In a letter sent to Janet Alder, the Crown Prosecution Service said it had decided not to charge four senior Humberside Police officers responsible for the surveillance after concluding that there was not enough evidence to secure a conviction of misconduct in public office.
But it outlined evidence showing that surveillance officers followed Ms Alder, her barrister and her supporters after a July 2000 hearing of the inquest into the death of her brother Christopher, who died in the custody suite in Queens Gardens police station in Hull in 1998.
The CPS said there was evidence that part of the surveillance team followed them to her hotel, while other members tracked another group to a car park.
Prosecutors told her that some of the surveillance, which allegedly included at least one attempt to eavesdrop on a conversation with her barrister, was not properly authorised as part of Humberside Police’s surveillance operation, dubbed Operation Yarrow.
Ms Alder, who was campaigned for more than a decade for the truth about what happened to her brother, told The Guardian she was "absolutely appalled" and added: “I feel terrorised by the state.”
“It just confirmed everything I thought and that I was not being paranoid,” she said. “I never in my life knew anything like this - I always believed that the system did the right thing. For that to happen to me, it was so scary. I was just a normal working-class woman looking after my kids.”
A CPS spokeswoman said today: “After careful consideration it has been decided that the CPS cannot bring charges in relation to misconduct in public office.
"This is because there is insufficient evidence to provide a realistic prospect of conviction. This decision was supported by advice from external counsel.”
Prosecutors say police applied for a surveillance application in anticipation of potential public disorder at Mr Alder's inquest in July 2000.
But there was evidence that surveillance was carried out that went beyond this remit, including officers following Ms Alder and possibly her barrister.
In the end, prosecutors ruled that there was not enough evidence to provide a realistic prospect of conviction, partly because any prosecution would rely heavily on the evidence of police officers involved in the surveillance.
The CPS said that because the events happened 15 years ago, the majority of the witnesses spoken to "had, at best, a limited recollection of events". All the officers involved said they could not remember being briefed for the surveillance operation.
Prosecutors said there was evidence a surveillance team followed Ms Alder, but "there is no evidence that anyone actually sought to eavesdrop on a conversation between Ms Alder and her barrister or that they were directed to do so".
Explaining their decision, officials say a "high evidential threshold" is required to prove an offence of misconduct in public office.
They said the evidence available did not prove that the police had set out to listen to conversations subject to legal professional privilege or misuse a police surveillance operation to discredit Ms Alder or others, or as a result of a racial bias.
A total of 14 officers were said to be involved in surveillance, though three claimed they didn’t think they were working on the day concerned.
An investigation was launched after a serving police officer, who had been a detective constable with Humberside Police’s surveillance team at the time of the inquest, informed her superiors after seeing coverage of the alleged smear campaign against murdered Stephen Lawrence.
As part of the IPCC’s investigation, 18 suspects were identified and interviewed under caution, though most declined to answer questions and instead provided prepared statements.
The watchdog said there was no case to answer against 14 of the officers but ruled that four did have a case to answer and passed their files to the CPS to consider whether a crime had been committed.
All four suspects were senior officers involved in overseeing the surveillance on July 28 after the inquest in Hull.
CPS officials sought advice from Treasury Counsel, an advocate appointed by the Attorney General, who concluded there was no realistic prospect of conviction, adding that “embarking now on a prosecution relating to conduct in 2000 would be fraught with difficulty”.
The Regulation of Investigatory Powers Act, also known as RIPA, was coincidentally given royal assent on the day of the inquest in July 2000 but did not come into force until two months later.
This meant that at the time of inquest, such surveillance was largely unregulated and, according to the CPS, “it is difficult to identify clear breaches of the law”.
The letter to Ms Alder says that, although there was no direct evidence that officers tried to listen in on any legally privileged conversation, a senior officer said that one of the team’s remits was to “try and overhear the conversation”.
It said evidence indicated that some of the surveillance carried out was “not properly authorised” as it was underway before the stipulated start time and went beyond the boundaries of the Hull Crown Court complex.
The acting superintendent on the day extended the geographical scope of the surveillance, according to the CPS, “without it being requested and without any obvious justification for doing so”.
The letter said this decision “did give rise to suspicion that targeting of individuals may have been one of his objectives”, but that “this suspicion falls significantly short if proving this point to the standard required”.
The Independent Police Complaints Commission (IPCC) finished its report earlier this year into “potential improper surveillance” carried out by Humberside Police on Ms Alder.
It was passed to the Crown Prosecution Service so a decision could be made on whether anyone has committed a criminal offence. The IPCC found there was a case to answer for four officers and this was referred to the CPS.
The evidence of surveillance came to light after all police forces were asked to check their records following claims the Metropolitan Police spied on the family of murdered teenager Stephen Lawrence.
In 2013 it emerged that two Humberside Police officers, one serving and one retired, refused to answer questions when interviewed under caution as part of the IPCC inquiry.
West Yorkshire Police was also asked to search its archives in 2013 and found a report relating to Mohammed Amran, a former race equality commissioner in Bradford who appeared at the Macpherson Inquiry into the Lawrence murder in Bradford in 1998. In February this year, a report by the IPCC said an inadequate paper trail and the fading memories of ex-officers made it impossible to establish why a report was compiled by West Yorkshire Police into Mr Amran. Ex-West Yorkshire Police chief constable Sir Norman Bettison was interviewed under caution over the intelligence report compiled in 1998. He denied ordering the report and said a junior officer may have compiled it to impress him. The IPCC said there was no evidence to suggest the report was used to undermine his credibility.