Saudi arms inquiry abandoned

The Serious Fraud Office yesterday abandoned its investigation into a multibillion-pound arms deal with Saudi Arabia after ministers decided it would damage relations between Britain and the Middle Eastern state.

In a surprise statement to Parliament last night, the Attorney General, Lord Goldsmith, said the decision to end the inquiry into the Al Yamamah arms deal had been made in the public interest.

Tony Blair, the Prime Minister, Margaret Beckett, the Foreign Secretary, and Des Browne, the Defence Secretary, all agreed the investigation into BAE Systems would harm the national interest.

"They have expressed the clear view that 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.

BAE Systems welcomed the decision, but it drew protests from some MPs and peers.

The announcement, which came on one of Westminster's busiest news days of the year, was made amid concerns that the Saudi government will cancel a £10bn order for 72 Eurofighter Typhoon jets if the SFO investigation was not concluded soon.

The SFO investigation, which started two and a half years ago, concerned allegations that a multimillion-pound slush fund was linked to Saudi arms deals. BAE has denied any wrongdoing.

Yesterday's decision came after ministers faced strong pressure to resolve the investigation. Earlier this month, the chief executive of Rolls-Royce, Sir John Rose, the chairman of the Defence Industries Council, wrote to Alistair Darling, the Trade and Industry Secretary, warning that tens of thousands of jobs were at risk if the SFO investigation was not resolved.

Ministers insisted that the director of the SFO had taken the decision to end the investigation.

Announcing the decision in the House of Lords yesterday, Lord Goldsmith said it "has been taken following representations that have been made both to the Attorney General and the director concerning the need to safeguard national and international security."

He insisted: "It has been necessary to balance the need to maintain the rule of law against the wider public interest. "No weight has been given to commercial interests or to the national economic interest."

Lord Goldsmith said there was "no guarantee" that the investigation would lead to a prosecution and that he believed it was not likely to have gone ahead.

He said: "In order to complete this investigation, significant further inquiries would be necessary which would last, in the SFO's judgment, a further 18 months. They, accordingly, have concluded that in these circumstances the potential damage to the public interest which such a further period of investigation would cause is such that they should discontinue that investigation now."

A spokesman for BAE Systems said: "Lord Goldsmith stated that the Serious Fraud Office has decided to discontinue the investigation into the affairs of BAE Systems as far as they relate to the Al Yamamah defence contract with the government of Saudi Arabia."

The Conservatives called for clear guidance on arms deals to prevent a repeat of the affair.

Simon Hughes, for the Liberal Democrats, said the director of the SFO had to make his decision after coming under "heavy pressure" from the Prime Minister and the Saudi Government.