As pressure builds for a government inquiry into the Church of Scientology, Nick O'Malley investigates the group's increasingly troubled operations.

It should have been one of Scientology's greatest moments. One of Tom Cruise's, too. But the day he accepted Scientology's greatest honour, the Freedom Medal of Valour (for Achievement in the Field of Excellence), Cruise might just have crippled the church.

The award ceremony was held in 2004 and before Scientology's charismatic leader, David Miscavige, introduced Cruise, a video interview of the actor was played to an enraptured audience.

"Being a Scientologist, if you drive past an accident it's not like anyone else … you know you have to stop because you know you are the only one who can really help," Cruise said against a pounding Mission: Impossible soundtrack.

"We are the authorities on getting people off drugs, we are the authorities on the mind, we are the authorities on improving conditions … we can rehabilitate criminals … we can bring peace and unite communities."

The statements would have raised few eyebrows among those in the glittering auditorium - they outline some of the basic beliefs of the church. But in 2008 the film leaked onto YouTube and Cruise was widely ridiculed, not only for the content of his speech, but for his wild-eyed delivery and for the odd bursts of laughter that punctuated it.

The notoriously litigious church responded typically, threatening to sue, and YouTube removed the clip.

The incident outraged the fiercely pro-freedom of speech online community and Anonymous was quickly formed - a loose, leaderless movement dedicated to attacking Scientology.

Within days of its creation in January 2008 hundreds of protests had been staged in front of church buildings around the world. Among the first were those in Sydney, Melbourne and Adelaide.

Many Scientologists suddenly discovered there was a widespread opposition to the church for the first time. One was Sydneysider Kevin Mackey. "I began researching online. A lot of what Anonymous said was wrong, they mixed up fact and rumour, but it was enough to get me looking. "I went home and read and read and read."

Within two weeks Mackey had decided he would never enter a Scientology building again. He knows he will never see the $1.1 million he says he and his wife spent and donated.

Mackey is one of the complainants the independent senator Nick Xenophon referred to when he made a damning speech attacking the church in Federal Parliament last November.

"Scientology is not a religious organisation. It is a criminal organisation that hides behind its so-called religious beliefs," he told Parliament.

He catalogued the allegations made by Mackey and his friends, including that the church committed fraud, that it was party to perjury and forced labour, that it broke priest-penitent privilege to manipulate members and that it pressured employees to have abortions.

The church's Australian president, Vicki Dunstan, denies the allegations, describing the complainants, including Mackey, as disgruntled apostates, bent on damaging the church.

She believes the church is under constant attack by Anonymous, which she described as a misinformed "hate group" dedicated to total freedom of speech.

Raphael Aron, who heads Cult Counselling Australia, told The Age he believed Xenophon's speech had dealt the Australian church "a mortal blow - the most serious since their beginning in Australia".

This progression from online criticism to defection is common around the world, says Stephen Kent, a professor of sociology at the University of Alberta in Canada and a leading expert on Scientology.

"Scientology is based upon a growth model," he told the Herald. "Its policy is to reward upstats [increases in membership and revenue] and punish downstats.

"So in a period where the internet is filled with hostile information, in the context of a global economic downturn and probably with declining membership, the likelihood is great that the organisation is experiencing severe financial pressure."

It is impossible to accurately gauge the church's membership. Dunstan says there were about 250,000 members in the Australasian region. The most recent Australian census reveals only 2513 identified themselves as Scientologists.

With an official presence in at least 30 countries, the church claims it has 10 million members worldwide, but Kent believes the true figure could be less than a tenth of that number.

An American church official, Tracie Morrow, who is visiting Australia at the moment, denied it had suffered any decline, saying that in the past five years it had expanded more than ever before, but she was unable to offer any figures.

In August last year Scientology's most senior Norwegian member, Geir Isene, very publicly defected. He published online a paper condemning current church management. He called the church's global building campaign, known as the Ideal Org crusade, a "scam" designed to "add to the value of its assets by pressuring its public for money".

To put his defection into context, Isene had reached Scientology's highest level, Operating Thetan VIII. When Cruise won his medal he was OTVII. The church's founder, Ron L. Hubbard, had estimated Gandhi and Jesus Christ to have been somewhere below OTI.

A string of high-profile defections followed in the United States, including the multi-Oscar winning writer and director Paul Haggis, who wrote to the church's chief spokesman, Tommy Davis, and accused him of lying by claiming the church had no policy of "disconnection" or banning certain members from contacting family members or friends outside the church. Haggis's wife had been forced to disconnect her parents, he wrote. The letter was leaked.

