Each night in Monte Carlo, it is said, a recording of predatory birds is transmitted through hidden loudspeakers in the main square to prevent sparrows from soiling the famous casino's pristine lawn. And each morning a platoon of gardeners removes dying petals from the immaculate flowerbeds. Amid such stainless perfection, a prison could look embarrassingly conspicuous. The authorities in the world's wealthiest state have dealt with the problem by locating the local jail on the very extremity of its tiny landmass. Of the thousands of tour- ists who file past the old fort on the rocky promontory of Monaco Ville, between the Oceanographic Museum and a cheesy celebration of the Grimaldi family called the Monte Carlo Story, very few realise that incarcerated within its walls are the principality's 20 or so prisoners. There are no signboards nor, indeed, any apparent entrance. The only clues to its true purpose are the bars on the windows and the battery of security cameras on the roof - hardly an atypical sight in Monaco.

Among the inmates, most of whom are imprisoned for fraud or other white-collar crime, is Ted Maher, a 42-year-old former Green Beret in the US Army. Last December, Maher was arrested following the deaths of billionaire banker Edmond Safra and his nurse in circumstances that remain oblique and subject to a multitude of speculative theories. Initially, Maher was not a suspect. Those who were, suggested one newspaper, 'range from the Russian mafia to Japanese investors, through drug cartels and Middle Eastern trading companies'. It seemed that Safra, 67, who was renowned for his protective shield of Israeli bodyguards, was a man with no shortage of enemies. And, equally, Maher, a smalltown American who never travelled beyond US borders in his three years in the army, appeared to be someone who was a total stranger to both drug cartels and the Moscow mafia.

How he came to be in Monaco was a result of unforeseeable happenstance. Working at the Columbia-Presbyterian Medical Center in New York, where he had qualified as a licensed nurse, Maher found an expensive camera which he promptly returned to its owner. The photographer mentioned the story to an associate, Safra, who was sufficiently impressed to offer Maher a position as part of his 12-strong medical team - the banker suffered from Parkinson's Disease.

The unworldly Maher spoke not a word of French. Safra, a Lebanese Jew with Brazilian nationality who lived mostly in the south of France, was fluent in French, English, Italian, Portuguese, Arabic and Hebrew. Maher was a tall, slender man with an open manner. Safra was short and bald and enigmatic. Maher had an ongoing property dispute with his next-door neighbour in upper New York State. Safra owned a vast penthouse in Monaco and La Leopolda, the magnificent villa in Villefranche built on the estate that once belonged to Belgium's genocidal King Leopold II. He also possessed homes in Paris, Geneva, London, New York and Brazil.

In any other circumstances, the closest Maher might have come to Safra would have been to cash a cheque in one of his banks. But, as it was, Maher left his wife and three children in Stormville, New York, and his secure post at Columbia-Presbyterian, and flew to the French Riviera and a $600-a-day ringside view of the life of one of the world's richest and most mysterious men.

As far back as 1957, Edmond Safra was named as a drug trafficker in a US Bureau of Narcotics report. The accusation was later withdrawn, but until his death Safra was the inspiration for countless unsubstantiated rumours that linked him to drug, gold and currency trafficking, money laundering and organised crime.

The Safra family came from the Halabi merchants of northern Lebanon, a close-knit clan of Sephardic Jewish traders who historically made their money from financing the camel caravans of the Middle East. Edmond's father Jacob opened the family bank in 1920, building on the Safras' long experience in gold and currency exchange. Sephardic tradition maintained that the family business should be passed on to the oldest son. But such was his precocious interest in banking that the young Edmond leapfrogged his elder brother, Elie, to be selected by his father as the prime heir. At just 16, Edmond went to Milan to learn the banking business and then on to Brazil, where he set up his first bank at the age of 21.

In contrast to most banks, Safra's was built on deposits rather than loans. It may be this strategy that originally led some observers to view Safra's banks as attractive propositions for money launderers. Five years ago, New York magazine ran an investigation into Safra's Republic National Bank in which it claimed that the bank 'quickly became known on the street as a bank that would send an armoured car to pick up large sums from its more secretive customers'.

In the 80s, Safra and Republic were the targets of a global whispering campaign. Among the allegations that surfaced in a variety of mostly obscure publications was the suggestion that he was involved in the Iran-Contra affair; that he arranged the murder of a security specialist who had supposedly discovered a link between him and the arms-for-hostages scandal; that he had double-crossed the Medellin cocaine cartel; that he was a confrère of mafia legend Mayer Lansky; and that Republic had laundered the drug-trafficking profits of Panama's General Noriega.

