By Tim Judah

GERMANY'S espionage service is in turmoil following revelations that spy chiefs ran covert and illegal operations sending arms to Bosnia's Muslims and Croatia during the war in the former Yugoslavia.

The German parliament's secretive Control Commission, which oversees the country's intelligence services, has demanded answers from the country's intelligence chiefs about details of a massive arms trafficking network which broke both German and international law.

For the first time in Britain The Telegraph can reveal details of the charges being laid at the door of the BND, the German spy service. One of the most damaging is that the BND infiltrated the European Union's monitoring missions in former Yugoslavia and used them as cover to run arms and cash to Bosnia's Muslim forces. They have been accused of smuggling munitions hidden in boxes of powdered milk across Serb-held territory to Muslim troops.

The EU monitors were officially supposed to help arrange ceasefires and assist in humanitarian aid work. In fact a large proportion of them, including the British contingent, were spies. The BND's agents, however, crossed the line from espionage into gun-running.

The allegations were first made on the German television programme Monitor, which is similar to the BBC's Panorama. According to Monitor, the key man in the gun-running operation was Christoph von Bezold, head of the 24 German EU monitors in the Croatian capital, Zagreb. In fact Mr von Bezold's employer was BND section 12D, responsible for Balkan affairs.

A former EU monitor said last week: "Money was transported from Zagreb to Bosnia-Hercegovina. There were amounts of up to DM50,000 [then worth #22,000]. Infantry munitions were also shipped to [Muslim-held] Bihac." Another source said that a German EU monitor carried DM2 million to the beleaguered Bosnian town of Tuzla.

Other former EU monitors claimed that on the March 27, 1994, von Bezold was responsible for a major shipment of munitions to Bihac. Besim Handzic, Bihac's hospital director, said: "They called me during an emergency saying the EU monitors were coming in their Jeeps bringing 10-15 boxes of powdered milk. I put them in the store because I did not know there was ammunition inside." The BND's delivery, one of many smuggled across Serb lines, was then collected at night by Bosnian troops.

Monitor alleges that according to an internal EU report 17,280 bullets were transported on that occasion by von Bezold "but that this was not made public". Both von Bezold and the BND have denied charges but the BND noted that that it "did not comment on personnel matters".

While members of the Control Commission are not allowed to discuss what happens in their sessions, Manfred Zuch, a deputy for the Green Party and a member of the Commission, told The Telegraph that the peculiar wording of the BND's denials meant this "left often the possibility that while details may be wrong the overall picture may be right".

The German television programme was also told by a former monitor that his colleagues had discussed "how the Croatian Army could be put in a position of being able to conquer the Serb-occupied zones . . . what they needed and what we could do to help".

One significant German contribution was the delivery of former East German MiG-21 war planes. These had been based near Berlin and are believed to have been smuggled to Croatia via Hungary.

Virtually all experts on the Croatian military concur that a large part of its hardware built up between 1991 and 1995 came from the former East Germany.

The gun-running allegations are now a major issue in the German parliament. Under German law it is illegal not only for the BND to infiltrate the EU monitoring missions, but also to ship arms to a war zone. The consignments also broke the UN arms embargo on the former Yugoslavia. Jo Angerer, an investigative reporter on Monitor, says the Control Commission must determine whether "the BND was running operations with or without government approval. If it did have approval then this is an even more serious issue."

When the war broke out, Britain and the US did not want to get involved in arming Croatia, says Paul Beaver, an expert in Balkan security. After meetings "at a high European level" it was indicated to the Germans "OK, it's your bag of tricks, you sort it out". However, "German support seemed to go further than the British and Americans had expected".

By 1994 the Americans especially were alarmed that the Croats, far from being helped into military balance, would end up far better armed than the Serbs. This would provoke a major arms race in the region which would suck in the Russians.

For many German politicians, however, the nub of the problem may not be the BND's operations at all - rather that it appears to have been caught out.