Then the St Petersburg Times in Florida wrote a damning series of stories about the church using the testimony of the most senior of its defectors - former second-in-command Marty Rathbun and former spokesman Mike Rinder.

In France the church and six of its members were convicted of fraud, fined and forced to publish the findings in French and English language newspapers.

Kent believes the internet landed its first blow on Scientology in 1995 when the story of Xenu was first published on the newsgroup alt.religion. scientology, and the church launched a copyright infringement action to have it removed.

Xenu is crucial to Scientology's cosmology but the church has always been reluctant to publicly acknowledge it.

The story of Xenu came to light when a former member, Lawrence Wollersheim, successfully sued the church for "infliction of emotional distress" in 1985. He was awarded $US30 million in damages, a sum reduced on appeal.

Xenu, it turns out, was the evil ruler of an intergalactic federation that was struck with overpopulation problems. He lured billions of aliens to Earth on spaceships shaped like DC-8s, but without engines, and stuck them in volcanoes and then dropped hydrogen bombs on them.

Their souls, known as thetans, linger on Earth causing serious mental health problems, which the Church of Scientology can cure, for a price, through its auditing process.

The story of Xenu is only made available to Scientologists who have "cleared" themselves through auditing and then progressed up the rungs of church teaching to the level of Operating Thetan III.

When the story was entered into evidence the church sought and failed to have it sealed. Kent believes its widespread dissemination online has caused a permanent decline in church numbers and a resulting cut in its revenue.

The Wollersheim case was also instrumental in revealing Scientology's doctrine of Fair Game, by which enemies of the church, Suppressive Persons or SPs in internal jargon, may be attacked.

The founder Hubbard, a science-fiction writer, revoked the policy in 1968 due to bad publicity, but the church's aggressive stance towards perceived enemies remains and former members have told the Herald they believe they are now being "Fair Gamed".

The policy also appears to justify the church's espionage against the US government. In the 1970s agents of Scientology infiltrated a string of government offices and private organisations with orders to remove any documents about the organisation. In 1979, 11 senior members, including Hubbard's wife, Mary Sue, were convicted or pleaded guilty to a range of charges, including obstruction of justice, burglary and theft of government documents.

Isene's departure prompted two American OTVIIIs, Mary Jo Leavitt and Sherry Katz, to leave.

All three say they maintain their belief in Hubbard's teaching, but not in the church. This type of split with the Scientology is becoming increasingly common - many dissatisfied with the church have affiliated with the so-called Free Zone and continued their study of Hubbard's teachings.

The Australian church members who came forward to Xenophon say they have gathered online information and passed it on to hundreds of church members, prompting more defections.

According to Kent, the free availability of information like this online is enough to dissuade many of those who might have a casual interest in the church from pursuing it. But he believes the church's reaction to its decline has been far more dangerous to it than the bad publicity.

Rather than tighten its belt the church has launched a campaign to build new churches and centres around the world in a bid to draw in newcomers. The new centres are known as Ideal Orgs.

"The Ideal Org is probably a reaction to global decline, and if so then it is a very dangerous business strategy," Kent says. "It well may be that some of the deviance we are hearing about in the organisation, including embezzlement and fraud, have to do with the severe financial pressures the organisation is under at the moment because of the Ideal Org."

The Herald has obtained an newsletter sent to Melbourne members shortly before Christmas demanding Ideal Org donations.

Its tone is light but its message is clear. "All Melbourne field need to be alert, and possibly even alarmed! We have detected a new syndrome that may affect up to 97.5% of all Scientologists in Victoria: Obsessive Compulsive Donation Disorder Denial Syndrome," it begins.

The only cure for the syndrome is for all members, except those who have donated that very day, to "come to the org with cash, cheque or your credit card".

Unlike many of its critics, Kent does not dispute that Scientology is, at least in part, a religion.

"The bottom line with Scientology is that it is a multi-faceted transnational organisation, only part of which is religious. Many other parts have evolved. Business management, pseudo drug treatment, pseudo psychiatry, education systems."

He believes a Senate inquiry into the church's activities in Australia would be appropriate.

"I suppose the people supporting the inquiry would say it is not about religion; it is about [alleged] crimes and malfeasance being committed by an organisation that has charitable status."

investigations@smh.com.au