The UK's largest arms dealer, BAE, provided Saudi Prince Bandar bin Sultan with secret payments worth more than $2 billion, reports the BBC. The Prince has "'categorically' denied receiving any improper payments." Investigations by the BBC's Panorama program and the Guardian, reveal the culture of bribery and secrecy that surrounds the British government's involvement in the arms trade.
The BBC reports that the alleged illicit exchanges between the Saudi Prince and BAE were made with the full knowledge of the British Ministry of Defense.
The investigation found that up to £120m a year was sent by BAE Systems from the UK into two Saudi embassy accounts in Washington.
The BBC's Panorama programme has established that these accounts were actually a conduit to Prince Bandar for his role in the 1985 deal to sell more than 100 warplanes to Saudi Arabia.
The purpose of one of the accounts was to pay the expenses of the prince's private Airbus.
David Caruso, an investigator who worked for the American bank where the accounts were held, said Prince Bandar had been taking money for his own personal use out of accounts that seemed to belong to his government.
He said: "There wasn't a distinction between the accounts of the embassy, or official government accounts as we would call them, and the accounts of the royal family."
In a controversial move last December, the British Serious Fraud Office dropped its investigation of the BAE agreement with the Saudis. British Prime Minister Tony Blair took responsibility for the decision. British tax payers have reason to be particularly concerned with their government's involvement in BAE's dealings, as it secretly insured the company's dealings with Saudi Arabia. If the Saudi regime had collapsed, the British government would have paid BAE 1 billion British pounds ($1.98 billion), reports the Guardian.
Prime Minister Blair responded to the allegations, saying that an investigation would have endangered England's relations with Saudi Arabia, reports Al Jazeera.
During a news conference at the G8 summit on Thursday he defended his decision saying: "I don't believe the investigation would have led to anywhere except to the complete wreckage of a vital strategic relationship to our country."
The British decision was criticised by the Organisation for Economic Co-operation and Development, and the US also lodged a formal complaint with Britain about the case.
Simon Hill from the UK-based Campaign Against the Arms Trade told Al Jazeera that there are a long string of allegations of bribery against BAE Systems.
"Given the existence of those allegations it is totally unreasonable for the government to have dropped a corruption investigation, it shows how much influence BAE has over the government. These allegations, whether true or not, are crying out for investigation," he said.
The British government has used bribery as a means of officially securing arms deals for the last 30 years, reports the Guardian. Starting in the 1970s the government has obscured the truth about weapons payments and protected the key government ministers involved. The policy has continued to this day, the newspaper says.
Denis Healey, who as Labour defence secretary first launched the Whitehall arms sales department now known as the Defence Export Services Organisation (Deso) more than 40 years ago, told the Guardian: "Bribery has always played a role in the sale of weapons. In the Middle East people wouldn't buy weapons unless you bribed them to do so - and that was particularly true in Saudi Arabia."
The system devised by him in the middle of a sterling crisis in 1965 has survived until now under cover of the Official Secrets Act. Back then, a state trading company, Millbank Technical Services (MTS), was used to disguise many of the bribe payments.
But when government-owned arms firms such as Royal Ordnance and British Aerospace were privatised by Margaret Thatcher in the 80s, Deso continued to support them, administering secret commissions paid to Saudi princes on a series of government-to-government arms deals.
The case remains a cause of concern for US officials. Prince Bandar became a highly influential figure during his 22 years as an ambassador in Washington, and has more connections to the Bush family and administration officials than any other diplomat, reports The New York Times. Additionally, BAE has an American subsidiary company. The Times says the Justice Department is not commenting on whether it is persuing its own investigation into the matter.
The United States has kept a close watch on developments in the BAE case, concerned, according to American officials, that cancellation of the Serious Fraud Office's inquiry contradicts an antibribery convention overseen by the Paris-based Organization for Economic Cooperation and Development.
Jaclyn Lesch, a Justice Department spokeswoman, would neither confirm nor deny whether the department had opened its own investigation. The Justice Department would become involved if it were determined there was a possible violation of the Foreign Corrupt Practices Act, which forbids companies from making payments to foreign officials to win contracts.
"There would have to be some kind of U.S. nexus for us to bring charges," Ms. Lesch said. BAE is a British company but has an American subsidiary. David Foley, a State Department spokesman on Middle East issues, referred all questions to the British government.