The scheme -- and the Vatican's alleged link with Croatia's war effort are the latest bizarre twist in the trial of Dr Basson for murder and fraud. The Vatican has declined to respond to the allegations.The revelations came in testimony from the South African military's former surgeon general, General Niel Knobel, and previously undisclosed defence ministry documents. Dr Basson, who headed South Africa's chemical and biological warfare programme and was personal cardiologist to President P.W. Botha, faces 61 charges of murder, defrauding the governmentof £8m, and drug manufacture and dealing.

He denies the charges. Gen Knobel, Dr Basson's nominal boss at the time, told the court that in 1992 the defence minister asked for a report on a botched deal with Croatia to buy 500kg of chemicals used in the manufacture of the drug mandrax, for crowd control. He said Dr Basson's report detailed how the South Africans paid $2.6m into a Swiss bank account as security for four Croatian government officials who were to deliver the chemicals. But Dr Basson said the deal turned sour and the Croatian government confiscated the bulk of the money.

Prosecutors allege that Dr Basson stole the money and used it to guarantee loans in European companies in which he had a stake. Gen Knobel said the then army chief, General Kat Liebenberg, approved a trip by Dr Basson to Croatia in 1993 in an attempt to recover the missing money. Gen Knobel said Dr Basson had then ``stolen'' some of the $40m worth of bearer bonds ``provided by the Vatican to the Croatian government forweapons''.

Poison pen stains Vatican

A group of disaffected priests inside the Vatican claimed on the weekend that the commander of the Swiss Guard who was murdered last year was the victim of a Vatican power struggle. The authors, identified anonymously as ``the disciples of truth'', claim that evidence was tampered with in order to fit the hypothesis that the killing was the result of a moment of madness on the part of a non-commissioned officer, Cedric Tornay. The claim, printed by a small Milan publisher in a book entitled Blood Lies in the Vatican, is the latest scandal to rock the Catholic church.

Emotionally unstable and convinced that he was being victimised by Colonel Alois Estermann, according to the Vatican account, vice-corporal Tornay shot dead his newly appointed commander and Estermann's Venezuelan wife, Gladys Meza Romero, before turning his revolver on himself. But according to the authors, Estermann was the victim of a struggle for control of the Swiss Guard -- which hashandled papal security for the past five centuries -- between the secretive, traditionalist Catholic movement Opus Dei and a masonic power faction ensconced in the Curia. The Vatican maintained silence on his case and Vatican radio and the semi-official newspaper Osservatore Romano pretended it had never happened.

-- The Observer News Service