The investigation will focus on how senior officials and employees at the Union of Democratic Mineworkers benefited from a £7.5 billion programme set up by the Department of Trade and Industry to compensate sick miners.

Preliminary inquiries into the finances of the UDM and a company owned by one of its employees began after concerns were raised by the Law Society. Detectives uncovered an extraordinary story of rags to riches. Inside a union with only 1,332 members was a world of luxury cars, personalised number-plates, extravagant hospitality and expensive property purchases.

The Times has learnt that a judge has now granted detectives an order to obtain confidential documents relating to the relationship between a solicitors’ firm and two companies associated with the UDM.

A full criminal inquiry, announced last night, will look at the finances of Mick Stevens, the UDM vice-president, and Clare Walker, who is head of claims at a company called Vendside, wholly owned by the union, which was set up to handle compensation claims.

Miss Walker, 41, who used to work for a company that polices claims for the DTI, is understood to have earned £260,000 last year — including a £200,000 bonus — for a 20-hour week at Vendside. She has an £110,000 Bentley and a £61,000 company BMW.

The scheme was launched by the Government in 1999 after British Coal lost a test case over two illnesses caused by miners working underground — chronic lung disease and vibration white finger.

The DTI entered an agreement with some 700 solicitors’ firms to handle claims. The DTI would pay the solicitors’ legal costs when each claim was settled. In the same year the Government reached a separate agreement with the UDM and Vendside, which is run by Mr Stevens and Neil Greatrex. It was to be allowed to handle claims on a “no win, no fee” basis without outside lawyers.

Vendside has since received £19 million in costs paid by the DTI for thousands of claims settled in-house by staff who are not legally trained, bringing the UDM — which split from the National Union of Mineworkers during the 1984 strike — pre-tax profits of £6.3 million.

In addition, the UDM/Vendside has passed on more than 10,000 registered cases — typically those where “complicated legal issues need to be dealt with”, according to the union — to be processed by solicitors’ firms, which have earned a total of £25 million from them.

The fraud squad is understood to be principally interested in how claims were divided up between Vendside and the solicitors’ firms, two of which have made payments to a company called Indiclaim, which is wholly owned by Miss Walker and has no official connection to the UDM.

In a letter seen by The Times, sent to UDM claimants last summer, Wake Smith, a Sheffield firm of solicitors, said that on the successful conclusion of the case it would “make a payment of either £100 or £300 plus VAT, out of our fees (which as you know are paid by the DTI and not you), to the marketing arm of the UDM (Indiclaim Ltd)”.

The solicitors explain that this is “to help to cover the marketing, administrative costs of investigation, continued support of claims and to raise miners’ . . . awareness of compensation”.

Yesterday Wake Smith told The Times that describing Indiclaim as the marketing arm of the UDM had been a mistake.

Beresfords, a firm of solicitors based in Doncaster, told The Times that in 2001 it was instructed by Mr Stevens to pay to Miss Walker’s company fees that had previously gone to Vendside.

Mr Stevens and Miss Walker said that they were shocked and surprised to learn that they were the subject of a criminal inquiry. They would be offering the police every assistance.

John Mann, the Labour MP for Bassetlaw, has waged an 18-month campaign to highlight alleged abuses of the compensation schemes. “People at the top of the UDM/Vendside have earned a fortune by riding this gravy train,” he said.

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