CUSTOMS were urged by another government department not to bring charges against businessmen in the Matrix Churchill case, the Scott inquiry was told yesterday.

Officials from the Department of Trade and Industry were anxious to avoid ministers being forced to give evidence, thus parading the Government's 'dirty washing' in open court.

Michael Coolican, a senior DTI official, had wanted to deal with the case by calling in the defendants and 'slapping them across the wrist', rather than prosecute them.

Peter Wiltshire, the senior Customs investigating officer, said the idea was rejected as it could have prejudiced future legal proceedings.

It was also revealed that Customs had little faith in Anthony Steadman, an important DTI witness who gave vital evidence in the Matrix Churchill trial. That evidence was being relied upon to rebut defence claims that the Government knew that machine-tool exports were destined for Iraqi munitions factories, in breach of official guidelines, but 'turned a blind eye' to them.

Customs documents revealed it was recommended that Mr Steadman's involvement in the prosecution case be 'minimised to the unavoidable' because he was perceived to be 'weak'.

Mr Wiltshire described the witness as 'honest but nervous'. He said criticisms of Mr Steadman were not passed to him but, irrespective of these, he was confident that Mr Steadman was a valid witness because of his 'firmness' in rebutting the defence arguments.

'I was confident he would come up to proof on this aspect,' Mr Wiltshire said. He denied that Mr Steadman was a witness who 'agreed too readily to things he shouldn't be agreeing to'.

When Mr Steadman gave evidence at the trial, he failed to remember a crucial meeting where Alan Clark, a former Defence and Trade minister, was accused of giving 'a nod and a wink' to manufacturers to breach export guidelines to Iraq by stressing the equipment's peaceful uses.

Mr Wiltshire also denied trying to suppress government papers useful to the defence. The minutes of a secret Whitehall committee at which Matrix Churchill was linked to a GCHQ report about a British firm supplying Iraqi munitions plants, were never released to the defence.

The committee included Defence, DTI and Foreign Office officials who were all involved in granting export licences to the firm.

The document was 'overlooked', he said, though he admitted it could have had a bearing on the trial. 'I think there was a situation where the jury could have said 'it serves HMG (the Government) right'.' He insisted that it had not deliberately been withheld. 'There was no question of suppressing things.'

The inquiry continues.