zayat was to supply a presidential jet, an Airbus 340.

The deal became bogged down in complex disputes about money. During a trip to Lebanon in May 2004, Al-Zayat was kidnapped at gunpoint by members of the Iranian Revolutionary Guard in Beirut. He says he was held under guard in the Iranian embassy for a week and was released only after he signed a document agreeing to pay back money that the Iranians claimed he owed them. Evidence of the kidnapping was laid before the court at Southwark.

The Home Office claimed that the proceedings were “normal” and had been prompted by a judge, not the Iranian military.

Under international agreements, countries can ask foreign governments to conduct criminal proceedings against someone they are pursuing.

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