The investigation, which could become the most wide-ranging inquiry into illegal arms trading mounted in the UK, follows reports in the Independent of a German court case in which Royal Ordnance, while a state-run company, is accused of helping the machine-gun company Heckler & Koch to evade embargoes.
The allegations amount to a far more comprehensive breach of export rules than so far revealed by the Scott inquiry into arms for Iraq.
The Customs investigation is also believed to cover reports that sniper rifles made by Heckler & Koch in Germany, when it was a subsidiary of Royal Ordnance, ended up in the hands of Serbian irregular soldiers and have been used against Bosnian Muslim civilians.
Serbian customs officials have confirmed that a shipment of H & K weapons arrived after the imposition of the United Nations embargoes. There is no evidence that this shipment originated with the German company. It may have made its way to Serbia via a third party. The reports have caused a sensation in Germany and H & K called a press conference to deny it had broken export laws.
Customs officers have taken preliminary evidence from a number of organisations, including the Free Bosnia Committee, which has been pressing for an inquiry for several months.
Graham Ennis, co-ordinator of the committee, said: 'It is a disgrace that British weapons should be used against the unarmed women and children of Bosnia.'
Customs will not, however, focus solely on allegations about the arming of the Serbs after the start of the war in Yugoslavia. It is also examining claims that some of Britain's biggest companies, including ICI and Royal Ordnance, were involved in an illegal European cartel selling arms to Iran during the 1980s.
ICI has admitted supplying explosive materials to one of the key companies involved, but denies that it knew the final user was Iran. Royal Ordnance denies any involvement at all. It is understood that Customs is investigating the possible involvement of a British company called Allivane.
An Italian court has indicted more than 50 people for involvement in a procurement network and convicted many of them.
The chief prosecutor complained that the British authorities had given no assistance to his investigation, despite repeated requests.
Lord Justice Scott, who is investigating how much the Government knew of illegal arms trading with Iraq, has recently been hearing claims that British firms had a wider involvement in international gun-running.
The inquiry has received documents, and heard evidence from executives involved with Allivane, of some of these activities. It has been given more than 12,000 documents by a Scottish transport contractor, Frank Machon, who claims that he alerted Margaret Thatcher to illegal arms shipments. It is understood that Customs officers may request access to some of these documents to pursue possible criminal prosecutions.
It emerged during the mid-1980s that Royal Ordnance and ICI had been involved in shipping explosives to banned countries. It seems that despite the publicity given to these claims Customs chose not to investigate them.
The Foreign Office has denied any knowledge that British companies were negotiating to supply mercenaries to Azerbaijan, as reported in the Independent last week.
The denials followed questions from the Tory peer, Baroness Cox, and the Labour MP Paddy Tipping among others. The Armenian ambassador in London has asked for a meeting with the Foreign Office.