Jailed former drug squad detective, Stephen Paton (left) was a member of unit two of the drug squad, the group assigned to investigate amphetamine syndicates.

While the rest of the squad struggled to deal with heroin rings, unit two managed to arrest many of its top targets.

Their secret to success was a tactic known as controlled chemical deliveries.

In short, the unit bought chemicals that could be used to make amphetamines then, using a network of informers, sold them to suspects to try to follow the trail to the labs and manufacturers.

In 1996 disgraced drug squad Detective-Sergaent Wayne Strawhorn travelled overseas to study international methods of amphetamine detection.

In Britain he was shown a secret police system of buying drugs from chemical wholesalers and then selling them at black-market prices as part of undercover sting operations.

Under the system of so-called "controlled deliveries" undercover police or trusted informers would sell chemicals to amphetamine producers and would then gather evidence for final prosecutions.

Strawhorn pushed for the system to be introduced in Victoria and after some initial reluctance from his superiors, a trial program was introduced.

It was a success and became the key method of exposing major speed syndicates for the next five years.

The drug squad bought so much of the anti-cold medication Sudafed, a drug that can be used in amphetamine production, it became the manufacturer's biggest national client, and was eligible for discounts.

The money generated through Victoria Police's delivery program was vast: pseudoephedrine purchased from a chemical company can be sold on the black market at a 6000 per cent mark-up.

According to facts presented in court during Wayne Strawhorn's trial, police were able to purchase 1kg of pseudoephedrine for $170 and resell it to criminal gangs for $10,000.

Because pseudo is so easily converted into speed, Victoria Police only authorised one delivery of the drug in August 1998. But despite strict guidelines governing the policy, by late 1999 the drug squad was out of control and nobody above senior sergeant rank was monitoring the deliveries.

In his interim report into allegations of corruption in the drug squad tabled in State Parliament in June 2003, Ombudsman Barry Perry found the tactic to be fatally flawed.

"The practice of supplying informers with chemicals without any significant controls may have resulted in the drug squad creating an elite group of manufacturers and suppliers who may not have been so involved had it not been for the opportunity provided by police."

Dr Perry said: "The scale and complexity of many of the transactions uncovered is beyond belief.

The practice is one that has been examined in depth, and largely rejected as an absolute last resort by the majority of law enforcement agencies both in Australia and internationally."

Chief Commissioner Christine Nixon has now banned police from using controlled chemical deliveries and replaced the drug squad with the major drug investigation division.

According to Paton the system was out of control.

"It was not used as the last resort. It was used as the first and only resort."

Dr Perry estimated the amount of chemicals lost at 40 per cent to 80 per cent.

Paton says it was more like 90 per cent.

"We would try and follow a plastic bag containing tablets or small bottles of liquid. It was ridiculous."

He says many of the sales were done with no intention of arresting the suspects, and were simply fishing expeditions.

"They were non-evidentiary sales, or intelligence-gathering exercises. It was a joke. We just kept losing the shit."

Paton said 1000 boxes of Sudafed disappeared from inside the drug squad office in St Kilda Road.

Under the controlled chemical delivery scheme police were supposed to fill out paperwork and have their requests authorised by senior police before any drugs could be purchased.

But Paton said the drug squad stockpiled chemicals for use on authorised and unauthorised jobs.

He also said that informers were rewarded with free chemicals.

But the real profiteers were the police department.

Buying at wholesale and selling at blackmarket prices meant the drug squad made money on nearly every deal.

According to Dr Perry, the drug squad chemical purchase account stood at $267,137 in August 2001.

According to Paton, some of the profits from the scheme had already been spent.

"It was diverted for heroin buys because money for undercover jobs had been cut."

Senior police say that some of the undercover budget had been used by the crime department to buy computers.

"They actively encouraged the chemical diversion policy because it helped fund other areas in the drug squad," according to Paton.

According to a confidential interim Ceja report corruption claims against the former drug squad were worse than first thought.

Detectives from the taskforce were looking at allegations that some police had helped themselves to suspects' property in their own version of asset seizure, grabbing pornographic material, wines, mobile phones, casino chips and cash.

Taskforce investigators have also been told that a disturbing number of young police are abusing drugs.

A police source told The Age that in one case a group of suburban detectives drinking in an upmarket hotel rang a constable at the local station who was a dealer. "He dropped some ecstasy around to the pub that night."

In December 2000 a former detective working at the Sigma chemical company raised concerns about the amount of chemicals bought by the drug squad.

Paton said he was already set to resign - "I decided that enough was enough."

Ceja investigators have gave evidence that Paton was threatened, including having bullets sent to his home.

With his guilty plea Paton will receive a discount on his sentence.

But he still has his doubts.

"Sometimes I think it would have been better to shut up and just do the time. At least I wouldn't have to look over my shoulder for the rest of my life and worry about my wife and kids."

Surprisingly, Paton would still like to work for the police force he betrayed.

"I want to talk to young police after they have been in the job for a year. I want to tell them of the consequences.

"I have had to remortgage my home to pay legal bills. I have put my wife and children at risk. I have lost my job, my future and my respect. It nearly cost me my marriage. I couldn't see what I was doing was wrong.

"We were locking up crooks. You just forget where the line is."

In December 2001, Chief Commissioner Christine Nixon dumped the drug squad, replacing it with the major drug investigation division.

She introduced about 150 reforms, scrapping the drug diversion tactic and returning to a strict policy of limited tenure for detectives.

Det-Sgt Strawhorn was an immediate casualty and was moved against his will to the fraud squad.

He was later charged with drug trafficking and jailed.