Corruption inquiry into £6bn Saudi arms deal dropped

THE Serious Fraud Office has abandoned its corruption inquiry into a £6 billion fighter planes deal with Saudi Arabia, after ministers told the watchdog it would damage relations with the Middle East.

Lord Goldsmith, the Attorney General, confirmed that the SFO was dropping its investigation into Britain's biggest defence company, BAE Systems, after ministers insisted it would jeopardise security and ran contrary to the public interest.

The decision came after reports that the Saudis were furious over the SFO investigation into allegations of a slush fund for members of the Saudi royal family. The inquiry also coincided with an imminent trip the Prime Minister is taking to the Middle East, to try to kickstart the peace process, one of his priorities before he leaves office.

The investigation into companies linked to BAE Systems relates to allegations of illegal payments connected with the Al Yamamah arms deal struck by Margaret Thatcher in the 1980s. The Al Yamamah contract is Britain's largest-ever arms deal and is reported to have earned BAE Systems 40 billion over the past two decades.

The Eurofighter deal is an extension of the original contract and its loss to competing nations such as France would have led to 9,000 jobs being axed.

Lord Goldsmith insisted the decision had nothing to do with economic interests. However, he told the House of Lords that Tony Blair had agreed that the continuation of the investigation would cause "serious damage" to relations between the UK and Saudi Arabia.

The Attorney General said Mr Blair, Margaret Beckett, the Foreign Secretary and Des Browne, the Defence Secretary, all felt that the investigation would harm national interest - a view he claimed was backed by the security services.

"Continuation of the investigation would cause serious damage to UK-Saudi security, intelligence and diplomatic co-operation, which is likely to have seriously negative consequences for the UK public interest in terms of both national security and our highest-priority foreign policy objectives in the Middle East," he said.

But Lord Goodhart, a Liberal Democrat peer, said this would give a "green light" to secure future deals with bribes.

"Doesn't this potentially give the green light to[BAE] to go ahead with submitting to requests for bribes from Saudi Arabia, on the grounds that any investigation into that process would lead to further blackmail from that country?" he asked.