A secret deal allowing sauna-owners to sell sex legally had forced police to abandon a crackdown on the Capital’s sex trade industry.
Police Scotland began targeting saunas within weeks of the introduction of a single force three years ago.
But vice charges against bosses in a series of raids across the city have now been dropped, The Sunday Mail reported today.
The newspaper said that a 30-year-old document led to the collapse of then chief constable Sir Stephen House’s bid to end the industry.
The document was signed by politicians, police and a senior Crown Office office in 1986 amid fears that the city would be devastated by the Aids epidemic.
Lothian and Borders Police, the city council and NHS officials agreed saunas could allow prostitutes on the premises on the basis that they promoted safe sex and provided condoms.
The Crown Office and Procurator Fiscal Service have now confirmed the existence of the no-prosecution policy.
A spokeswoman added: “New information came to light about the then procurator fiscal’s knowledge of the public health measures adopted in Edinburgh by the local authority, health bodies and Lothian and Borders Police to minimise the impact of prostitution.
“Crown counsel decided it was not in the public interest to continue with those prosecutions. Steps have been taken to ensure this issue does not prevent any future prosecutions.
“Prosecutors are committed to the robust investigation and prosecution of those involved in the organisation of prostitution and will use every available tool to hold the perpetrators to account.”