Apr.30, 2010, 19.31 BST

The Prince of Wales's complementary health charity ceased operating today following the exposure this week of an alleged fraud and money-laundering scandal at the organisation.

The trustees of the Prince's Foundation for Integrated Health, of which Prince Charles is president, said last night they had brought forward a planned decision to wind up the charity as a result of a continuing police investigation by Scotland Yard.

At dawn on Monday, a 49-year-old man, understood to be a former senior executive at the charity, and a 54-year-old woman were arrested at an address in north-west London and questioned on suspicion of fraud and money laundering.

The alleged crime is understood to have seriously undermined the charity's finances, costing it as much as £300,000 – about a quarter of its annual revenue. The black hole emerged in the 2008 accounts.

The foundation operated for 17 years and became highly influential, but despite its constitutional independence from the royal household it was seen in some quarters as a vehicle for Prince Charles's often controversial views on healthcare. The announcement of its closure was greeted with satisfaction by some leading specialists in the area of complementary medicine and pharmacology.

Prince Charles personally lobbied health ministers to embrace complementary medicine across the NHS and is known to have pressed his case with the Labour government's first health secretary, Frank Dobson, and its most recent, Andy Burnham.

Between 2005 and April this year, the charity was paid £1.1m by the Department of Health to advise on the regulation of massage, aromatherapy, reflexology and other complementary therapies. The Department of Health said this week that it followed the correct procedures for spending the public money. The charity also had a very public row with the professor of complementary medicine at Exeter University, Edzard Ernst, after he attacked the foundation's draft guide to complementary medicines as "outrageous and deeply flawed".

Sir Michael Peat, the prince's private secretary and then a trustee of the charity, filed an official complaint to Exeter University about the professor.

A spokeswoman for the prince said last night that he was "proud of the achievements of his foundation, which has brought together hundreds of advocates of integrated health".

She said: "The prince has been a catalyst for raising the profile of integrated health through convening a wide array of healthcare professionals and will continue to advocate the benefits of complementary therapies as well as supporting a wide variety of health organisations."

In a statement, the chairman of trustees, David Brownlow, said: "Whilst the closure has been planned for many months and is part of an agreed strategy, the trustees have brought forward the timetable as a result of a fraud investigation. We feel the foundation has achieved its key objective of promoting the use of integrated health. Since the foundation was set up in 1993, integrated health has become part of the mainstream healthcare agenda, with over half a million patients using complementary therapies each year, alongside conventional medicine."

Prince Charles has long made the case that complementary medicine should be more widely available in the public health system. In 2005, he commissioned a report from economist Christopher Smallwood that concluded that it would be cost-effective to widen the use of complementary medicine in the NHS. Smallwood said osteopathy, chiropractic and acupuncture help those with back pain and could reduce the 200m work days lost each year because of back problems.

The prince has defended complementary medicine against allegations of "quackery" and in one speech, he referred jokingly to his "sinister powers of indoctrination" over the medical community.

Critics of the foundation in the scientific community welcomed its closure.

David Colquhoun, professor of pharmacology at University College London, said: "It has been influential in senior medical circles and it has been largely responsible for the acceptance of complementary medicine in parts of the establishment, and that has been its worst influence.

"In much of what it promotes, I believe it has given misleading advice and it has not considered the evidence for and against the effectiveness of various medicines. The prince is well-meaning, but he has views about these things that are somewhat medieval."