Previously undisclosed documents show that Scottish police recommended to US authorities that both the main witness in the Lockerbie trial and his brother should be paid a reward of up to $3m, or £1.5m.

The documents discussed at the Court of Criminal Appeal in Edinburgh yesterday revealed that Tony Gauci, the Crown's key witness in the case, should receive $2m while his brother - described in papers as having some influence over Tony - should receive $1m.

It was also alleged that police notes suggested at one stage that a Mr Gauci - which one was not specified - could tell people he had had a lottery win.

Tony Gauci's evidence was crucial: the burned remnants of the articles bought at his shop were later found inside a brown hardshell Samsonite suitcase that contained the bomb that blew up over Lockerbie on December 21, 1988, killing 270 people.

Lawyers for Abdelbaset Ali Mohmed al Megrahi, the man convicted of the bombing, this week began a challenge to demand undisclosed material they believe will help free their terminally ill client.

The Crown Office and the Advocate General are opposing disclosure, claiming that in some cases the evidence does not exist.

The Herald revealed last year that the defence team for Megrahi, who is serving 27 years in HMP Greenock for the atrocity, was not told of the reward offer.

Lord Hamilton, the Lord Justice General, Lord Kingarth and Lord Eassie heard yesterday from Megrahi's QC, Maggie Scott, who referred to documents that emerged after the three-year Scottish Criminal Cases Review Commission investigation.

Their investigation, which concluded last year, referred Megrahi for a fresh appeal.

Ms Scott said that new documents revealed Scottish police officers discussed that in 1991 Tony Gauci had "expressed an interest in receiving money".

She said there were indications that there was much more contact between detectives in the inquiry and the witness than had been previously been disclosed.

A record by one officer read that Paul Gauci was also interviewed, and that "it was apparent when speaking to him he has a clear desire to gain financial compensation".

Another document described an Impact Assessment Report which may have been related to the United States' Witness Protection Programme, but Ms Scott said the author was unknown because it had been redacted.

This document was sent to the US Department of Justice along with a document from Scottish police in support of an application for a reward.

Further documentation showed that as early as 1989, an FBI agent had advised a Scottish police officer that $10,000 could be made available in relation to relocation.

A separate paper from a Scottish police officer in April 2002 to the US Department of Justice "outlines the background of the exceptional contribution" made by the Gauci brothers before suggesting the $3m payout.

The FBI is understood to have supported this, although there was no documentation to suggest payments had been made.

Ms Scott said the Crown had said that to the best of its knowledge, Tony Gauci had never asked for or received a payment, and that it added "to the best of the Crown's knowledge neither of the Gauci brothers asked Scottish police officers for a reward or how to claim one".

It is claimed that an officer referred in a diary, or notebook, from February 1991 "to a trip that is to be undertaken by Mr Gauci". Ms Scott said: "It is not clear what this is for, it doesn't make clear the purpose of that trip." She said that although the documentation was also redacted, it appeared there was a suggestion that if questioned Mr Gauci could "claim that the trip was paid for by a lottery win".

Ms Scott said she believed the documents should be allowed to be submitted for the appeal in April.

Ronnie Clancy QC, advocate-depute acting for the Crown, raised legal argument that the disclosures sought should only come after grounds of appeal were established as supporting documents and not to help form the basis of grounds for appeal. Mr Clancy said the Crown had already handed over 8500 documents to the defence since the end of last year. He said there was an "unrequited suspicion" the Crown is holding more documents relatin g to rewards, but this was not the case.

The Crown was also said to have told the defence that the request for disclosure of a high number of documents could be seen as a general investigation into the case overall, which Ms Scott disputed.

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