A network of fraudsters stole billions of pounds from taxpayers in a 20-year crime spree on an industrial scale, funneling tens of millions to terrorists including Osama Bin Laden, according to police and intelligence files.

An investigation by The Sunday Times has revealed how a sprawling gang of British Asians infiltrated government departments, associated with Abu Hamza and one of the 7/7 bombers, bought Ferraris with personalised plates and cosied up to politicians including Tony Blair - all while keeping their operations so secretive investigators had to resort to tying a camera to a dog to glean intelligence from inside one of their factories.

The files show four HMRC investigators pleaded with bosses to prosecute the crimelords but were rebuffed - and one claims he was prevented from sharing HMRC data with MI5 because the Revenue wanted to maintain the confidentiality of the terror suspects' tax records.

A cross-check of the massive fraud with secret intelligence files showed some of the money was diverted to Osama Bin Laden

The Khyber Pass. Abandoned Al Qaeda laptops found in the US-led invasion of Afghanistan linked the UK fraud network to the Islamist terror cell

The compound in Abbottabad, Pakistan, where Osama Bin Laden spent his last five years, and where he was killed by US special forces in 2011. Some of the money stolen from UK taxpayers ended up here, according to intelligence reports

HMRC told MailOnline it 'can, has always, and does' pass information on to intelligence agencies 'within minutes if necessary' and that confidentiality 'doesn't come into it'.

An estimated £8bn was stolen from the taxpayer through scams including benefit fraud and a massive VAT swindle. The sum, equivalent to the GDP of Kyrgystan or Kosovo, is three times as much as the Government spends on MI5, MI6 and GCHQ each year.

The gang is alleged to have sent one per cent of the money - £80 million - to al-Qaeda in Pakistan and Afghanistan, where it was spent on madrasas and terrorist training camps. MI5 sources say prior to his death in 2011 some of the money had reached Osama Bin Laden's compound in Abbottabad, Pakistan.

The true scale of the gang's profits, augmented by mortgage fraud, credit card fraud, and investments of the stolen cash, is unknown.

Some members of the syndicate have received and in some cases even finished jail terms - of a combined 100 years for frauds worth £100m - since the crimes first came to light in 1995, but the public has been prevented from hearing about the case or the identities of the wrongdoers by court orders.

The Crown Prosecution Service insists reporting might prejudice potential trials of the gang's ringleaders - despite the fact the kingpins fled the country years ago and are believed to be in hiding in the Middle East.

Last night Meg Hillier, chairwoman of the public accounts committee, told the Sunday Times said she would consider launching a parliamentary inquiry and would question Sir Mark Sedwill, the cabinet secretary and national security adviser to the prime minister, tomorrow.

Shehzad Tanweer, one of the suicide bombers who hit London on July 7, 2005. Two years previously the HMRC investigation - not shared with MI5 - identified associates of his

52 people were killed in the 7/7 bombings, the worst loss of life in a terror attack on the British mainland since Lockerbie

Years before he became well-known as an Al Qaeda recruiter and hate cleric, Abu Hamza recruited young British Muslims to help with the fraudulent schemes

How to steal a billion pounds: Carousel fraud The UK gang infiltrated government agencies and funneled money to Islamist terror cells, according to police and intelligence files. One method was said to be so-called 'carousel fraud': 1. Gang controls firms in UK and EU 2. Company A (in EU) sells goods VAT-free to Company B (in UK) 3. Company B adds VAT at 20% and sells goods to company C (in UK). Company B should pay that VAT to the taxman, but instead it disappears, owing vast sums. 4. Company C sells goods to Company D (in EU) and [because it has not sold the goods to an end-consumer] Company C 'legally' reclaims all the VAT from HMRC. 5. Repeat: Company D (in EU) sells goods VAT-free to Company E (in UK). Profits, laundered via money brokers and disgraced Caribbean bank First Curacao International, go into trusts to buy commercial property; 1 per cent is diverted to terrorism. Advertisement

Authorities first became aware of the schemes in 1995 when an English rural force heard from an extremely frightened' source that gang members were perpetrating mortgage fraud with 'carrier bags full of cash' using false identities, with the help of corrupt bankers.

A four-year investigation by the Inland Revenue pooled intelligence from tax, customs, police, immigration and trading standards and put suspects under surveillance.

It concluded that the gang was using a network of factories and companies and exploiting their workers for identity and benefit frauds, the sale of counterfeit goods, car crash scams and mortgage and credit card frauds.

HMRC found the gang used 'hijacked or altered national insurance numbers to create false records' and exploited 'illegal immigrant labour' before laundering the cash 'through bogus offshore companies'.

An undercover HMRC officer reported that hook-handed cleric Abu Hamza recruited young Muslims to work for the crime syndicate in the late 1990s, years before he became infamous as an al-Qaeda recruiter.

A source said the factories which employed those workers Hamza recruited had extra staff who 'were ghosts claiming benefits and having car crashes'.

The source added: 'A factory of 180 workers only had 120 physical workers. The rest were identity frauds with all proceeds going back to the owners of the companies. This generated around £20,000 a week in benefit claims alone.'

But the gang proved extremely difficult to penetrate, the report says. Undercover agents eventually resorted to attaching a camera to a dog and encouraging it to run around inside one of the network's factories just to find out how many people actually worked there.

The gang's biggest money-maker was so-called 'carousel fraud', a complex and industrial-scale swindle in which four companies, two in the UK and two in the EU, 'sell' goods to each other with some of the firms 'reclaiming' VAT from the British government, while others never pay the VAT bill they rack up (see box).

