On February 1, 1998, a British Tabloid newspaper (The Sunday Mirror) reported that Clarke, then a recent candidate for knighthood, was a pedophile and was living in Sri Lanka in order to facilitate that lifestyle. The Mirror article quoted a supposed interview with Clarke: "Once they have reached the age of puberty, it is OK... It doesn't do any harm.'' and "I am trying to think of the youngest boy I have ever had because, of course, you can't tell it here. I think most of the damage comes from the fuss made by hysterical parents afterwards. If the kids don't mind, fair enough.". The newspaper account also claimed that Clarke had links to well-known paedophile rings operating in Britain and Europe

On February 3, 1998, Clarke issued a statement denying the charges and asked for a postponement of his knighthood ceremony. He said that having always had a particular dislike of paedophiles, few charges could be more revolting to him than to be classed as one. Clarke said that he had not been sexually active in 20 years, and that the reports were "nonsense, contemptuous and revolting". He also declined to speak with the media "on legal advice".

The allegations of the Mirror were never proven, but Clarke's reputation was damaged.

Clarke was eventually presented with the "Award of Knight Bachelor" on May 26, 2000, in Colombo, Sri Lanka. After the ceremony, Clarke said: "I have every reason to be happy and, yes, I am very, very happy."