BAe, Europe's biggest defence company, manufactures the Typhoon fighter
By Andrew Hosken
Today programme, Radio 4
The Serious Fraud Office (SFO) says it will begin what promises to be the biggest corporate corruption prosecution in British legal history.
It is asking the Attorney General for the go-ahead to prosecute BAE for bribery under the Prevention of Corruption Act 1906.
One of the four countries involved in the alleged corrupt deals is Tanzania.
Though far from the largest deal, it looks certain to cause the biggest heartache in Downing Street.
In 2001, Tanzania, one of the world's poorest countries, decided to purchase a military air traffic control system from BAE. Clare Short, then secretary of state for international development, says she was horrified by the move and was convinced it was a corrupt deal.
"I was really shocked by the behaviour of British Aerospace and the collusion of all these government departments in such a gross and disgraceful project," she told me.
"Even when I got all the information and took it to the highest levels of the government, I still couldn't stop it."
Ms Short says that a number of factors convinced her that this was a corrupt deal. She says that the deal had been proposed 10 years earlier but had been blocked by intervention by the World Bank and the UK's Overseas Development Administration, the precursor to the Department for International Development.
"Then it came back as half a project. The thing was so grubby from beginning to end and, of course, it was so old that the technology was overtaken. Tanzania didn't have military aircraft. It needed civil air traffic control improvement in order to improve its tourist industry."
But Clare Short was far from alone in expressing deep concern about the BAE-Tanzania deal. In October 2001, a report by the International Civil Aviation Organisation, a part of the United Nations, said:
"The system as contracted is primarily a military system and can provide limited support to civil air traffic control purposes. The purchase of additional equipment
would be required to render it useful for civil air traffic control. However, if it is to be used primarily for civil air traffic control purposes, the proposed system is not adequate and too expensive."
Clare Short says tha Tanzanian deal was "a disgraceful project"
At the same time in 2001, Clare Short had agreed a £35m aid package for Tanzania to help provide more children with education but saw virtually the whole sum being effectively gobbled up in the air traffic control system deal.
She opposed the deal in cabinet, a row which soon became public, but claims that in December 2001 one person above all insisted the necessary export licence be given: Tony Blair.
"Tony was absolutely dedicated to all arms sales proposals," she says. "Whenever British Aerospace wanted anything, he supported them 100%. He didn't seem to understand that there are matters of principle concerned. He had also been duped and bought the argument that it's always good for the British economy, which is absolutely not so."
In 2006 Tony Blair made one of the most controversial decisions of his premiership, helping to force the closure of an inquiry by the Serious Fraud Office into allegations that British Aerospace had paid bribes to win a lucrative arms contract with Saudi Arabia.
"I stick by that," he said six months later, "and the idea frankly that such an investigation could be conducted without doing damage to our relationship is cloud cuckoo land."
In January 2007, Clare Short's concerns appeared to have been confirmed when it was reported that $12m (£7.5m) had been paid into the Swiss bank account of a middle man involved in the Tanzanian deal by a BAE subsidiary, Red Diamond.
The payment amounted to approximately a third of the value of the contract and the middle man concerned was described as an agent. BAE has refused to discuss the matter.
Following the cabinet dispute in late 2001, John Prescott, the then deputy prime minister, was asked to chair an ad-hoc committee to analyse the deal and whether an export licence should be given. Initially, Clare Short had hoped for support from the then chancellor.
"I talked to everybody individually and he [Gordon Brown] said he would back me. But then, when it came to the meetings convened by John Prescott, he sent a junior minister and didn't stand. The press was briefed that Gordon was supporting me but, when it came to the crunch, he didn't make an issue of it with Tony."
The SFO failed to reach a deal with BAe over the allegations
For the past eight years Norman Lamb, the Liberal Democrat MP for North Norfolk and the party's former spokesman on international development, has been investigating what he calls a "morally indefensible" deal.
"It's outrageous that it's gone on for so many years. We had the inquiry launched by BAE Systems, in the name of Lord Woolf, which was a complete whitewash. What we need is decisive action by the SFO, to make it clear that that culture is no longer acceptable. I also believe we also need a public inquiry into how this export licence was allowed to be granted."
Decisive action is now what the SFO is determined to take, following the failure to reach a deal this week. The SFO thinks the company has turned over a new leaf and is disappointed the company has not so far agreed to draw a line under the affair by pleading guilty and agreeing to pay a significant sum in compensation.
A spokesman for BAE says the company has cooperated with regulators to help conclude an inquiry now in its sixth year, but it clearly looks likely to contest corruption charges.
Subject to agreement by the attorney general, a sensational and protracted criminal trial involving the UK's and Europe's biggest defence contractor seems likely.