Duke of York 'unaware' of ex-wife meeting with reporter
Sarah Ferguson on 'heavy day'
Prince Andrew has "categorically" denied knowing about a meeting in which his ex-wife allegedly offered a reporter access to him for cash.
Buckingham Palace said the Duke of York is a UK trade envoy with "complete and absolute propriety and integrity".
Sarah Ferguson apologised, but later in Los Angeles made light of the scandal, saying she had had "quite a heavy day".
The News of the World said she had agreed a £500,000 ($723,000) deal with a reporter posing as a businessman.
Home Office minister Lynn Featherstone called the duchess's actions "shoddy" and "grubby".
The BBC's Peter Hunt said this was an unusually frank intervention by a member of the government.
In a statement, the Duchess of York said she was "sincerely sorry" for her actions and admitted her financial situation was "under stress".
"I very deeply regret the situation and the embarrassment caused," she said.
"It is true that my financial situation is under stress. However, that is no excuse for a serious lapse in judgement and I am very sorry that this has happened."
She said the Duke of York "was not aware or involved in any of the discussions that occurred".
Prince Andrew has been a trade envoy since 2001
"The duke has made a significant contribution to his business role over the last 10 years and has always acted with complete integrity," she added.
However, in the secret recording the duchess apparently said the duke would go along with her alleged scheme. The paper has stressed this is untrue.
According to the transcript published by the paper, she quotes Prince Andrew as allegedly saying: "Listen, if he's [the paper's reporter] going to be kind enough to want to play, then Andrew will play'."
In the transcript, the reporter then says: "Let's play!" and the duchess says: "And he (Andrew) says, 'Let's play, we'll play' as long as it's nothing to do with him... But you will be his friend."
The duchess attended an awards ceremony in Los Angeles on Sunday evening where she picked up an award for her work with underprivileged children.
'I hate grown-ups'
She entered the ceremony, organised by charity Variety, through a side entrance, avoiding the waiting media.
But on receiving the award she attempted to make light of the situation.
The duchess said: "When I got on that flight from London today I thought 'whoo, quite a heavy day'.
"But when the children's choir came out tonight and I saw all their little faces... I went: you know what, to hell with it. It's about the children, it's about making a difference and the most important thing, I hate grown-ups and I love children."
Simon Cowell said the duchess 'looked a bit stressed' at the awards ceremony
A Buckingham Palace spokesperson said: "The Duke of York categorically denies any knowledge of any meeting or conversation between the Duchess of York and the News of the World journalist.
"Since 2001 he has carried out his role of Special Representative with complete and absolute propriety and integrity."
The undercover reporter posed as an international business tycoon and filmed the duchess apparently agreeing a deal for an introduction to her former husband.
She also appears to accept $40,000 in cash as a down payment.
BBC royal correspondent June Kelly said the duchess had made headlines before because of episodes in her private life but this was far more damaging because it called into question her character and integrity.
"Of course certain members of the Royal Family have never been in the Fergie camp and this will do nothing to endear her to them," she added.
Stephen Alambritis, of the Federation of Small Businesses, said he feared the fall-out will hurt Prince Andrew and this country's efforts to export goods.
Mr Alambritis said: "When there's intrigue about his position, when there's a question mark and uncertainty about his role, then it's damaging not only for himself but also for Britain's ability to export.
"And getting out of this economic difficulty is through exporting because of the low state of the pound."
Sarah Ferguson married Prince Andrew in 1986 and they have two daughters, Beatrice, born in 1988, and Eugenie, born in 1990.
Although they separated in 1992 and divorced in 1996, she and their daughters later moved back into a wing of the former marital home and maintain a close relationship with the Duke of York.
However, the duchess claims she is suffering financial hardship and that her divorce settlement entitles her to just £15,000 a year.
Her finances have also been the subject of a number of negative headlines in recent years.
In September, her spokeswoman confirmed court action had been taken over unpaid bills.
Last month, it emerged the duchess faces legal action over an unpaid bill of £200,000 from law firm Davenport Lyons.
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