Only the last claim had any basis in established fact, and Republic was only one of a number of banks that held Noriega's funds. Eventually, Safra proved in court that the rumours emanated from his corporate rivals, American Express, which had bought Republic's Swiss parent company, TDB, in an acrimonious deal in 1983 (Safra regained control in 1988). American Express was forced to apologise and donate $8m to a number of charities, including the Anti-Defamation League. For many people in and around the world of banking, however, Safra's legal victory served only to increase their suspicions of the secretive Lebanese businessman. In New York and London it was customary to grin in a knowing fashion whenever Safra's name was mentioned. Now the grins were that much wider.

Bryan Burrough ascribed the slurs aimed at Safra to anti-Semitism in his book Vendetta: American Express and the Smearing of Edmond Safra . But if anti-Semitism alone was the reason for the stories, then why was Safra singled out and not the innumerable other Jewish bankers operating in high finance? It would be rather as if Michael Jordan had been selected for racist abuse on account of being a black player in basketball. Whatever the true explanation for the attacks, Safra was acutely sensitive to their effect on his good name. He was determined to sue any publication, however small, that repeated the libels.

While American Express was waging its smear campaign, American customs officers were investigating Safra's banks for laundering Colombian drug funds. No charges were brought. Yet when the news emerged that Safra was dead, the prime suspects were not embittered former American Express executives or Colombian drug lords, but the Russian mafia, or mafiya .

Three factors pointed in its direction. First, Republic's dealings with Russia were well documented. Under licence from the US government, Republic shipped around $10bn of US currency a year to Russian banks. Although perfectly legal, the shipments caused no little consternation among some state agencies. The problem was that many banks in Russia, and up to 50 that Republic was trading currency with, were suspected of being at the very least unreliable and quite possibly fronts for the mafiya. Referring to this apparent criminalisation of cash, a source from the Criminal Investi gation Bureau of New York State Banking Department told New York magazine: 'To us it was like a sore on Cindy Crawford's face.'

Second, at the time of his death, Safra was engaged in the protracted and problematic sale of Republic to HSBC. There were various hold-ups, but one of them was said to be the Russian accounts that were frozen as a result of Federal investigation into money laundering, which Republic itself prompted by alerting the authorities to its concerns. Observers speedily concluded that a short-changed mafiya chief had sought revenge. Some 90 or so bankers have been killed in Russia since the collapse of the Soviet Union. 'What you have to understand,' Stephen Handelman, an expert on the mafiya and author of Comrade Criminal , told me, 'is that bankers are different in Russia. Over 2,000 banks were set up after 1989, most of which have since collapsed, and many of the people behind them had emerged from the black market and criminal backgrounds. So often when a banker is killed he may himself be involved in the mafiya.'

And third, the French Riviera, which enjoys a rich history of Russian influence dating back to 19th-century aristocrats, had seen a sudden and ostentatious influx of newly wealthy Russians. Tales of Moscow businessmen buying yachts and property for cash formed the gossip of sales people from Cannes up to Menton, who, while often offended, seldom refused the money. In Nice, the mafiya was said to have bought into the exclusive Marina Baie des Anges, where the head of one Russian crime gang was arrested with false papers and fled to Monaco. In the past three years, Monaco has itself expelled 15 Russians suspected of illegal business practices, including a former KGB colonel. And some lawyers say that Monaco has now adopted an unofficial policy of refusing entry to all Russians.

Arnaud Montauibourg, a French MP who led a parliamentary investigation into the mafiya, thinks the mafiya has already 'penetrated Monaco', laundering money 'through real estate, the casino and through trusts'. Sitting outside the Café de Paris in Monte Carlo on a soft autumn evening earlier this month, watching the hopefuls making their way to the casino, it was not hard to spot the Russian businessmen. They have little apparent fear of cultural stereotyping. Thus two men with gold bracelets and neck chains sat drinking vodka and smoking weighty cigars, largely ignoring their two women companions whose compliant demeanour, polite laughter and visible stocking garters made it plain that they were part of the night's entertainment bill.

It's this kind of egregious behaviour that has placed the Russians, whether legitimate business people or not, at the centre of a near moral panic hereabouts. The Russians are coming, is the anxious chorus on the Cte d'Azur, and everyone assumed they had come for Safra.

At 5am on the morning of 3 December last

year, Ted Maher awoke his boss with news that two masked men had broken into the belle époque building at 17 Avenue D'Ostende in Monaco. Maher was bleeding from three stab wounds. Although a former Green Beret, Maher had served as a medical auxiliary. He had no more experience of combat than he did of high-style living. He was there to tend his employer, not protect him. For that, Safra had his Israeli army bodyguards. But not in Monaco. So safe did he feel in his penthouse next to the renowned Hotel Hermitage, that he maintained the security team at La Leopolda, 10 miles away.

