John Downey is protected by an "On the Run" letter, the Belfast Telegraph reported.
As part of the peace process, the Police Service of Northern Ireland sent those letters in 2007 to 187 Irish Republican Army members who wanted to return home, telling them they would not be arrested if they did so.
The letter to Downey was apparently a mistake made when the PSNI missed a warrant seeking his arrest for the 1982 bombing in Hyde Park, the Telegraph said. Mr. Justice Nigel Sweeney, sitting in the High Court, described the letter as a "catastrophic failure" on the part of the police and said allowing Downey to go to trial would undermine confidence in the justice system.
Downey, an oyster farmer from Donegal in the Irish Republic, denies participating in the Hyde Park bombing. He was arrested at Gatwick Airport outside London last year on his way to Greece for a vacation.
Four British soldiers on their way to a Changing of the Guard and seven horses were killed by a car bomb. The same day, a bombing in Regent's Park killed seven military bandsmen with the Royal Green Jackets.
"This news has left us all feeling devastatingly let down, even more so when the monumental blunder behind this judgment lies at the feet of the Police Service of Northern Ireland," relatives of the Hyde Park victims said in a statement. "The end result is that the opportunity for the full chain of those terrible events will never be put in the public domain for justice to be seen to be done."