Page last updated at 11:24 GMT, Wednesday, 30 July 2008 12:24 UK

Q&A: The BAE-Saudi allegations

Eurofighter Typhoon
The Typhoon is the latest in a line of jets bought from the UK by the Saudis

The House of Lords has ruled that the Serious Fraud Office (SFO) acted lawfully when it halted its investigation into a £43bn Saudi arms deal.

The SFO stopped its investigation in December 2006, amid fears it would threaten national security.

Ministers said that the Saudi government had threatened to withdraw co-operation on security matters.

Why is there so much interest in the case?

There was a lot of criticism over the original decision to shelve the SFO inquiry in 2006.

At the time, the Labour government's high-profile line on transparency in business dealings with developing nations was called into question.

It remains a highly embarrassing matter that will be referred to whenever the government attempts to take a firm line on opposing corruption.

Since 2001, any bribery in relation to an arms deal has been illegal under UK law.

Why are the UK and Saudi Arabia intertwined when it comes to defence equipment?

The UK has sold fighter jets to Saudi Arabia since the 1960s.

But the al-Yamamah deal that was arrived at during the 1980s was of a new order of magnitude.

By agreeing to supply not just Tornado and Hawk jets, but also to send contract staff and provide maintenance facilities, BAE Systems locked itself into a long-term arrangement, with thousands of UK citizens living and working in Saudi Arabia in support of the deal.

Al-Yamamah was extended throughout the 1990s to cover more aircraft and weapons and represents £40bn worth of business.

Then last year, BAE Systems won a contract for the sale of 72 Eurofighter Typhoon aircraft, worth at least £6bn, to Saudi Arabia.

The Saudi government made it plain that it regarded the SFO probe as offensive.

It put the Typhoon deal on ice for a period, while rumours abounded that France was making a further push to displace the Typhoon with its own rival Rafale jet.

So was it just about money and jobs?

No, the government said the probe was stopped because its continuation would be a threat to national security.

What that meant was the government was worried that, if its relations with Saudi Arabia were soured, then the two countries' co-operation in counter-terrorism efforts could be damaged.

The Saudi royal family was deeply concerned about the idea that the investigators might try to open up their Swiss bank accounts.

"A senior Saudi prince was able to say, 'You go into the bank accounts and we stop the co-operation'," said BBC security correspondent Frank Gardner.

"I was suspicious at first about whether this was said to British officials but it was, I'm told."

Is it true that extra payments are necessary to win these huge arms deals?

There is a common perception that bribery is rife in the world of Middle Eastern arms deals.

However, pressure has mounted on both governments and big businesses to clamp down on illicit payments and services intended to smooth the progress of large contracts.

Last year, the BBC's Panorama programme discovered that BAE Systems had paid hundreds of millions of pounds to Saudi Prince Bandar and made several other allegations about commissions being paid on deals.

Prince Bandar has "categorically" denied receiving any improper payments and the alleged payments in this case fall into a grey area.

Supporters of BAE Systems and the Ministry of Defence will argue that while the funds flowed through an unusual channel, they were intended to assist the travel arrangements of an official engaged in work on behalf of a valued ally.

This stance will find little favour with anti-corruption campaigners, who allege a double standard is being practised.

They say the British government only opposes corrupt practices when the UK's own interests are not at stake.

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