Duke of York yet to explain photo of him with arm around alleged victim Virginia Giuffre

When New York prosecutors announced the death of Jeffrey Epstein over the weekend, Prince Andrew and his ex-wife Sarah, Duchess of York, were reportedly holidaying in Balmoral with the Queen. It must have have made for an uncomfortable moment: the Duke of York’s former friendship with the disgraced New York hedge fund manager has proven a persistent headache for Buckingham Palace, which has repeatedly been forced to deny allegations that Andrew had sexual encounters with a 17-year-old who had been coerced by Epstein.

The death of the financier, a convicted sex offender who was facing federal charges for sex trafficking, is unlikely to end questions about his relationship to both Prince Andrew and the Duchess of York, to whom Epstein once lent £15,000 to clear her debts. The duchess later described the arrangement as “a gigantic error of judgment”.

Andrew reportedly met Epstein in the late 1990s, after being introduced by Epstein’s then girlfriend Ghislaine Maxwell, the daughter of the press baron Robert Maxwell. Ghislaine Maxwell, whose whereabouts are currently unknown, has previously denied any wrongdoing.

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It was in Maxwell’s London home that a photograph was taken in 2001 capturing Andrew grinning with his arm around the midriff of Virginia Giuffre – the 17-year-old, then known as Virginia Roberts, who alleged in court documents that Epstein coerced her into “sexual relations” with Andrew in London, New York and on Epstein’s private island in the US Virgin Islands.

Giuffre alleges she was recruited and groomed by Maxwell into a life of sexual servitude for Epstein. The hedge fund manager allegedly instructed Giuffre “to give the prince whatever he required” and report back on the details of “the sexual abuse”, according to testimony filed by her lawyers in 2015.

Those allegations prompted a highly unusual and forceful denial from Buckingham Palace, which vehemently denied there was “any form of sexual contact or relationship” between Andrew and Giuffre. “The allegations made are false and without any foundation,” the statement said.

The palace released a similar statement on Friday, after newly released legal documents stemming from a defamation suit that Giuffre brought against Maxwell revealed that the Duke of York was accused of inappropriately touching another young woman.

In a witness statement, Johanna Sjoberg, another alleged Epstein victim who claims she was recruited by Maxwell, claimed Andrew touched her breast while sitting on a couch at Epstein’s New York apartment in 2001. Buckingham Palace said the allegations were “categorically untrue”.

While the palace has been quick to reject accusations from Epstein’s victims implicating Andrew, it has yet to provide an explanation for the photograph showing Andrew with his arm around Giuffre. Neither has the palace directly addressed the many questions over Andrew’s repeated encounters with Epstein over several years.

Records detailing flights by Epstein’s private Gulfstream jet, previously seen by the Guardian, reveal that in May 2000 Andrew flew with Epstein and Maxwell to Palm Beach, Florida. The next month, Epstein and Maxwell are believed to have attended a Windsor Castle party for the birthdays of Princess Anne, Prince Andrew and Princess Margaret.

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In 2000, the prince is reported to have shared a holiday with Epstein on his yacht in Thailand. Other encounters between the two men are believed to have taken place at the Queen’s Norfolk estate and an exclusive dinner in St Tropez. The pair were most recently pictured walking together in New York’s Central Park in 2011, shortly after Epstein, by then a registered sex offender, was released from jail.

The duchess has been more forthcoming about her financial arrangement with Epstein. In an interview with the Evening Standard, she apologised for allowing the financier to help pay £15,000 of her debts, in an arrangement the newspaper said was arranged through Prince Andrew’s office.

“I personally, on behalf of myself, deeply regret that Jeffrey Epstein became involved in any way with me,” she said. “I abhor paedophilia and any sexual abuse of children and know that this was a gigantic error of judgment on my behalf.”

She added: “Once again my errors have compounded and rebounded and also inadvertently impacted on the man I admire most in the world, the duke.”