It was there during the 80s that Safra, under the guidance of his Brazilian socialite wife, held celebrity-enriched parties of daunting splendour. Lily, whom Safra married in 1976, had three children from a previous marriage and was independently a very rich woman. Nevertheless, the prenuptial agreement she signed was said to have run to 600 pages. It was she who ensured that names such as Aristotle Onassis and Frank Sinatra were included on the Safras' guest list. John Fairchild, the arbiter of American high-society standing, was moved to speak of the couple's 'meteoric rise to social power'.

But social acceptance had not lessened Safra's near-phobic paranoia. He always carried blue gemstones to ward off the evil eye, and retained an abiding fear of curses. He was deeply superstitious about the number five and was terrified of being kidnapped. So he must have been deeply scared early that morning when he learned from Maher that the state-of-the-art security system in the building, which also housed three banks, had been breached. Immediately, Safra retreated with another of his nurses, 52-year-old Viviane Torrente, to his steel-reinforced bathroom.

Within minutes a fire broke out. This is how Monaco's assistant prosecutor Catherine Le Lay described the scene: 'The apartment is immense, and within it there are two separate wings, one for Mr Safra and one for his wife. Mr Safra was in his wing, which consisted of three rooms - his bedroom, a nursing laboratory and a bathroom. With him were two nurses. The police received a call from the receptionist of the building. She had been alerted by the male nurse, who had staggered from the apartment which occupies the fifth and sixth floors, down to the ground floor. He had been injured with a knife with a six-inch blade.

'The police arrived at the scene extremely quickly and when they arrived they were un able immediately to access the apartment, which is protected by steel-reinforced doors. When they did gain entry with the firemen, the fire had already taken hold in the flat, which was extremely difficult to bring under control. When the police were finally able to penetrate the flat, they found Mr Safra dead where he had taken refuge in the bathroom with his nurse, Viviane Torrente, who also died.

'His wife was not even roused by the drama. It is difficult to convey just how big this flat is, but I have never seen anything like it. She was separated by a good distance from her husband and each door was reinforced. By the time the firemen had mastered the fire, smoke was only beginning to affect her wing of the flat, which would have rendered her more deeply unconscious. We still don't know how the attackers got into the flat, or how they escaped.'

Safra and Torrente died from smoke inhalation. The fumes reached them through the fire-detection system. With its 500 officers, Monaco is probably the most intensively policed square mile anywhere on the planet - the local constabulary likes to boast that it can close down all exit routes from the principality in minutes. Its border with France is only notional, but the police always man it. Its streets and buildings are also the world's most intensively filmed.

Very few square feet remain unrecorded by the ubiquitous security cameras. But there was no sign of the intruders. The idea that two men could break into the heavily secured home of one of the world's wealthiest men, cause his death and leave without trace did not sit well with Monaco's reputation as a crime-free zone for the super-rich.

The police became convinced that it was an inside job. Within two days of Safra's death, Maher was arrested. And, shortly afterwards, he told police that he had stabbed himself and started a fire and that there were no intruders, masked or otherwise. His actions, he said, were an attempt to gain his boss's respect. He spoke of not getting along with the head nurse, a woman named Sonia, and how he wished to circumvent her power by demonstrating his loyalty to Safra. At a news conference, chief prosecutor Daniel Serdet quoted from Maher's police statement: 'It was my own dark ideas which led me to do this.'

This was an extraordinary turnaround. From a story of high-financial corruption and international gangsterism, it became one of a misguided approach to job promotion. Police announced Maher's confession on 6 December, the same day that Safra was buried in Geneva. Around 1,000 mourners attended the ceremony at the Hekhal Haness synagogue, including the Nobel Peace laureate Eli Wiesel, Israel's foreign minister David Levy, Prince Sadruddin Aga Khan and former United Nations secretary general, Javier Pérez de Cuéllar. Also, on the same day, the US Federal Reserve approved the sale of Republic to HSBC Holdings, and four weeks to the day after Safra's death the $9.85bn deal was completed, netting Safra's heirs some $2.8bn. Could it really be that strange and that straightforward?

