Secret payments of millions of pounds for Britain's biggest arms company had been found in Swiss accounts linked to Wafic Said, a billionaire arms broker for the Saudi Royal family, according to legal sources.
Mr Said refused last night to speak about the allegations. But the discovery presents the biggest potential breakthrough yet achieved in the Serious Fraud Office's three-year investigation into allegations that illegal commissions may have been paid to Saudi royals by BAE Systems. Details from the accounts would help to establish whether money was channelled to members of the Saudi ruling clan, and the amounts involved. The development comes amid threats from the company and its chief executive, Mike Turner, that the SFO's ongoing inquiry threatens to damage the UK economy. He has claimed that the Saudi royal family may take the £6 billion contract from BAE and give it to the French instead.
The company wants the SFO to abandon the investigation before the Saudis pull out of the deal for a new fleet of 72 Eurofighter Typhoons. Speculation over the progress of the inquiry led to a dip in the company's share price earlier this week. But the SFO appears determined to focus on the accounts and their links to 68-year-old Mr Said. A billionaire in his own right, he is a friend of Peter Mandelson and has been a donor to the Conservative Party. A tax-resident in Monaco, Mr Said has built a huge Palladian mansion on his Oxfordshire estate. Though he is not regarded himself as a target of the inquiry - BAE acknowledges that the inquiry is aimed at the company - Mr Said has been a business manager for the sons of Saudi Crown Prince Sultan.
He has previously conceded that he has been an intermediary on Saudi arms deals struck over 20 years. He is credited with playing a key role in launching the Al-Yamamah deal in 1985, which has brought £43 billion of revenue to BAE and has been the focus of the SFO inquiry. Mr Said has always denied receiving commissions from BAE.
Legal sources say the SFO is likely to want to inspect his accounts to see if they show whether BAE payments were passed to members of the Saudi royal family, and when. Officers have been looking at whether any payments were made after 2002, when they were outlawed. According to City sources, Mr Said's link to the investigation emerged after official notification to the arms broker by the Swiss authorities that access was being sought to bank accounts of a company registered anonymously in Panama. Both the Swiss legal authorities in Bern, and the SFO director, Robert Wardle, have been keeping their moves secret.
Swiss authorities said yesterday: "The office of the attorney general of Switzerland confirms being in charge of the execution of a request for mutual legal assistance in criminal matters from the UK Serious Fraud Office relating to this case." They and the SFO refused to give any further details. But after Mr Said and other account-holders were alerted by the Swiss, he hired the City law firm Clifford Chance to represent him. A series of British newspapers were briefed that the latest Saudi contract to buy Eurofighters was in danger and that the SFO should "put up or shut up".
The MoD, which is negotiating the deal to sell Eurofighters, remained silent. The only person with the power to halt a joint SFO-MoD police inquiries is the attorney general, Lord Goldsmith. But Britain is party to an OECD agreement, under which national economic interests are not allowed to stand in the way of efforts to stamp out bribery. Britain criminalised overseas corruption in 2002, but has not yet brought a prosecution.
Lord Goldsmith has been scrupulous in not bringing political pressure to bear on investigators, Westminster sources say. To do so would cause a political uproar. Yesterday, a Lib Dem front Bencher, Norman Lamb, said: "The idea that pressure from a foreign government can hinder a serious criminal investigation is abhorrent."
BAE said: "BAE Systems is not obstructing the investigation and continues to fully co-operate with the SFO." Their spokesman said: "We will not be commenting on any point of substance. This cannot be taken as any kind of admission."
Wafic Said is one of Britain's wealthiest men, owning country houses, private jets, a stable racehorses, a Picasso and Matisse. But how he accumulated his estimated £1 billion fortune is a much more opaque question.
At the age of 30, it was not obvious that he would later live such a gilded life. Born in Syria, he came to Britain and helped his brother run a kebab restaurant in west London in the late 1960s. It was there the son of an eye surgeon made connections that were to transform his life. He became friends with two young Saudi princes: Bandar and Khalid. A charming man, he was - within a few years - organising their financial affairs, making investments and looking after their property.
By the 1980s, he was persona grata with the Saudi royal family including the Princes' father, Sultan, Defence Minister then but now Crown Prince. Wafic Said was well-placed to manage the Saudi way of doing business. He is credited with helping the regime buy British in 1985 in the biggest arms deal in history, known as Al-Yamamah.
Whitehall files suggest the Tornado aircraft concerned were over-priced by as much as £600 million, and Saudi dissidents were quick to suggest payoffs to some ruling Saudi princes. Wafic Said's role as a fixer was initially secret. Nowadays, he admits he was an adviser on the deal, but has always denied receiving millions in commissions. He has said: "I did not receive any commissions from the Al-Yamamah programme and nor am I an agent for British Aerospace. Due to my contacts in Saudi Arabia, I played a very small role. The bigger role was played by Lady Thatcher."
It has been alleged that Mr Said employed Mark Thatcher as an unofficial back channel. Mr Thatcher has consistently denied allegations he received up to £12 million as part of the Al-Yamamah deal. But Mr Said certainly had entry to Mrs Thatcher's circle, donating an estimated £500,000 to the Tory party.
