SPECIAL REPORT-Murdoch affair spotlights UK's dirty detectives

LONDON, July 20 Wed Jul 20, 2011 1:33pm BST

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LONDON, July 20 (Reuters) - In a small, semi-detached house overlooking a park in the unlovely south London suburb of Croydon, Jorge Salgado-Reyes sits at a glass-topped desk in his living room plying his trade as a private eye. In the corner, a goldfish glides around a water tank. A flat screen television hangs from the wall alongside replica samurai swords and photographs of landscapes. Black leather sofas line two of the walls.

The phone rings. Salgado-Reyes answers it, jots down a few notes and consults his screen. "A non-molestation order," he says, referring to a court order he is being asked to monitor.

Charging up to 75 pounds ($120) an hour, the dapper, goateed gumshoe takes on cases that range from the banal to the tragic -- tracing missing people, serving court orders, monitoring "anti-social behaviour" such as vandalism or noisy neighbours, checking cases of benefit fraud, or simply carrying out checks for people who are convinced, rightly or wrongly, that their house is bugged.

Salgado-Reyes is the acceptable face of private investigation in Britain. But there's another side to the industry, a subculture in which sleuths tap police contacts and criminal informants for information that they then sell on to tabloid reporters; where private detectives excavate nuggets that can be used to embarrass politicians or celebrities and titillate readers.

Of all the dark corners the country's phone-hacking scandal has lit up over the past two weeks -- illegal tabloid tactics, cosy ties between newspapers and the police, the press's influence over politicians -- perhaps none are murkier than London's private investigator underworld.

One former Metropolitan Police detective who spoke on condition of anonymity told Reuters that in some cases the line between private investigation and organised crime is nonexistent.

"A number of private investigators now operate on behalf of criminal enterprises to steal information, to try to identify potential sources that are giving information against them, to identify competitors, to find out where competitors keep drugs," the former detective said.

"And they are used by the underworld to try to infiltrate law enforcement to find out what law enforcement knows. It's always been like that, in fairness, but information was never in the plentiful state that it is now."

Investigators like Salgado-Reyes say their less scrupulous counterparts are tainting the industry.

"I know for a fact that there are some people convicted of offences who are working as PIs," he told Reuters. "If PIs are providing services for organised crime, then I think we are talking about people who are already part of the criminal world."

That could now change. An advocacy group called HackedOff that campaigns against press intrusion is demanding that the most notorious snoopers face an official inquiry into the hacking scandal, where their testimony might pose a threat to figures in Britain's establishment. It could also lead to tighter laws around the industry, which is currently unregulated.

"These are criminals masquerading as investigators," said Tony Imossi, president of the 98-year-old Association of British Investigators (ABI), the oldest representative body of private detectives in Britain.

"ALERT, CUNNING AND DEVIOUS"

One detective in particular may hold the key to the News of the World scandal and even the political fortunes of Prime Minister David Cameron. Jonathan Rees, a convicted criminal who was once acquitted of a murder charge, regularly sold information to the News of the World and other newspapers, according to police documents obtained by anti-corruption researcher Graeme McLagan.

In the 1990s, Rees was a super-broker of scurrilous information. Unusually prolific, he tended not to use the voicemail hacking most closely associated with the News of the World. (The Guardian newspaper reported on July 4 that the voicemail of murdered schoolgirl Milly Dowler had been hacked by a News of the World investigator, triggering a public outcry.)

Rees's speciality was buying information from cops and civil servants and arranging drug stings, according to McLagan, author of "Bent Coppers", a study of graft inside London's police, also known as Scotland Yard. Rees would then tip off both police and press to strengthen contacts and make money, he wrote.

Asked to respond to the allegations, Rees's lawyer, Nigel Shepherd, told Reuters by email that it was "not only News International that was implicated in unlawful enquiries... the media think only in terms of a witch hunt against News International." He did not elaborate.

According to the Guardian, Rees's targets have included members of the royal family, central bank officials, rock stars Mick Jagger and George Michael, the family of Peter Sutcliffe, a notorious serial killer dubbed the Yorkshire Ripper, and leading politicians.

Rees even tried to undermine the Yard's internal efforts against corruption by spreading rumours about some of the people associated with it, McLagan reported.

"They are alert, cunning and devious individuals who have current knowledge of investigative methods and techniques which may be used against them," said an internal police report into Rees and his associates cited by McLagan.

"Such is their level of access to individuals within the police, through professional and social contacts, that the threat of compromise to any conventional investigation against them is constant and very real."

Rees has not been convicted of an offence in relation to his illicit news-gathering for the media. But he has emerged as a key figure in the scandal because he resumed working for the News of the World in 2005 after serving a jail term for conspiracy to pervert the course of justice in a child custody case.

By then, the News of the World was edited by Andy Coulson. Coulson was forced to quit in 2007 when the newspaper's royal editor and another private investigator, Glenn Mulcaire, were jailed for hacking into voicemail messages of aides to the royal family. The editor, who has always maintained he had not known about the phone-hacking, went on to work as Cameron's communications chief.

"CONFIDENCE IN JUSTICE AT STAKE"

In April 2008, Rees and three others were arrested on suspicion of the murder of Rees's former business partner, Daniel Morgan, who had been found dead outside the Golden Lion pub in Sydenham in March 1987.

Morgan was lying beside his BMW with an axe sticking out of his head.

His family says he had discovered information about police corruption in the weeks before his killing -- a development it alerted police to more than 20 years ago. In the weeks before his murder, Morgan had repeatedly expressed concerns over corrupt police officers in south London, they say.

Rees was charged with conspiracy to murder, but the case remains one of Britain's longest unsolved murder inquiries, in part because of police malpractice. In March 2011, commenting on the failure of the case, Detective Chief Superintendent Hamish Campbell said the initial probe had been flawed and "police corruption was a debilitating factor."

The case against Rees failed due to procedural flaws: the prosecution said it could not guarantee that police could satisfy rules protecting the right to a fair trial.

Documents the defence wanted to see had gone missing. And on two occasions, material not disclosed to the defence was found in the police's possession. The judge said the police had had ample grounds to prosecute but the decision to pull the case was principled and right. He recorded a 'not guilty' verdict.

Shepherd, Rees's lawyer, told Reuters: "We would point out that Mr. Rees has been found wholly innocent of this charge, having been acquitted on 11th March 2011."

MPs now want to know what Coulson knew about Rees's past. Coulson resigned from

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