Friend of royals tells blackmail trial he was asked to pay out £50,000 to stop 'gay sex act' tape hitting the press

The man - known only as C - told an Old Bailey jury that defendant Ian Strachan telephoned him and said: "We sell this material."

Asked how much it would cost, the alleged blackmailer falsely claimed that he had received an offer from a British newspaper of up to £100,000 but would accept half from the royal, known as Witness A.

C admitted he did not know whether the claims were true but added: "To me it is extortion. It is, quite simply, moving mud around. Whether it is true or not, there is the fear that it sticks."

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Strachan, 31, and Sean McGuigan, 41, both from London, deny making unwarranted demands with menaces between July and September last year.

The witness, who has been a friend of the royal for 15 years, said he was with A in France when he was first asked to call defendant Sean McGuigan last August.

He said their conversations were, bizarrely, "quite nice" and on several occasions McGuigan spoke openly of the fact that he was in rehab at the time.

The Irishman did stress, however, that if the footage were made public it would be extremely damaging to A's reputation.

C contacted the local gendarmerie who told him to invite McGuigan and his "accomplice" to visit him in France to hand the damaging footage over so that they could monitor them, the court heard.

The policemen insisted, however, that the meeting should take place during the week because they "didn't work weekends".

To C's astonishment, the pair agreed and even gave their names, dates of birth and passport details so that C could purchase their air tickets.

He said he was also puzzled by the fact that, at this point, McGuigan had not asked for any money, insisting he just wanted to "protect" A.

On the advice of the French police, C then told the defendant that there had been a change of plan and they should hand the footage over to A's PA in London or destroy it themselves.

Within hours, he said, he received a call from Strachan making clear that money had been the motive all along.

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"Well you see, he said, we do not give [the tapes], we sell the material. I said ok, that makes sense. He said, "We want money for it" and that's when I asked how much," he recalled.

Strachan claimed he had been offered up to £100,000 by a British newspaper but would hand the tapes over for £50,000 to A. C said: "I was very nervous because [the previous night] we had gone to bed happy thinking this was at an end. Now we had fear.

"I do not envy A having to live with this wariness all the time."

C stalled the defendants, claiming he could get the payment only in euros, not pounds. He informed A's solicitors who alerted the British police.

The witness said he then enticed the blackmailers into meeting an undercover officer in London, posing as a member of A's staff, during a series of taped telephone conversations.

"My mission was simply to give Ian the confidence to meet a colleague of mine who was an undercover agent. I was concerned and afraid," he admitted.

The case continues.