The unmasking of an Iranian spy who was working as a British general’s personal interpreter has become an embarrassing espionage fiasco raising questions about the screening for sensitive military posts.

Corporal Daniel James, 45, who had been security-vetted to work alongside General Sir David Richards when he was commander of Nato’s International Security Assistance Force (Isaf) in Afghanistan in 2006, was yesterday remanded in custody after being convicted of spying for Iran.

The jury was discharged after failing to reach a verdict on two other charges.

Security sources said the actions of James, who was born in Tehran, had been a serious embarrassment for the British Army and undermined relations with allies, who might feel constrained from sharing future intelligence.

James had seemed to be a loyal member of the Territorial Army, and defence sources confirmed that he had been vetted before he joined the TA in 1987 and when he was selected to act as interpreter to General Richards, who is to succeed as Chief of the General Staff in August next year.

Thorough checks on his background, however, should have uncovered certain features of his lifestyle which might have raised the alarm. He had strong ties to Tehran where his family still lived after the Islamic revolution, he had kept his Iranian passport even after becoming a British citizen in 1986, he was £25,000 in debt, and he practised black magic.

Ministry of Defence sources said there had been nothing in the security checks to indicate that James was anything other than slightly odd. “He was regarded as an oddball but harmless and he had all the right clearances,” one MoD source said.

MI5 counter-espionage officers were called in to investigate James after it was discovered he had been sending e-mails and making telephone calls to Colonel Mohammad Hossein Heydari, a military assistant at the Iranian Embassy in Kabul, the Afghan capital. Although his espionage ambitions were preempted before he could become a fully fledged secret agent for Iran, his contacts with Colonel Heydari – and the sensitive documents he was found to have stored on a USB computer memory stick – caused a full-scale alert.

Security sources said it was not just the content of the e-mails and telephone calls that raised the alarm, but the wider implications of a British soldier in a confidential position being prepared to divulge information without authority.

The prosecution said James had two “Nato-confidential” military situation reports about troop movements and fuel stocks in Afghanistan stored on a USB device. The jury was told that he had no right to possess the reports. In one e-mail to Colonel Heydari, he wrote: “I have a very good present for you.”

The security sources said that the unauthorised communication with a potential enemy and suspected passing of confidential information to a third party broke the rules governing the handling of sensitive documents.

The realisation that James was a fantasist who believed he could personally bring peace to Afghanistan by indulging in his own form of diplomacy – handing out business cards to Afghan ministers and to the Iranian Ambassador in Kabul – was also a deep embarrassment to the Army. James had changed his name by deed poll in 1997 because he wanted to sound British, but he joined the TA under his birth name, Esmail Mohammed Beigi Gamasai. He was called up for duty in Afghanistan because he was fluent in Dari and Farsi, a rare talent in which the Army was desperately lacking.

The MoD said James, who was convicted under the Official Secrets Act of communicating with an enemy, had been discharged from the TA.

The prosecution will seek advice from Baroness Scotland, QC, the Attorney-General, about a possible retrial.

Times Recommends

• The 15 Essential Moon landing facts
• Britain’s got artistic talent
• The time is right for lunching in the street