Goldsmith 'uncomfortable' after Saudi threat ends fraud inquiry

The Attorney General, Lord Goldsmith, yesterday admitted he was "uncomfortable" after the Government caved in to Saudi Arabian pressure to halt a fraud investigation into allegations at BAE Systems.

Government sources claimed yesterday that the Saudi government had threatened to withdraw co-operation in the fight against international terrorism.

The order to halt the criminal investigation left Tony Blair under renewed pressure to make a statement to the Commons next week on his return from the Middle East. As more details emerged of how the Serious Fraud Office was put under pressure to halt the inquiry, Mr Blair said he would take responsibility and that Britain's "security" would have been at risk.

Lord Goldsmith said: "I am uncomfortable about that but have to deal with the reality of the situation. The reality is we were faced with a situation in which not only would it have cost the British taxpayer a lot of money and take a lot of time but it would also, in the judgement of those who know, cause very considerable damage to our national security."

Before flying to Turkey after a Brussels EU summit, Mr Blair said: "My role as Prime Minister is to advise on the best national and strategic interest of our country and I have absolutely no doubt at all the right decision was taken."

He added: "Our relationship with Saudi Arabia is vitally important in terms of counter-terrorism, in terms of the broader Middle East... That strategic interest comes first."

The former Labour trade and industry minister, Lord Clinton-Davis, said the SFO had been "knobbled". Eric Illsley, a Labour member of the Commons select committee on Foreign Affairs, said: "We appear to be giving carte blanche to businessmen who deal with Saudi Arabia to do deals which could involve illegal payments or illegal inducements. I am concerned about that," adding: "I would say we have been leaned upon very heavily."

Mr Blair's influence on the SFO was crucial, but he was backed by Margaret Beckett, the Foreign Secretary, Des Browne, the Defence Secretary and the heads of MI5 and MI6. The British ambassador to Saudi Arabia, Sir Sherard Cowper-Coles, talked directly to the director of the Serious Fraud Office, Robert Wardle. It is understood Mr Wardle was given overnight on Wednesday to think about it, and he told the Attorney General he would abandon the inquiry on Thursday morning.

Saudi Arabia had warned it would scrap an order for 72 Eurofighters worth around £40bn unless the Serious Fraud Office (SFO) ended the probe. The Arab state reportedly set a deadline that expired last week. The Saudi government had no comment yesterday.

The decision was welcomed by the Conservatives, who sealed the deal in 1985. The SFO began its investigation in July 2004 after detectives were shown evidence suggesting bribes had been paid from a £60m "slush fund", allegations which BAE Systems denied.

The Liberal Democrat leader, Sir Menzies Campbell, said: "We need to know what representations cabinet ministers made to Lord Goldsmith, when these meetings took place and the content of the Attorney General's original recommendations."