It has also led to the exposure of MI6's own supposedly highly secret intelligence operation there, codenamed Victory, and to a very public attack on Britain's spies by the tax haven's chief justice.

Four defendants, believed to be expatriate Britons, were cleared and released by the chief justice Anthony Smellie on Tuesday after it emerged that MI6 had ordered the island's money-laundering officer to destroy evidence in an unsuccessful attempt to keep the agency's activities dark.

An MI6 controller in London had been compiling intelligence about suspect accounts belonging to US fraudsters and the Russian mafia. The "mole" was a local assistant bank manager, code-named Warlock.

According to court documents, his material was covertly passed on to MI6's London headquarters at Vauxhall Cross by the island's money-laundering officer, the former Metropolitan police detective Brian Gibbs.

At the grand court on the island, the chief justice told jurors there had been an "extraordinary turn of events". He issued a 47-page judgment criticising Gibbs' relationship with an unnamed "UK government agency". It is an open secret on the island, according to local sources, that he was referring to MI6, and in London, sources approached by the Guardian made no attempt to deny it.

Mr Smellie aborted the six-month trial of officers and a director of the Cayman Islands-based Euro Bank Corporation on $25m money laundering charges, calling Gibbs' undisclosed relations with Warlock, a prosecution witness, an "abuse of process".

He said "Gibbs deliberately failed to disclose and knowingly destroyed evidence which he was aware was highly relevant to this trial." He had put his relationship with MI6 above his duties to the Cayman court.

The judge rejected Mr Gibbs' claim that he had only shredded the files because he feared he was about to be raided by local police, who falsely suspected him of tapping the judge's phone. He said of MI6: "The protection of Gibbs as their operative and the anonymity of their operations in relation to this jurisdiction was more important to them both than the imperatives of a fair trial".

Mr Gibbs did not respond yesterday to requests for comment.

David Marchant, editor of the Miami-based Offshore Alert newsletter, who has been monitoring the lengthy case, said: "This is the latest in several fiascos involving the prosecution of offshore bankers in the Cayman Islands and further undermines confidence in the jurisdiction."

"It really is like something out of a James Bond movie that MI6 would instruct the leading anti-money laundering officer in the Cayman Islands to destroy important trial evidence prior to a search of his home."

The Foreign Office's only comment on MI6's problems yesterday was to say that the UK and the Cayman Islands would continue to work together to tackle money laundering.