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Reports allege British arms deal money to Saudi prince

Story Highlights

• 2 UK media organizations report Saudi prince may have received payments
• Prince "categorically denied" receiving payments, according to statement
• CNN working to independently confirm allegations
• UK Prime Minister Tony Blair would not comment on "individual allegations"
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LONDON, England (CNN) -- The former Saudi Arabian ambassador to the United States, Prince Bandar bin Sultan, may have received up to $2 billion in confidential payments from a British defense firm, BAE Systems, over a period of nearly 20 years, according to two British media reports.

CNN has been unable to independently confirm the allegations, but is working to do so.

Through a statement by his lawyer, given to the British Press Association, Prince Bandar "categorically denied" receiving any "backhanders" -- secret payments -- and called the the reports "serious allegations."

According to the Guardian newspaper and the BBC, the payments were channeled to at least one Saudi embassy account at a now-defunct Riggs Bank in Washington.

The reports said the payments were tied to the prince's role in negotiating an $85 billion deal to sell British warplanes to Saudi Arabia in 1985. The agreement -- known as the al-Yamamah arms deal -- is the largest in British defense history. Prince Bandar, a close friend of U.S. President George W. Bush, was described as the chief negotiator in the deal.

In the statement provided to Britain's Press Association, Prince Bandar acknowledged being an "authorized signatory" to accounts payable by BAE "pursuant to the al-Yamamah contracts," but said that "any monies paid out of those accounts were exclusively for purposes approved by the Saudi MODA (Ministry of Defense and Aviation)."

CNN efforts to obtain additional comment from Saudi government officials in Riyadh, London and Washington were unsuccessful.

CNN and other news organizations have previously reported that in 2004, the UK's Serious Fraud Office began an investigation into allegations that BAE Systems paid off Saudi government officials in order to secure contracts in the 1980s. But in December of last year, British Prime Minister Tony Blair advised the UK's Attorney General Lord Goldsmith to halt proceedings and abandon the investigation.

Thursday, at the G8 Summit in Heiligendamm, Germany, Blair, standing side-by-side with Bush, was asked by a reporter whether he was aware that his government was approving payments to "a friend of President Bush's," a clear reference to British media reports about the alleged payments to Prince Bandar.

Blair said he would not comment on "individual allegations," but said that if the investigation had gone ahead it "would have involved the most serious allegations and investigations being made of the Saudi royal family." Blair also said that he didn't "believe the investigation would have led anywhere, except the complete wreckage of the vital strategic relationship for our country in terms of fighting terrorism, in terms of the Middle East, in terms of British interests there." He added that as a result of the investigation, "thousands of British jobs" would have been lost, suggesting the Saudis would have taken aerospace business elsewhere.

The British Ministry of Defense was part-owner of BAE Systems throughout much of the period when the alleged payments to Prince Bandar were made.

The Guardian cited unnamed legal sources as saying the alleged payments were unearthed during a British probe when investigators discovered "highly classified documents at the MOD."

Contacted by CNN, the MOD issued a statement, saying the ministry "is unable to comment on these allegations since to do so would involve disclosing confidential information about al-Yamamah, and that would cause the damage that ending the investigation was designed to prevent."

BAE Systems acknowledged making payments, but denied any wrongdoing. The firm's statement said that "the al-Yamamah program is a government-to-government agreement" and all payments were made "with express approval of both the Saudi and the UK government."

According to British law, any payments to Prince Bandar made before 2002 would not be considered illegal. After 2002, the British government prohibited secret commissions on overseas business transactions.

The Guardian reported the alleged payments to Prince Bandar continued after 2002, but CNN has not been able to verify the claim. Also, it is unclear whether the passage of the 2002 law would effect an already existing contract, since no British court has yet been asked to decide that point.

The al-Yamamah deal, Britain's largest ever arms deal, was signed in 1985 when Margaret Thatcher was prime minister and provided for the sale to Saudi Arabia of 72 Tornado and 30 Hawk military aircraft made by BAE in partial exchange for Saudi oil at below-market prices. At the time, the sale was considered critical to BAE's financial health.

CNN staffers Terence Burke, Nic Robertson, Cynde Strand, Jonathan Wald, Roger Clark, James Partington, and Samson Desta contributed to this report.

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