The coverup followed allegations by former Vlakplaas commander Capt Dirk Coetzee that security police were involved in third force activities, former security police captain Wouter Mentz said.
Testifying before the commission's amnesty committee in Cape Town, Mentz said at the time of the murders the police's use of ex-Koevoet members from Namibia was a "sensitive" issue.
Koevoet was a South African police counter-insurgency unit originally based in Ovambo in northern Namibia.
"It was decided that it would cause a problem if it were made public that the Ovambo members had shot the smugglers.
"Making known this incident would have comrpomised the position of the NP government at the negotiations table."
Sketching the background to the murders, Mentz said in 1991 Vlakplaas began investigating gun smuggling across the Mozambique border into South Africa.
Lt Chappies Klopper, now a National Intelligence Agency operative, was in charge of the operation. Under his command were various members of Vlakplaas' unit C10 and the police special task force.
The ex-Koevoet members who took part in the operation included Lukas Kilino and Simon Hidimbwasaa (correct).
They received information that a particular consignment of weapons was to be smuggled into the country for use by street committees and self-defence units in the townships, Mentz said.
Kilino, Hidimbwasaa and other Koevoet members posing as interested buyers made an arrangement to meet the smugglers near Komatipoort on the Mozambique-South Africa border.
However, when the smugglers failed to show up, orders were given for the policemen to withdraw to a nearby police base.
Mentz said the policemen were getting drunk when Kilino arrived at the base to say there had been a shootout and the smugglers had been killed.
Kilino claimed the Koevoet members feared the smugglers would rob them and decided to take the pre-emptive step of shooting them.
Mentz said a decision was taken to reconstruct the scene of the murder to make it appear as if the smugglers had been killed in a shootout with special task force members.
"The reason for this was that they were not accused of third force activities. There was already a stigma attached to Vlakplaas."
Mentz said police found 15 AK47 rifles, a RPG7 rocket launcher and a Makarov pistol in the boot of the smugglers' car.
Their bodies were dumped in a minibus, covered with a blanket and driven to a house near the police base.
Said Mentz: "While we were waiting there someone made a joke that one of them was still alive. I took out my pistol and shot one of the bodies. It was dark and I could not see.
"My actions can be described as a tense, drunk and irrational deed."
Mentz said the bodies were taken to a mortuary in Komatipoort and a docket opened. He subsequently made a false statement in which he repeated the fabricated story.