BBC escapes from record libel payout

The BBC escaped the threat of a record libel payout last night when it agreed to pay £500,000 to an African diamond firm that it wrongly linked to Osama bin Laden.

Oryx Natural Resources had been demanding £12m in damages which, if paid, would have been the most expensive libel in the BBC's history.

But the diamond firm unexpectedly agreed to a much smaller amount, a month after a UN report claimed it was acting as a front for the Robert Mugabe's army in Congo. Oryx says the issues are separate: it vigorously denies the UN findings.

In a joint statement with Oryx, the corporation said: "The BBC regretted that a serious editorial mistake had occurred, and broadcast a full apology as a result of its error."

Mark Damazer, the deputy director of BBC News, said: "The BBC is pleased that we have reached agreement with Oryx. We have made a mistake and were always prepared to pay Oryx the money they lost as a result."

Broadcasting organisations usually take out insurance to cover libel losses. While the BBC would not say whether it was covered, legal sources said it was unlikely the corporation would be out of pocket. It is doubtful that insurance would have covered a £12m bill.

Despite the settlement, serious questions remained about the quality of the journalism that led to the defamatory report. It claimed that a shareholder in a Congolese diamond mine was in jail for the bombings of US embassies in east Africa; the bombings were attributed to Bin Laden's terrorist network, al-Qaida. But it emerged that the BBC had confused two people with similar names.

It had been prepared after pressure on BBC journalists to break exclusive stories. Oryx claimed it could have put the BBC right, given the chance.

Diplomatic correspondent David Shukman and the Ten O'Clock News editor Mark Popescu - appointed four months earlier and with a reputation for a populist approach to news - were in the frame for a serious error of judgment.