In America, the conspiracy theorists' medium, the internet, has been hot with indignation. There is much talk of Maher's 'imprisonment as a scapegoat for Russian money- launderers' and he is referred to as 'prisoner of war'. 'Please help him,' runs one appeal, 'before he is killed by the Monaco government or the responsible parties that did commit this crime and used Ted as a scapegoat.' Much of the stuff is hysterically xenophobic, virulently right-wing and clearly the work of delusional minds. Of course, that doesn't mean that Maher isn't a fall guy. However, his defence team certainly do not see Maher as the victim of a fiendish plot.

Georges Blot, Maher's Monegasque lawyer, has gone on record as saying that his client started the fire and stabbed himself. 'The first words Ted said to me when I met him were: "This is horrible. I loved him. I admired him. I respected him. I don't understand why I did it."'

Maher's family in the US are unimpressed. They say that the internal security videotapes, which they believe would prove Maher's innocence, have gone missing (Monaco police say the video system was not working). And Maher's wife Heidi, argues that her husband's legal defence is compromised because it is state-appointed. 'The Monaco government is paying Ted's lawyer, Mr Blot, which is clearly a conflict of interest,' she has said. In fact, that is common legal practice, and indeed a human right, in most countries on occasions when the accused cannot afford a lawyer. Yet while Monaco is not implicated in a cover-up, there is a sense that it is actively presenting an untroubled face to the world.

This is not the first time that a banker's death has caused a scandal in the region. Back in 1990, Jean Ferry, an official of the Industrial Bank of Monaco (BIM), was found dead from a bullet wound in the head. The police decided it was suicide, but a subsequent investigation found that a client of Ferry had constructed a large-scale fraud involving BIM. It also discovered that lax practices encouraging foreign tax evasion were endemic within the Monaco banking system. The most common method exploited a law which enabled foreign investors to create 'shell' companies in the names of Monegasque citizens (for a small payment). It has often been alleged that the system is abused by organised crime.

Roger Bianchini, a journalist with Nice-Matin , told an author of a book on the Grimaldis: 'The whole system is well known to the initiated. But when underground deals begin to surface and scandal breaks through, Prince Rainier becomes concerned that the image of the principality could be tarnished.'

As with other wealthy climes, such as Beverly Hills, the very sheen of Monaco's surface leads the visitor to suspect some form of moral corruption lurking underneath. The old wedding-cake architecture that survives is placed in the shade by the huge apartment-block developments that Rainier green-lighted in the 60s, creating an odd combination of sickly innocence and brash confidence. Although there is a refreshing sea breeze and the streets are neurotically clean, the faintest smell of pollution hangs in the air alongside the sweet fragrance of jasmine. And there is a disturbing sense that no amount of money will wash it away.

For all its publicity-seeking glamour, Monaco thrives on secrecy. The government and its institutions, such as the Société des Bains de Mer, which runs the casino and hotels and much else, and which are all essentially arms of the Grimaldi empire ruled by Prince Rainier, are unapologetically opaque. Bankers may be attracted to secrecy, but so are storytellers. One of the more fanciful ideas doing the rounds has it that the Grimaldi grip on Monaco includes extensive telephone tapping based on a word-trigger system. 'If you said something derogatory about a Grimaldi it would undoubtedly hit the trigger,' suggests one observer.

Against this backdrop of fantasy, any explanation of events provided by Monaco, the so-called Disneyland Dictatorship, would never be seen as the whole story. And indeed there are inconsistencies. Even Safra's widow's lawyer, Marc Bonnant, was concerned to ask that all the evidence be made available.

'We would like to have all the details of the nurse's confession. Was it credible and complete, what exactly pushed him to do what he did, how many fires did he set, are there any inconsistencies in his confession? A thousand questions come to mind which need answers to make any sense out of this tragic and absurd death.'

Among those questions, perhaps, are why did Safra remain in the bathroom even after the police arrived and why did it take two long hours for the fire brigade to get inside the bathroom? And why is it that Maher is said to have started only one fire and yet investigators located two separate origins?

In early official reports it was stated - unambiguously by assistant prosecutor Le Lay - that Lily Safra did not speak to her husband during his confinement in the bathroom, that she was asleep. Elsewhere there were reports that she had spoken to him on a mobile phone. Bonnant told me, 'Edward Safra spoke twice to his wife, to his bodyguard and to the police.' Then why did he not emerge from the bathroom? Bonnant says that everyone was still under the impression that two armed intruders were in the building, which is also why the fire brigade made slow progress.

