The Information Commissioner's Office (ICO) uncovered 17,500 requests for private information made to a private investigator by 400 journalists. Information handed over included ex-directory addresses and contact details for security service personnel and celebrities.
Giving evidence to the House of Commons Select Committee on Culture, Media and Sport, Graham said that the ICO highlighted the problems of the trade in personal data in a report, What Price Privacy Now?, in 2006 but action had not been taken by the authorities.
"Any fines you get from magistrates can be written off as a business expense," he said, according to The Guardian newspaper. "We were let down by the courts, who didn't seem to be interested in levying even the pathetic fines they had at their disposal; we were rather let down by parliament in the end, with no legislation; and we were let down by the newspaper groups, which didn't take it seriously."
The ICO's Motorman investigation into the activities of private investigator Steve Whittamore uncovered 17,500 requests for private information on behalf of 400 journalists working for some of the UK's biggest papers, including the News of the World, whose royal reporter Clive Goodman was later found guilty of hacking into people's mobile phones to find stories.
In 2006 the ICO's What Price Privacy Now? report named the newspapers which used the raided investigator, and said that the Daily Mail used it more than any other paper.
It said it was against the Data Protection Act for someone to obtain and sell personal data without permission. It also said that papers' publication of stories using personal data gained by deception breached the Data Protection Act's stipulation that organisations must guard against unlawful data processing.
Graham defended the ICO's decision not to prosecute all the reporters involved in the seemingly illegal purchase of personal data uncovered by its investigation. He told MPs that his office did not have the resources to pursue all the cases.
"It would not have been good regulation for the Information Commissioner's Office to prioritise this particular bit of the jungle," said. "We are concerned with the whole trade in information."
"You would have to go through [each case] forensically to achieve the standard of proof required in a court of law, attach each to a story … and work out if our lawyers could get the better of their lawyers," he said. "The appropriate response was to make big issue of it … tackling it at source and at the top level by legislation."
The Guardian this week revealed that the targets of the information requests included Government minister Peter Hain, Conservative party chairman Chris Patten and Liberal Democrat peer Lord Avebury, as well as celebrities such as John Cleese, union leader Arthur Scargill and royal aide Tiggy Legge-Burke.
Private investigators obtained details by conning British Telecom into giving them out or by using moles with access to Government databases, the Guardian investigation revealed.
An ICO spokesman said that it has not released details of the investigation and that it could not confirm the accuracy of the information reported by The Guardian.