Speaking in detail for the first time, Griffin said his lawyers had been informed two weeks ago that the case against him had been scrapped.

The downfall of such a long-running and expensive inquiry will be embarrassing for Revenue and Customs.

One former CIA agent, who monitored Khan, said there had been a reluctance to prosecute members of his network because it might reveal how the West turned a blind eye to nuclear proliferation by Pakistan.

Griffin was clear last week why there had been no prosecution. “There’s no bloody evidence, that’s why. They have sent people to South Africa, to America, to Dubai, all over the world. It’s gone before the [Revenue and Customs] director of prosecutions who said, ‘We don’t have a chance of winning this’.”

Two confidential customs reports, seen by The Sunday Times, detail and analyse the findings of a raid on Griffin’s French villa in 2003.

They claim Griffin played a significant – he says unwitting – role in a plot to supply Libya with a precision machine shop that could be used as part of its weapons programme.

One report concludes: “It can be shown clearly that Peter Griffin participated in providing Libya with a machine shop specifically designed to produce gas centrifuge components.” The machine shop, the report adds, “would clearly help Libya to develop their capability to produce a nuclear weapon”.

The report also alleges that Griffin was a key member of the AQ Khan network which had been “engaged in the proliferation of technology and equipment to Pakistan’s WMD [weapons of mass destruction] programme”. Griffin denies involvement in any weapons programme.

His relationship with Khan began in the London of punk rockers and antifascist marches. They met at Kundun, an Indian restaurant near the House of Commons in August 1977.

Over the next quarter of a century, Griffin, now 72, was to keep in close contact with Khan and his associates through his work as an exporter of goods and components to Pakistani government departments.

Griffin insists he was a general supplier. “One week I shipped out 20 lathes or machine tools in one ship, 25 Toyota Corolla cars, . . . 75 pregnant Friesians and 25 pregnant Jerseys,” he said.

Khan’s role, however, was more specific. A trained metallurgist, he had been put in charge of Pakistan’s uranium enrichment programme, a key process in making the nuclear bomb that his country so desired.

Up to 1998, when Pakistan tested its first atomic weapon, Khan operated a network of suppliers who provided the precision tools and components for the bomb programme.

One of the suppliers was Griffin. The two men became good friends. “He would meet me at the airport and I’d stay at his house,” said Griffin. “I knew his children very well. Saw them grow up. I was part of the family.”

When Khan’s role in the nuclear weapons programme was exposed in the 1981 book The Islamic Bomb, he signed a copy and gave it to Griffin. However, Griffin says he did not believe he was supplying goods that would be used in the production of the bomb.

He said: “When they said this is a nuclear bomb etc, he [Khan] told me that he was developing uranium enrichment to provide electricity through reactors.

“I never supplied anything that would have said to me that this was nuclear. I agree, I supplied machine tools. Now you can make anything on a machine tool.”

Khan was also using Griffin to source goods for Pakistan’s army. “Most of the stuff I supplied to Khan was not related to nuclear,” said Griffin. He says he supplied rangefinders for surface-to-air Sam missiles and other equipment such as helmets.

The work brought Griffin into contact with Buhary Sayed Abu Tahir, a Sri Lankan who has been described as a linchpin in Khan’s black operation. Tahir was later to claim that he sold centrifuges - used for enriching uranium – to an unnamed Iranian for £1.5m in 1994-95.

It was, coincidentally, around this time that Griffin began to do business with Tahir.

One particular deal in Libya was to throw world attention on both men. Griffin’s company, Gulf Technical Industries (GTI), was found to have supplied key components for a Libyan machine factory designed to manufacture centrifuges.

Last week Griffin said this had been “set up” by Tahir because he never knew the equipment was bound for Libya.

British customs had been tipped off about the Libyan deal in December 2002. The following June, Griffin’s wife Anna opened the door of their villa in Figanières, Provence, and found a customs investigator and eight French police on her doorstep.

The investigators took away Filofaxes, documents, mobile phones, electronic discs and three computers. News of the investigation – codenamed Operation Aquarium – was announced by customs the following year. Griffin’s son Paul was part of the inquiry because he worked for GTI.

The information collected from Griffin’s villa was detailed in two confidential customs reports in 2004 and 2005.

Contents of the reports have been divulged in America and the Islamic Bomb, a book by journalists David Armstrong and Joseph Trento recently published in America.

The Sunday Times has also seen the reports. They reveal that plans were found on Griffin’s computer for Project 1001. The venture was for a machine shop which was found to have been set up in Janzour, a Libyan seaside resort.

Libya’s admission in late 2003 that it had begun a nuclear weapons programme, aided by Khan, was the beginning of the end for the Pakistani scientist. Khan was forced into making a public admission the following February.

When United Nations inspectors were permitted to review Libya’s programme they found equipment for the Project 1001 machine shop. The second customs report says the inspectors found components for the manufacturing centrifuges which were still in their shipping crates and carried GTI labels.

Between 1997 and 2002, the report says, Griffin had bought in $10m worth of goods for the project.

Griffin admits to supplying components but says Tahir lied to him about their use and end destination. “He told me that Libya were going to make a factory in Dubai to make spare parts for their oil industry . . . I had no problem because I’m not breaking any embargoes because it’s not going to Libya. So I supplied these machine tools.”

The customs report nevertheless suggests that Griffin may have known the intended use of the components. It says: “Early feasibility studies produced by PG [Griffin] show that the project was for the specific purpose to manufacture component parts for centrifuges.”

The report concludes: “It is clear that he [Griffin] designed a precision machine shop ‘Project 1001’, specifying all the equipment needed for the production of P1 and P2 [first and second generation Pakistani] centrifuge parts.”

Griffin says he did not have a clue what a P2 was until he did some research after Tahir had set him up by telling Malaysian police that he was the middleman in fitting out the project.

The report claims that GTI was nothing more than a procurement firm for Khan Research Laboratories, the nuclear weapons research centre set up by Khan. Griffin claims that Tahir was secretly operating the name of GTI outside his control.

“I’ve got proof of Tahir using my company GTI for over 200 shipments without my knowledge, just forging documents,” he said.

Griffin has never been prosecuted. Last week the UK authorities were remaining tight-lipped about the collapse of the investigation into his activities.

It is the second time a British investigation into the AQ Khan network has been aborted. In 2000 Atif Amin, a customs investigator, uncovered evidence that Khan’s network was supplying Libya but he was pulled off the investigation by MI6. His home was raided last month by the police who suspect he leaked customs reports to Armstrong and Trento. They deny this.

“The British authorities need to learn that there is a difference between being the subject of a book and being a source for a book,” Trento said.

A spokesman for Revenue and Customs was unable to confirm that the investigation into Griffin had been concluded. The customs prosecutions office also refused to comment.