The three-month trial, which came after an investigation by the News of the World undercover reporter Mazher Mahmood, is estimated to have cost close to £1 million. Roque Fernandes, 44, and Abdurahman Kanyare, 53, both of Edgware, northwest London, and Dominic Martins, 45, of Stanmore, northwest London, were in jail on remand for almost two years. After deliberating for 30 hours, a jury acquitted them of conspiring to fund terrorists or supply a highly dangerous substance for a terrorist purpose.

The outcome of the case depended heavily on the evidence of Mr Mahmood, 43, known as the “fake sheikh” because of his habit of posing as a rich Arab to trick celebrities and unmask potential criminals. The reporter’s stories are said to have led to more than 200 convictions.

Mr Mahmood told the court that he had been approached with information about the plot to acquire red mercury by an informant known only as Mr B.

The very existence of the chemical, which is thought to have been developed by the Soviet Union, was called into question during the trial.

During several days in the witness box Mr Mahmood said that he had become increasingly concerned as he made his inquiries. He said: “It became clear that these people were serious and dangerous criminals.”

Mr Mahmood tape-recorded meetings with the defendants at which the red mercury plan was discussed. The reporter was in close touch with the Metropolitan Police Anti-Terrorist Branch.

Mark Ellison, for the prosecution, said: “Each of these defendants did agree and intend to actively pursue the purchase of this dangerous radioactive toxic substance. They knew that it may have been used in acts of terrorism.”

The defendants denied involvement in terrorist activity. Mr Kanyare, an international dealer, said he thought that he was buying a chemical for use in cleaning bank notes. Mr Martins, a City banker, said that he had no knowledge of a terror plot and thought he could make enough money to clear his debts. Mr Fernandes, a security guard, claimed that he planned to “tip off” a police contact about the deal.

Jeremy Dein, QC, defending Mr Kanyare, attacked Mr Mahmood and said the credibility of the News of the World — which, like The Times, is part of News International — was at stake. He told the jury that Mr Mahmood was “dangerously deceitful, ruthless, exploitative and corrupt”.

A key witness for the defence was Florim Gashi, a former informant of Mr Mahmood’s, who admitted that he often created stories.

Mr Gashi, a failed asylum-seeker, was a source for Mr Mahmood’s story in 2002 about an alleged plot to kidnap the children of David and Victoria Beckham. Five men were arrested and charged but the case was dropped when prosecution lawyers decided that Mr Gashi was an unreliable witness.

Sue Hemming, head of the Crown Prosecution Service’s counter-terrorism unit, said that it was right to bring the new case.

The newspaper said in a statement that it was disappointed with the verdicts and added that Mr Mahmood had conducted a thorough and legitimate investigation.

It added: “The News of the World involvement in this investigation and subsequent trial was conducted under the direction of senior anti-terrorist police officers. We are entirely satisfied that the methods used in the investigation were not only wholly proper, but were both authorised and, from an early stage, continued in close liaison with the police.”

TABLOID TALES

1999 Mazher Mahmood named Reporter of the Year at British Press Awards

2001 Countess of Wessex resigns from a PR firm after a Mahmood sting reveals she is exploiting her royal connections

2002 Mahmood exposes “plot” to kidnap David and Victoria Beckham’s children. Case against five men dropped after a source who was paid £10,000 is deemed an unreliable witness

2005 Mahmood feigns interest in buying a house from Princess Michael of Kent. She refers to Diana, Princess of Wales, as being “nasty, bitter and strange”

2006 Sven-Göran Eriksson, while England head coach, tells Mahmood of his plans to manage Aston Villa

2006 The ‘Fake Sheikh’ offers to fund George Galloway’s Respect Party but the MP realises who he is and publishes the reporter’s photograph

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