OECD to conduct fresh bribery probe after BAE case dropped

A fresh investigation into the UK's efforts to tackle bribery and corruption is to be carried out by a high-powered international team after the Organisation for Economic Co-operation and Development expressed "serious concerns" about the Government's decision to drop an inquiry into a huge arms deal between BAE Systems and Saudi Arabia.

The dropping of the investigation could have huge commercial ramifications for BAE Systems, with some sources raising the possibility of it being frozen out of US defence contracts as a result of allegations that the group used a £60m slush fund to bribe Saudi officials into granting it the Al Yamamah arms-for-oil deal.

The new inquiry, to be carried out by the OECD's working group on bribery, will focus on what it sees as the continued shortcomings of the UK's anti-bribery legislation and its failure to mount a single successful prosecution since a new treaty took effect in 1999 to which all the organisation's members are signatories.

The decision to carry out the "phase-two" inquiry into Britain's record on combatting bribery came after a two-day meeting of the OECD working group in Paris attended by the 36 countries which have signed up to its anti-bribery convention. The meeting failed to reach a decision on whether the UK had breach-ed the convention when the Serious Fraud Office was ordered to drop its investigation into the BAE bribery allegations last December.

Tony Blair defended the decision on national interest grounds, claiming the Saudis had threatened to withdraw co-operation in the fight against terrorism if the SFO continued to pursue its inquiries. However, the Government was accused of dropping the investigation for commercial reasons and to safeguard a new £10bn order for Eurofighter Typhoon jets which the Saudis are about to sign.

OECD officials refused to be drawn on whether they felt "national interest" grounds were a valid reason for the investigation being dropped or whether they believed commercial considerations also played a part.

But the team reiterated its "serious concerns" about the UK's move. A statement from the OECD emphasised that, under article five of the convention, "in exercising prosecutorial discretion, parties to the convention shall be mindful of their obligations and of the object and purpose of the treaty".

Asked whether he felt commercial considerations were partly behind the UK's decision, Mark Pieth, the chairman of the OECD working group, said "it is an open issue, it is a possibility".

He said he was concerned about the apparent "systemic" problems with the UK's anti-bribery legislation and the lack of any prosecutions despite a number of investigations being mounted. In this respect, the BAE case raised "serious questions".

If BAE were blackballed from the US defence market, it would have a disastrous effect on the group. The US now accounts for 36 per cent of BAE's revenues. The group's two US-led divisions, which include the maker of the Bradley fighting vehicle, United Defense Industries, accounted for £597m of BAE's £1.207bn profits before interest, tax and amortisation last year.