For a man acquitted of his involvement in a major "carousel" fraud, it might seem a heavy price to pay.

Dylan Creaven, 33, has agreed to hand over ?18.5m, his luxury villa in Marbella, a flat in Knightsbridge, a further ?176,000 and four racehorses. Their names are Moon at Midnight, La Mandragola, Latino Magic and Lafayette.

The money and possessions will go to the Assets Recovery Agency, and its counterpart in Ireland, in what is its biggest haul since it was set up three years ago to hunt down money that, it claims, was earned illicitly.

The agreement, thrashed out between the ARA and Mr Creaven's lawyers using a pioneering "mediation" service, comes 17 months after he was acquitted at Blackfriars crown court in London. He cried when the jury's verdict was announced. He may be doing so again now.

Shortly before his arrest, Mr Creaven, who is based in Kensington, west London, told a computer trade magazine that his favourite song was My Way, his hero was Captain Kirk from Star Trek, and his fantasy date would be with Jessica Rabbit.

He was still deciding what he wanted to do when he grew up, he said. Asked for his favourite joke, he said it would have to be any gag about Enron, the US company eventually discovered to be involved in an enormous fraud. "You have to laugh when something that huge gets missed."

Months later in November 2002, the Irishman was arrested after a joint investigation codenamed Operation Chipstick mounted by British Customs officers, the Irish Garda and the Dublin-based Criminal Assets Bureau. By then he had been under investigation for a number of years after his two Irish companies, Silicon Technologies Europe, based in Ennis, Co Clare, and Bradenville Holdings, based in Limerick, had attracted the attention of the Irish authorities.

Starting at the age of 22, Mr Creaven had built up a global business trading in computer chips, with offices in Singapore and Boston as well as Ireland. By the time of his arrest, the companies enjoyed an apparent turnover of ?287m, and he had a house in Spain, a flat a few doors from Harrods in London, and other properties in Ireland and at the Emirates Hills golf club in Dubai.

He was unsuccessfully accused of carrying out one of the biggest so-called carousel frauds, a crime that targets the European VAT system and costs UK taxpayers alone up to ?5bn a year.

Carousel fraudsters exploit the trading rules between countries inside the EU, under which VAT is paid on imported goods only when they are resold on the domestic market. Typically, fraudsters import large consignments of small, high-value goods, such as mobile phones or computer chips, VAT-free from another EU country.

Goods bought for ?1m, for example, can then be sold to another domestic company for ?1m plus ?175,000 VAT. The fraudster will then disappear without paying the VAT to Customs. Often the goods pass between a chain of ghost companies - the carousel - all controlled by the fraudster, with VAT being reclaimed with each transaction, but not refunded.

'Distraught'

Although accused of stealing ?162m from British taxpayers, Mr Creaven was eventually charged only with ?14m worth of fraud. He told the court he had traded in good faith and had been "distraught" to find himself in the dock. He argued that he was an "innocent source of supplies" who had been "picked on and lured". The jury agreed it was his "misfortune" that he had dealt with dodgy businessmen. Mr Creaven broke down and wept when he was found not guilty in May last year.

But the ARA continued to pursue him. A neutral QC, Edwin Glasgow, shuttled back and forth between the two sides last week until the small hours of Friday morning, and finally hammered out a deal.

It marks a vindication of the new tactics adopted by Jane Earl, the ARA's head, after criticism that the agency has cost more to operate than it brings in. "This is helpful to the ARA in budget terms," Ms Earl said yesterday. "But more importantly, the taxpayer gets back some of the money allegedly stolen from them."

Scrutinising

The agency had previously temporarily frozen Mr Creaven's funds, and a team of investigators has spent the past year scrutinising his assets. But had they not struck a deal, they would have faced a prolonged courtroom struggle. It could have lasted up to four years and eaten up large sums in legal fees.

ARA sources said Mr Creaven's legal team had already demanded ?600,000 to be released from his frozen assets to fund lawyers who would fight the agency's claims through the courts.

Yesterday the ARA said the cash it was to receive was "in respect of property which resulted from the VAT fraud".

The agency was launched in 2003 among a raft of anti-crime initiatives by the government. It has attracted criticism on civil liberties grounds, because it can seize money from people who have been acquitted or never charged with criminal offences, merely on the civil standard of proof of the "balance of probabilities" rather than proof beyond reasonable doubt. But in practice its seizures have been much slower and more difficult than expected.

Last week the Guardian disclosed how one wealthy Surrey solicitor, John Szepietowski, accused of being an underworld lawyer, has kept the ARA at bay for more than a year through repeated legal actions. Mr Szepietowski and his wife Susan are disputing the seizure of a property empire worth ?33m, and deny any wrongdoing.

The ARA has been forced to defend itself against lawyers testing whether it breaches human rights, exceeds its powers or freezes too many assets.

Last year the ARA spent ?15m but only brought in ?4m in seizures. Ms Earl, who says the laborious process has been "like trench warfare", says it is only now that the agency is surmounting repeated legal challenges and beginning to get results.

"We're not about raising revenue like speed cameras - we're here to make the public feel safer."