After Labour came to power, the 68-year-old became a confidant of Peter Mandelson. Their introduction is reported to have been made by Charles Powell and his wife, Carla. Mr Said had met Powell, now Lord Powell, in the mid-1980s during the arms deal, when he was Mrs Thatcher's chief foreign affairs adviser. The peer is close to the Syrian financier, who made him chairman of one of his companies. Lord Powell is also on BAE's payroll as an adviser.
Lord Powell is the brother of Tony Blair's chief of staff at number 10, Jonathan Powell. Contacted in China yesterday, where he was accompanying the trade secretary, Alistair Darling, on a trade mission, Lord Powell declined to comment on whether he had discussed the SFO inquiry with Mr Said. But he said he had "not discussed anyone's Swiss bank accounts with number 10 Downing Street".
Married to an Englishwoman, Rosemary, with two children, Wafic Said now has houses in Mayfair, Paris, Marbella and Monaco. But his most ostentatious property is his 3,000-acre Oxfordshire estate, which he bought in 1987. He has spent a reputed £30 million on it. He runs a charitable foundation these days. He gave £250,000 to the victims of the 7th July bombings, and £20 million to set up the Said Business School at Oxford.
It is unusual for the Guardian to be attacked as too supportive of law and order. But in the last few days, Mike Turner, chief executive of Britain's biggest arms company, BAE Systems, has led a chorus that claims that the nation's economy is imperilled by this newspaper's support for the police.
Three years ago, the Guardian obtained unpublished allegations that BAE was operating a slush fund, used corruptly to ease our arms deals around the world. Since 2002 it has been a criminal offence to bride overseas officials, because ministers argued that the practice impoverished developing nations and destabilised the Middle East. This paper handed its information over to the police and the serious Fraud Office (SFO). They have proceeded in secret but it is clear that their investigations have spread, to cover not just BAE's Saudi deals, but also those in Chile, the Czech Republic, Romania, South Africa and Tanzania.
Although empowered to force companies to provide evidence, the SFO tends to proceed at a snail's pace, especially when the information it needs is abroad, where official attitudes can be equivocal. The SFO is also held back by the Swiss banks, to whom money trails frequently lead. Even as Switzerland cleans up its reputation as a black hole for dirty cash, they play ball only after laborious procedures. The final block has been BAE's own stance. The company was last year reported to be seeking to resist SFO requests for information, supported by the Ministry of Defence's arms sales department.
But despite all the problems the SFO seems to have made progress. And it is perhaps no coincidence that when the Swiss are on the verge of clarifying where £100 million in secret money ended up, BAE should play the national interest card. Mr Turner suggests that Saudi Arabia might cancel its latest lucrative contract, for the Typhoon fighter, unless investigations cease - a position that come some might see as blackmail.
Parts of government are too close to the arms industry. That was clear in 2004, when anti-corruption measures - requiring companies to disclose names of their middle men before they can enjoy underwriting by the taxpayer - were withdrawn in the face of lobbying. These were reinstated only when it became clear that the cave-in risked ministers losing a judicial review on grounds of irrationality. With the industry back in the spotlight, ministers must now keep their distance. The attorney-general should ensure that the administration stands firm against all pressure to interfere with the course of justice.
TONY BLAIR struck a secret deal with the king of Saudi Arabia, assuring him that there would be no criminal charges against anyone implicated in bribery in Britain's biggest arms deal.
In July 2005 Blair assured the then crown prince, Abdullah bin Abdul Aziz, who is now king, that Britain would abandon an inquiry by the Serious Fraud Office. It concerned a £60m "slush fund" allegedly set up by BAE Systems, Britain's biggest defence contractor, to support the lifestyle of some members of the Saudi royal family.
Blair told Abdullah during a visit to Riyadh, the Saudi capital, that the evidence would instead be offered to the Saudi authorities. Sources say that even as the SFO inquiry was expanding with the arrest of five British executives, Blair was telling Abdullah that the inquiry "was going nowhere".
Disclosure of the secret deal undermines a parliamentary statement by Lord Goldsmith, the attorney-general, last December that prosecutors, rather than Downing Street, had made the final decision to drop the inquiry. The Organisation for Economic Co-operation and Development is to send inspectors to London to find out why the inquiry was dropped. Goldsmith announced the halting of the slush fund inquiry in December. The payments, in the form of holidays, cars, rented flats and other perks, are alleged to have been made to ensure the Saudis continued to buy from BAE under the so-called Al-Yamamah deal, rather than going to France or elsewhere. Worth £43 billion to date, the contract has kept BAE in business for 20 years.
The inquiry had closed in on secret Swiss bank accounts through which commissions had been paid. Sources say the accounts were in the name of a Panamanian company ultimately controlled by a British-based businessman reported to have made £800m from the deal. Some of the accounts showed payments to individuals connected to the Saudi royal family.
One source said: "Blair told the Saudis he had always thought the SFO prosecution was wrong. He thought no one in BAE had taken any bribes or had benefited personally from the deal." Another source said: "Blair promised the king that the prosecution was going nowhere. He said that one way or another the Al-Yamamah investigation would go away. It was on that basis that they signed a new accord to carry on with the deal to buy the first 24 of 72 promised Typhoons [Eurofighter jets]. So they hit the roof when they found the SFO had been fishing around in the Swiss accounts."
The Saudi ambassador told Blair that unless the inquiry was dropped, ties with Britain would be suspended. He also threatened to halt Al-Yamamah payments, which put 10,000 British jobs in jeopardy.