MI5 intelligence on allegations of paedophilia by the late politician Cyril Smith "raises a spectre of collusion" which could explain why he escaped justice, an inquiry has heard.
A dossier of information on the Liberal MP was held by the security services and has been disclosed to the Independent Inquiry into Child Sexual Abuse for examination.
Laura Hoyano, representing seven alleged victims of Smith, asked in her opening statement to the inquiry: "Why was MI5 involved at all?"
It came as the Crown Prosecution Service criticised "some elements" of a decision by the Director of Public Prosecutions not to press sexual abuse charges against Smith in 1970.
Despite allegations and police investigations dogging the career of the 29-stone politician, he was never prosecuted.
The inquiry heard during the first day of evidence regarding child abuse in Rochdale, where Smith was a prominent councillor and later an MP, that journalists had been lied to regarding the collapsed 1970 investigation into Smith.
MI5 was told by Sir Thomas Hetherington, then the DPP, in 1979 that his office falsely told the press that they had no record of a police file of evidence against the politician.
In reality, prosecutors had been given a file in 1970 saying the allegations against Smith, made by eight boys associated with the Cambridge House hostel in Rochdale, "stand up", but chose not to take him to trial.
Ms Hoyano asked the second day of hearings: "Was political pressure brought to bear upon the DPP from politicians and members of the Liberal Party from 1969 to 1970?"
She added: "Why would Sir Thomas Hetherington decide he should lie to journalists, stating that he had not submitted a prosecution file?
"Why would the DPP contact MI5 about this at all? Why was an apparent South African connection suspected?
"There is also a reference in the covering letter to another child sexual abuse investigation into Cyril Smith by the Metropolitan Police Service in the mid-1970s. Again, why would MI5 hold that information? Why was MI5 involved at all?
"We say this dossier from MI5 raises a spectre of collusion."
In the MI5 documents shown to the hearing on Monday, the security service's legal adviser wrote that he suspected Smith was embroiled in a plot orchestrated by South Africa.
He said: "There had been a scandal involving a South African diplomat some years ago in one of the newspapers ... in which it had been suggested that the South Africans were trying to obtain compromising information about political figures.
"I thought there was an innuendo at the time that Cyril Smith was involved.
"The Metropolitan Police had investigated this incident."
The inquiry is holding evidence hearings to examine how Smith was able to carry out his alleged offences at institutions across Rochdale, including Cambridge House hostel and the Knowl View residential school.