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Last Updated: Friday, 27 April 2007, 09:57 GMT 10:57 UK
US objected to end of BAE inquiry
A Tornado aircraft
The original deal included the sale of Tornado aircraft
The US issued a formal diplomatic protest against the ending of the Serious Fraud Office's (SFO) inquiry into BAE Systems, the BBC understands.

The SFO ended its investigation into a 1986 arms deal with Saudi Arabia in December 2006 saying it was not in the public interest to continue.

In January a US embassy official issued a verbal protest at the Foreign Office.

BAE said: "Throughout the long SFO investigation we have been consistent in denying allegations of wrongdoing."

The SFO was investigating claims that Britain's biggest defence firm had paid bribes to secure the Al Yamamah arms deal with Saudi Arabia in the 1980s.

Jet deal

It was initially reported in the Financial Times that Washington claimed the SFO decision put the UK in breach of the Organisation for Economic Co-operation and Development's (OECD) anti-corruption convention.

Eurofighter jet

In a statement, the Foreign Office said: "We are clear that Article 5 of the OECD anti-bribery convention did not, and could not, have been intended to preclude national authorities from taking into account such non-political, fundamental considerations of national and international security as applied in this case."

The Saudi government was reported to have been angered by the investigation into allegations of a slush fund for members of the country's royal family.

The decision to end the SFO inquiry came weeks after reports that the Saudis were threatening to pull out of a deal to buy 72 Eurofighter jets from BAE.

The US is an important market for BAE Systems, which made 36% of its sales to the US government last year.

The company is using acquisitions such as its purchase of United Defence Industries two years ago to promote itself as a supplier to the Pentagon.

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