One HMRC investigator was 'ready to meet with the security services' but his request was refused, according to the report, because HMRC was worried about preserving the taxpayer confidentiality of the terror suspects. Pictured: MI6 headquarters at Vauxhall Cross

A spokesman for HMRC said: 'HMRC can, has always, and does pass information (within minutes if necessary) to other law enforcement agencies and the intelligence services when dealing with serious crime or terrorism – taxpayer confidentiality doesn't come into it'

Meg Hillier, chair of the public accounts committee, (left) told the Sunday Times she would be asking questions of Sir Mark Sedwill, the cabinet secretary, (right) tomorrow

How to steal a billion pounds: Illicit goods This fraud was prolonged and well-financed, and included real factories employing hundreds of staff making thousands of real products. 1. Real factories obtain contracts to make clothes for famous brands 2. They produce perhaps 200,000 garments for the client plus an extra 40,000 to sell in markets at half price 3. Family members then visit stores with half-price items, and exchange them for other full-price goods. Advertisement

Investigators concluded the gang had gained more than £1 billion from illegitimate VAT rebates in a single postcode area.

A major break in the case came in the months after 9/11 when, on abandoned laptops found by the CIA in mountains on the Afghan/Pakistan border, intelligence officers discovered al-Qaeda's money was coming in part from an accountant in an English town.

He was a major player in the network, which afforded its ringleaders UK properties and supercars with personalised plates, all at the taxpayer's expense.

For years HMRC and other agencies did little to disrupt the network, taking almost no formal enforcement action. The files show that at least four rank-and-file HMRC intelligence officers implored their bosses to launch prosecutions. Their requests were rejected 'due to their complicated nature and a lack of resources'.

When the 9/11 attacks occurred in 2001, one official warned HMRC chiefs that he had 'basic information' that would be of great interest to MI5.

Internal files seen by The Sunday Times show the officer said he was 'ready to meet someone from the intelligence services' with the 'mountains of information available to us' that had 'taken on a whole new significance' after the attacks on New York and the Pentagon.

'Officers and, increasingly, their direct management have become frustrated at the lack of action,' wrote the officer. His request was refused because HMRC was worried about preserving the taxpayer confidentiality of the terror suspects.

An HMRC spokesman told MailOnline today: 'HMRC can, has always, and does pass information (within minutes if necessary) to other law enforcement agencies and the intelligence services when dealing with serious crime or terrorism – taxpayer confidentiality doesn't come into it.

'HMRC takes its critical role in the fight against serious organised crime and terrorism very seriously. We work side-by-side with the intelligence services, law enforcement partners, and across Government, to break up criminal gangs and disrupt terror funding.

'In 2017-18 alone, we collected and protected more than £3.3 billion through our work fighting organised crime, and have brought more than 880 organised criminals to justice since 2010.'

The report found widespread infiltration of government agencies, to obtain false identities and 'sensitive information'. From one company investigators found '20 potential internal fraud cases including [gang] members in government agencies', one intelligence summary said. Another said two Post Office employees seemed to be helping falsify documents, concluding: 'infiltration is widespread'.

An HMRC investigator reported: 'I myself have seen one [gang] member shoulder to shoulder with Tony Blair on at least two occasions following the war in Iraq'

How to steal a billion pounds: Identity fraud, benefit fraud, mortgage fraud and credit card fraud The gang also engaged in identity fraud, and then profited from those fake IDs to rip off credit card firms, banks, the taxman and the NHS. ID fraud 1. Gang member infiltrates benefits agency 2. Obtains NI numbers issued to children 3. Passes to factory owner to create 'ghost' workers Benefit fraud The fictional person - the 'ghost' - alleged to be working in the factory can then claim: working tax credit to top up part-time earnings; housing benefit; and once they have obtained an NHS number can sell it to foreigners needing care. Mortgage fraud The 'ghost' can buy a house and have a corrupt valuer increase its value, perhaps after falsified 'renovations'. then the criminals obtain a 95 per cent loan against the property in the name of the ghost, using a corrupt agent. After the ghost fails to make payments, the property is repossessed and auctioned. Repeat. Credit card fraud With access to an empty property, the criminals used false identities to submit multiple credit card application at once. When the cards arrived, they spent up to the limit, sold on the goods they bought, and never paid the bills. Advertisement

Thousands were given by the gang to the then-ruling Labour Party. An internal HMRC report said: 'There are numerous [gang] members involved in think tanks and business forums which bring them into contact with senior British politicians.

'I myself have seen one member shoulder to shoulder with Tony Blair on at least two occasions following the war in Iraq.'

The files also show that the gang enjoyed links with a top politician in Pakistan. There is no suggestion that Blair was aware of the alleged crimes.

HMRC intelligence officers also identified the gang's links to Shehzad Tanweer, a terrorist involved in the 7/7 London bombings in 2005 which killed 52 people, at least two years before the attack.

Associates of Tanweer, who who detonated a bomb while travelling eastbound on the Circle Line between Liverpool Street and Aldgate, killing himself and seven others., were suspected of 'multi-identity fraud, phoenix trading, tax evasion, tax credit fraud and money laundering', according to the files.

Many suspects identified by the 1990s investigation were prosecuted, with second-tier members of the gang charged with carousel fraud and money laundering.

In the course of cross-checking HMRC files with secret MI5 intelligence, the CPS found the 'jaw-dropping' link, a source told the paper; that 'MI5 had information that the ultimate destination for some of the money was Osama bin Laden's compound in Abbottabad.'

However, senior HMRC officials declined to use the intelligence to mount prosecutions and take the gang out of operation until after the bombings.