Two Algerian illegal immigrants have been arrested in London for being part of an international network perpetrating fraud by exchanging coded e-mails and promoting the militant Islamic cause.

Baghdad Meziane, 38, allegedly sent and received secret messages to associates across Europe detailing the prices of fake visas and passports. His colleague, Brahim Benmerzouga, 31, was found with a sophisticated machine used to glean credit card details from unsuspecting victims.

Benmerzouga and Meziane are both accused of plotting to raise money for Osama bin Laden's Al-Qaeda terrorist network. They collected the names and credit card details of victims on computer files and scraps of paper, a jury at Leicester Crown court was told on Wednesday.

This information matched account details recovered during a search of a flat in Rotterdam, Holland, where a man was arrested. In the flat detectives also found fake and doctored passports which shared design flaws with those recovered in the home of the defendants.

Benmerzouga and Meziane, who entered Britain illegally and were living in Leicester, deny 'entering into a funding arrangement for the purposes of terrorism'.

But Benmerzouga has admitted one charge of conspiracy to defraud by manufacturing and/or using false bank cards and card details, as well as three charges of possessing false passports.

Meziane, who was seeking asylum in Britain, denies conspiracy to defraud, but has pleaded guilty to possessing one false passport in the name of Cyril Jacob.

British intelligence arrested the pair in September 2001 following weeks of surveillance. It is alleged that the fraud network in which they were involved amassed the details of a staggering 190 different credit card accounts.

Using these details, Benmerzouga and Meziane, along with associates across the world, fraudulently spent more than £200,000, prosecutor Mark Ellison, told the court.

Most of this money was used by a contact in Spain with whom Benmerzouga regularly transferred funds, the prosecution alleged.

Ellison said: "The defendants clearly had access to money by state benefit claims, wages and payments related to the fraudulent use of those accounts. However, it provided on the face of it a modest net income to them in comparison to the amount of money that was generated by this fraud."

Referring to the pair's international associates, Ellison added: "If these others, as the evidence suggests, were also pursuing the promotion of this militant Islamic cause then they were being fed the money with which to pursue it." Coded e-mails recovered at Meziane's address linked him to an international fraud network.

The messages talked of prices for 'washed clothes' and 'unwashed clothes', which the prosecution alleges referred to doctored travel documents. Benmerzouga and Meziane also allegedly kept numerous videos, cassettes and documents supporting a holy war against the West.

More than 60 videos, including speeches by Osama bin Laden, were found in Benmerzouga's car outside his rented property in the UK.