But given the police presence and his own security guard, Safra must have been paralysed with fear not to feel confident enough to come out. Who did he think was after him? Bonnant is quick to scotch any talk of assassins. 'Look, if you want to kill a man, you pay $20,000 and you get the job done the right way by a professional. The right way is not to hire a nurse to start a small fire and hope that the police take two hours to get to him.' An insider on Maher's defence team echoes this point. 'People have told me they know for sure that Safra was shot with two bullets. Now the defence is going to see the inside of the building and we've asked for further fire reports and to look at video film outside the home. It might be that we'll see two guys in balaclavas on top of the roof, but I don't think so. And you have to ask, why were there no holes in Ted's clothes where his wounds were? Did the intruders thoughtfully lift up his shirt before stabbing him?'

Handelman also dismissed the idea that Russians were behind Safra's death. 'It just wasn't their MO. Not outside Russia. Most people thought Safra was holding IOUs or money for the mafiya, but they wouldn't have killed him for that.' But he added: 'You can always be surprised.'

After Maher's confession was made public, people began to ask how Safra had ever come to employ a man with such evident psychological problems. Suddenly it was common knowledge that Maher had a prescription-drug problem - according to Serdet - a history of violence and unstable personality traits. His colleagues at Columbia-Presbyterian countered these stories and provided an image of a reliable and motivated worker. 'He was really on top of things,' said one paediatrician. 'In fact, he was one of the better nurses I've seen.'

Bonnant has said that Maher was properly vetted through 'in-depth background checks', as well as being interviewed by Safra himself. 'The fact that Maher is unstable became apparent to us only after the accident. Nothing in Maher's files showed the slightest trace of mental instability.' Perhaps because it wasn't there.

Some newspaper articles quoted a former neighbour who quarrelled with Maher. 'He was a miserable bastard,' said 70-year- old Leonard Levelle, who accused Maher of physical assault. According to Maher's defence, Levelle himself was cautioned a number of times by the police. Much was also made of Mayer's leaving the Las Vegas police force after only three months. His defence say he quit because he contracted spinal meningitis.

So was it a bizarre aberration? 'The reality of the situation is not something Ted can articulate,' say his defence. But the same source believed Maher was under pressure because his wife wanted him to return home and he wanted to stay in Monaco.

What even his detractors agree on is that Maher never intended to kill Safra. 'If he wanted to,' said Serdet, 'he would have had 10,000 chances a day.' The fire simply got out of hand because he started it in an acrylic wastepaper basket. However, Maher is currently charged on a count of arson leading to death, a crime which carries a maximum life sentence.

In his Monte Carlo office, high above the Boulevard des Moulins, Donald Manasse, an American-Frenchman who is assisting Georges Blot, told me, 'Ted is not guilty of the crimes as charged and we are seeking a requalification of the charges.'

Optimistically, he might be looking at four to six years. But that's still a very severe sentence for what basically amounts to an accident. Bonnant demonstrated the Safra family's determination to gain what they see as justice. He told me: 'We want to ensure that the one who caused this will be properly punished.'

The trial is unlikely to come to court until early next year. The investigating judge, Patricia Richett is still conducting her inquiry. Given the profile and importance of Safra, and the sensitivity of the Monaco authorities, fears have been expressed by those close to Maher that the investigation might be partial. Manasse was certain that Richett would not succumb to external pressure from any direction. 'Anyone who would say she could be influenced by third parties,' he told me, 'has no idea who she is.'

Maher, it seems, does have one influential supporter himself. Dominic Dunne, the celebrated Vanity Fair writer and crusader against criminal injustice, is known to be sympathetic towards his plight. And the Monegasques have taken due notice. 'When Serdet heard that Dunne was arriving in Monaco,' a legal source said, 'he was practically saying, "We've got to get this right, Dominic Dunne is coming to town."'

In the meantime, Maher, the man who wanted to gain attention, is locked up in a prison that dare not speak its name, removed from his Mediterranean idyll, but tantalisingly trapped a few feet from the sea. He has no visitors, save his lawyers and the American consulate representative, and of course the tourists passing unknowingly by on their way to see a different Monte Carlo story.

Life in Monaco continues as ever in its own secretive way. On a brilliant morning with seagulls circling overhead and the roar of the Monaco Kart Cup ripping around the bay, I stopped outside 17 Avenue D'Ostende. The fire damage is now mostly repaired, and just to be certain, I asked a policeman where Monsieur Safra had lived. He looked at me with a thin smile and said, ' Je ne sais pas.' Then he walked away.

After Safra's burial, Eli Wiesel said of the close friend he often called his brother: 'After all, what remains of a man after his death? It is his name, his reputation, his honour.' And, a less circumspect man might have added, his money. Already there is talk of family disputes about where it will go. And there will continue to be talk about the banker from Beirut. For if Ted Maher started the fire, there was always smoke around Edmond Safra.